CHAPTER 1

Concept of Producer Organisation

1.1 What is a Producer Organisation (PO)?

A Producer Organisation (PO) is a legal entity formed by primary producers, viz. farmers, milk
producers, fishermen, weavers, rural artisans, craftsmen. A PO can be a producer company,
a cooperative society or any other legal form which provides for sharing of profits/benefits
among the members. In some forms like producer companies, institutions of primary
producers can also become member of PO.

1.2 What is the need for PO?

The main aim of PO is to ensure better income for the producers through an organization of
their own. Small producers do not have the volume individually (both inputs and produce)
to get the benefit of economies of scale. Besides, in agricultural marketing, there is a long
chain of intermediaries who very often work non-transparently leading to the situation
where the producer receives only a small part of the value that the ultimate consumer pays.
Through aggregation, the primary producers can avail the benefit of economies of scale. They
will also have better bargaining power vis-à-vis the bulk buyers of produce and bulk suppliers
of inputs.

1.3 What is a “Farmers Producer Organisation” (FPO)?

It is one type of PO where the members are farmers. Small Farmers’ Agribusiness Consortium
(SFAC) is providing support for promotion of FPOs. PO is a generic name for an organization
of producers of any produce, e.g., agricultural, non-farm products, artisan products, etc.

1.4 Can there be a PO for non-farmers?

Yes. The PO is an organization of the primary producers. If the produce in question is a non-
farm item (for example, handloom or handicraft), then the PO will be that of non-farmers.
The objective of the PO is to ensure better income realization to its members (who are
producers) through aggregation and, if feasible, value addition.

1.5 What are the essential features of a PO?

a. It is formed by a group of producers for either farm or non-farm activities.
b. It is a registered body and a legal entity.
c. Producers are shareholders in the organization.
d. It deals with business activities related to the primary produce/product.
e. It works for the benefit of the member producers.
f. A part of the profit is shared amongst the producers.
g. Rest of the surplus is added to its owned funds for business expansion.

1.6 Who owns the PO?

The ownership of the PO is with its members. It is an organization of the producers, by the
producers and for the producers. One or more institutions and/or individuals may have
promoted the PO by way of assisting in mobilization, registration, business planning and
operations. However, ownership control is always with members and management is
through the representatives of the members.

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1.7 Who can promote a PO?
Any individual or institution can promote a PO. Individual persons or institutions may
promote PO using their own resources out of goodwill or with the noble objective of socio-
economic development of producers. If, however, the facilitating agency wishes to seek
financial and other support, then they have to meet the requirements of the donor/financing
agency.

1.8 Who provides support for promotion of PO?

NABARD, SFAC, Government Departments, Corporates and Domestic & International Aid
Agencies provide financial and/or technical support to the Producer Organisation Promoting
Institution (POPI) for promotion and hand-holding of the PO. Each agency has its own criteria
for selecting the project/promoting institution to support. NGO CAN SPONSOR OR PROMOTE
FPOs as part of its Charter
1.9 Can an NGO promote PO?
Yes, it can. The NGO may be a non-profit organization, but not the PO. The NGO can promote
PO which will provide better income to the members. Sharing of profit among members is
an important objective of the PO.

1.10 What are the different legal forms of PO?

Producer Organisation can be registered under any of the following legal provisions:
a. Cooperative Societies Act/ Autonomous or Mutually Aided Cooperative Societies Act
of the respective State
b. Multi-State Cooperative Society Act, 2002
c. Producer Company under Section 581(C) of Indian Companies Act, 1956, as amended
in 2013
d. Section 25 Company of Indian Companies Act, 1956, as amended as Section 8 in 2013
e. Societies registered under Society Registration Act, 1860
f. Public Trusts registered under Indian Trusts Act, 1882

1.11 Which legal form is preferable for a PO?

Institutions registered as cooperative societies and producer companies have legal
provisions for sharing of profit earned by the PO by way of dividend. Other legal forms do
not explicitly provide for profit sharing. However, the PO can offer better price for the
produce it procures from the members, thus, benefiting the latter. Similarly, it can procure
inputs/raw material in bulk and sell to members with low margin. Such activities are
permissible for POs under all legal forms. A comparative chart of important features of
Cooperative Society and Producer Company is given below:

Key differences between Producer Companies and Cooperative Societies

PARAMETER COOPERATIVE SOCIETY PRODUCER COMPANY

Registration Cooperative Societies Act Indian Companies Act
Objectives Single object Multi-object
Area of Restricted, discretionary Entire Union of India
Operation

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 PARAMETER COOPERATIVE SOCIETY PRODUCER COMPANY
Membership Individuals and cooperatives Any individual, group, association,
producer of goods or services
Share Non tradable Not tradable but transferable; limited
to members at par value
Profit Limited dividends on shares Commensurate with volume of
sharing business
Voting rights One member, one vote, but One member, one vote. Members not
Government and Registrar of having transactions with the
Cooperatives hold veto power company cannot vote
Government Highly patronized to the extent of Minimal, limited to statutory
control interference requirements
Extent of Limited in “real world scenario” Fully autonomous, self-ruled within
Autonomy the provisions of Act
Reserves Created if there are profits Mandatory to create every year
Borrowing Restricted as per bye-law. Any Borrowing limit fixed by Special
power amendment to bye-law needs to Resolution in general meeting.
be approved by the Registrar and Companies have more freedom to
time consuming. raise borrowing power.
Relationship Transaction based Producers and corporate entity can
with other together float a producer company.
corporate /
business Excellent Model for tripartite -
houses / Businesses / NGOs / FPOs
NGOs collaboration

1.12 Can a PO be registered under Acts governing non-profit institutions?

Yes. Institutions can be built for promoting common interests of members/producers. The
limitation is that surplus generated by such a PO cannot be divided among members by way
of dividend etc. The PO can re-invest the surplus to grow the business. Comparison of PO
registered under different Acts governing non-profit institutions is given below:

Comparative Chart for Non-Profit Legal Forms

PARAMETER SECTION 8 COMPANY SOCIETY TRUST
Objectives Non-profit activities Charitable, Literary, Charitable, Socially
Scientific, etc. beneficial
Statute / Law Indian Companies Act, Societies Registration Indian Trust Act, 1882
1956 Act 1860 or Bombay Public
Trusts Act
Alternation of Complex legal procedure Simple procedure Normally only Settlor
objects can modify
Formation Complex procedure, 3-6 Simple and easy Simple and easy
months
Management Formalities of Company Few restrictions Very few restrictions
law have to be observed imposed under the Act imposed under the Act

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 PARAMETER SECTION 8 COMPANY SOCIETY TRUST
Meetings To be held as per Annual meeting as per No provisions laid
provisions of law which law and Rules of the down
are quite extensive. society
Penalties Various offences and Few offences and Very negligible
lapses attract severe penalties have been
penalties. prescribed
Legal Status Full legal status Legal status with Legal status with
certain limitations limitations
Statutory Exhaustive but mature Very limited Nominal
Regulation
Removal of Not possible without Possible without Not applicable
members consent consent
Dissolution or Very difficult Possible Possible
takeover by state

1.13 Is registration mandatory for a PO?

It is preferable for the PO to work as a legal entity. Only such an entity can enter into legally
valid contracts including mobilization of funds from other institutions. There are specific Acts
under which the PO could be registered. It is also possible for a PO to migrate from one legal
form to another. While choosing a legal form, the following factors may be kept in view:
a. Primary producers should benefit from the surplus generated by the PO.
b. Process of Registration should not be too demanding in terms of time and
resources.
c. The legal form needs to fit into its business needs, organizational priorities, social
capital and management capacity.

1.14 What are the important activities of a PO?

The primary producers have skill and expertise in producing. However, they generally need
support for marketing of what they produce. The PO will basically bridge this gap. The PO will
take over the responsibility of any one or more activities in the value chain of the produce
right from procurement of raw material to delivery of the final product at the ultimate
consumers’ doorstep. In brief, the PO could undertake the following activities:
a. Procurement of inputs
b. Disseminating market information
c. Dissemination of technology and innovations PART OF NGO
d. Facilitating finance for inputs MISSION
e. Aggregation and storage of produce
f. Primary processing like drying, cleaning and grading
g. Brand building, Packaging, Labeling and Standardization
h. Quality control
i. Marketing to institutional buyers
j. Participation in commodity exchanges
k. Export

1.15 How would a PO help the members?

A PO will support the members in getting more income by undertaking any/many/all of the
activities listed under point 1.14 above. By aggregating the demand for inputs, the PO can buy

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in bulk, thus procuring at cheaper price compared to individual purchase. Besides, by
transporting in bulk, cost of transportation is reduced. Thus reducing the overall cost of
production. Similarly, the PO may aggregate the produce of all members and market in bulk,
thus, fetching better price per unit of produce. The PO can also provide market information
to the producers to enable them hold on to their produce till the market price become
favourable. All these interventions will result in more income to the primary producers.

1.16 What are other benefits for the members of a PO (other than better income)?
A PO is a collective of farmers (and non-farmers) who are the primary producers of a product
(an agricultural produce or a manufactured product). It, therefore, can work as a platform to
facilitate better access to government services, like PDS, MNREGA, Scholarships and Pensions,
etc. It can liaison with the Government Departments for convergence of programmes, like
drinking water, sanitation, health and hygiene. PDS: Public Distribution System
Mahatma Gandhi National Rural
1.17 Who can become member of a PO? Employment Guarantee Act
PO is an organization of the producers, specifically the primary producers. All primary
producers residing in the relevant geography, and producing the same or similar produce, for
which the PO has been formed, can become member of the PO. Membership is voluntary.
The procedure for obtaining PO membership depends on the bye-laws of the PO. The
founder-members are those who were there at the time of formation of the PO. Other
members join the PO later. However, all members enjoy equal rights. A primary producer can
become member of a PO by submitting an application and a nominal membership fee. Some
POs also charge annual membership renewal fee. Although primary producers obtain
membership of PO voluntarily, the promoting institution should make efforts to bring all
producers into the PO, especially the small producers.

1.18 Who is a primary producer?

Any person engaged in any activity connected with or related to any primary produce will be
treated as producer. Primary produce means the produce of farmers from agriculture and
allied activities or produce of persons engaged in handloom, handicrafts and other cottage
industries, including any by-product and product resulting from ancillary activities thereof.
Primary produce also includes any activity intended to increase the production or quality of
aforementioned products or activities. Persons engaged in agriculture, horticulture, animal
husbandry, fishery, sericulture, apiary, handloom, handicrafts, etc., can become members of
appropriate PO. Persons engaged in collection of minor forest produce are also eligible for
membership of PO although they gather these from forests and strictly are not producers.

1.19 Can a person become member of more than one PO?

Family is the unit of production in rural areas. Benefits from the PO will accrue to members
in proportion to the volume/value of produce given to the PO. Therefore, one person from a
family can provide the whole produce of the family to the PO and get the same amount of
benefit as multiple members providing the same volume/value. If however there are two
different POs in the vicinity, each for a different type of produce, say vegetables and milk, one
person can become member of both these POs, if the family produces both milk and
vegetables.

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1.20 Who will manage the PO?
Each PO will have an elected Board of Management / Board of Directors as per the bye-laws.
The Board can engage professionals to manage its affairs. In the initial years, professional and
managerial assistance is usually extended by the POPI. As the leaders of the PO gain
experience, they should take over the affairs of the PO completely.

1.21 Can a PO engage professionals to manage its business?

All legal forms provide for engaging professional and other employees by the PO. Such
persons should be paid out of the income of the PO. As far as possible, the income should
come from value addition to the produce and not from price paid to members. If members
get price less than the market, they will gradually move away from the PO. The
professionals and other employees should be paid at par with the prevailing market to
ensure that they remain for long with the PO. Compensation will also depend upon the
business plan, ensuring a positive surplus.

1.22 Can a PO procure produce from non-members?

The objective of the PO is to ensure better income to the member-producers through
aggregation and value addition. Therefore, procurement from non-members is usually not
undertaken. However, market exigencies at times may necessitate such procurement. There
should be provision in the by-laws of a PO to enable procurement from non-members during
such exigencies.

1.23 Can a PO sell the produce in the commodity exchanges?

Yes, it can. The PO can aggregate the produce of its members, and sell it using the commodity
exchanges. The produce needs to meet the quality standards specified by the commodity
exchanges, and be stored scientifically in approved warehouses. The PO can become a
member of the Commodity Exchanges to do trading directly, or else it can sell through the
exchange-approved brokers.

1.24 Can a PO export the produce of its members?

Yes, it can. For exporting agricultural produce, all the members will have to follow Good
Agricultural Practices (GAP). There are also other specific quality parameters that the
importing countries impose for different produce which need to be complied with. For
non-farm produce (handloom, handicrafts etc.), there are other quality specifications
and other stipulations against using child labour, etc.

1.25 How much expenses will be incurred for registration of a PO?

Expenditure towards registration fee, stamp duty, preparation of documents and facilitation
charges etc., will depend on the legal structure of the PO. In general, establishment of a
producer company is more expensive than other legal forms. The estimated cost of
incorporating a producer company is given below:

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Estimated cost for incorporation of a producer company

Particulars Item of expenditure Amount

(Rs.)
Application for Name of PC Fees 500
Digital signature Fees 2600
Stamp duty Memorandum of Association and Articles 1500
of Association
Registration/Filing fees MoA, AoA, Form-1, Form-18, Form-32 17200
Fees of Chartered Accountant or Consultancy charges 10000
Company Secretary
Stamps cancellation 300
Affidavit expenses Fees of Notary 500
Share transfer fees and 5000
processing
Miscellaneous expenses 2000
Total 39600

1.26 What important factors should be kept in view while facilitating formation of PO?
Aggregating producers into collectives is one of the best mechanism to improve access of small
producers to investment, technology and market. The facilitating agency should however keep
the following factors in view:
a. Types of small scale producers in the target area, volume of production, socio-
economic status, marketing arrangement
b. Sufficient demand in the existing market to absorb the additional production without
significantly affecting the prices
c. Willingness of producers to invest and adopt new technology, if identified, to increase
productivity or quality of produce
d. Challenges in the market chain and market environment
e. Vulnerability of the market to shocks, trends and seasonality
f. Previous experience of collective action (of any kind) in the community
g. Key commodities, processed products or semi-finished goods demanded by major
retailers or processing companies in the surrounding areas/districts
h. Support from Government Departments, NGOs, specialist support agencies and
private companies for enterprise development
i. Incentives for members (also disincentives) for joining the PO

Keeping in view the sustainability of a Producer Organisation, a flow chart of activities along
with timeline, verifiable indicators and risk factors is provided at Attachment-5.
1.27 At what stage of PO, should the member-producers be actively involved?
POs that are formed primarily in response to external initiative often struggle to develop into
sustainable businesses. Therefore, the members should be actively involved from the very
beginning. The facilitating agency should facilitate a process that results in producers taking
the initiative to set up the PO and let the members drive the process. Activities like awareness
creation, identification of potential members should precede the actual formation
formalities.
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1.28 What is the optimal size of a Producer Organisation (PO) and what are the parameters?
a. It is desirable to have a Farmer Producer Organisation (FPO) for farmers having their
lands in contiguous micro-watersheds to address the issues relating to sustainability.
b. The productive land under an FPO may be around 4000 ha.
c. The PO may cover generally one or two contiguous Gram Panchayats for ease of
management.
d. The number of farmer producers that need to be covered may be around 700 to 1000.
e. The cost of managing a Producer Organisation of the above nature may be around Rs.
2 lakh per month or Rs. 24 lakh per annum.
f. The total value of the produce of the farmers/non-farmers handled by the Producer
Organisation may be around Rs. 2.5 crore, assuming that approximately 10% of the
total turnover of the PO may be reasonably spent towards cost of management.
g. Further, the markets selected for the Producer Organisation for selling their produce
may be within 200 KM to make their marketing activities viable.
1.29 What are the design variables / factors governing the size of optimal size of a PO
ensuring that the PO will be sustainable?
a. A Farmers Producer Organisation is to be designed in such a way to cover all the lands
that fall in one or two micro watersheds.
b. The sustainability of the farmers of the micro watersheds is already in existence with
various types of productive activities of the farmers to take care of risk factors, like
variations in the market prices of various produce, continuity of income etc. which
include sustainable agricultural practices.
c. The secret to sustainability of a PO depends on comprehensive engagement of the PO
with their members throughout the year.
d. The design variables for a PO are mainly size, scope, technology, ownership of
resources, management and purpose. These variables need to be aligned to meet the
sustainability requirements indicated in the earlier two points.
e. The size of the PO should be small to be able to be managed by the local talent
available in the area of the PO.
f. The scope of the PO should be defined in such a way that there shall be good number
of crops to be grown to maintain the soil health, support for allied activities like dairy,
nutritional security of the local people and to mitigate risk.
g. The technology adopted by the PO should be such that majority of the local people or
members of the families of the PO should be able to adopt to it and work with it with
minimal training, effectively.
h. The management of the PO should take into account the incubation of the local youth
in such a way that in a few years’ time, say in 3-7 years, local youth should be able to
take over and manage the PO effectively.
i. The purpose of the PO at all times must be to serve the larger needs of the community
and the ownership of the PO always should rest with all its members.

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1.30 What should be the minimum and maximum number of members in a PO?
The minimum number of membership depends on the legal form of the PO. For example, 10
or more primary producers can incorporate a Producer Company under Section 581(C) of
Indian Companies Act 1956 (same provisions are retained in the 2013 Act). There is no
restriction on the maximum number of membership. Generally, the PO will require certain
minimum scale of operation to remain in business. This operation scale/volume is known as
break-even level. Studies have shown that a PO will require about 700 to 1000 active
producers as members for sustainable operation.

1.31 Who can become a Producer Organisation Promoting Institution (POPI)?

An NGO, a bank branch, a Government Department, a Cooperative Society or any Association
or Federation can become a POPI. Basically, the POPI needs to be a legal entity so that it can
enter into legally valid contracts with other institutions including the PO which they seek to
promote. Support is available for POPIs from SFAC and NABARD for meeting part of the
recurring cost incurred for promotion of the PO based on individual project considerations.
Details are available in the website of NABARD, SFAC and Ministry of Agriculture, Government
of India.
1.32 What are the roles and responsibilities of POPI?
The primary responsibility of the POPI is to see that the PO reaches sustainable level of
business and the staff of the PO acquire technical and managerial capability to run the
business successfully when the POPI withdraws its support. The principal role of the POPI is,
therefore, to build the capabilities of the Staff and Management of the PO through training
and continuous hand-holding. The broad responsibilities of a POPI are indicated below:
a. Cluster identification
b. Diagnostic and Feasibility Studies
NGO CHARTER
c. Business Planning
d. Mobilisation of Producers and Registration/Incorporation of PO
e. Resource Mobilisation
f. Development of Management Systems and Procedures
g. Business Operations
h. Assessment and Audit

1.33 What critical interventions could be covered under Grant and credit support for
POPIs?
Activities involved in promoting and running a PO by POPI
Sr. no. Activity Grant or Credit Duration
1 Survey of area for identification Grant 1 month
of existing economic activity
and social groups which can
serve as primary blocks for PO
2 Interaction and awareness Grant 3-4 months
creation about PO
 Exploratory interactions

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 Sr. no. Activity Grant or Credit Duration
 Meetings
 Exposure Visits
3 Training and capacity building Grant 1 month
of members on running the
POs
4 Formalizing management Grant 1-2 months
structure and registration of
PO
5 Engagement of Professionals Grant - salary Salary expenses of
and preparation of business expenses on professionals/ and
plan tapering basis consultancy charges for
for 3 years preparation of business
One time plan
consultancy
charges for
preparation of
business plan
6 Production activity by Credit support
members
7 Primary processing – grading Credit support BANK /
sorting and storage NABARD
LOANS
8 Separate storage structure is Credit support
required
9 Separate quality control Grant cum
structure is required credit support
10 Market survey, exhibition, Grant For first two – three years
grant
11 New technology adoption Grant As and when required
 Visits (Subject to certain limit)
 Machines
12 Exports – expenses for Grant As and when required
completing necessary (Subject to certain limit)
formalities

1.34 What are the taxation systems / laws governing the POs? Whether any tax benefit is
available to FPOs?
Immediately after incorporation, a PO has to procure PAN number from the Income Tax
Department and TIN number from the Commercial Tax Department to carry out business.
Also, the company has to register itself for Service Tax from Commercial Tax Department and
VAT from Excise department.

Currently, all FPOs are not eligible for tax exemption on par with cooperatives. The Producer
Companies are taxable on par with the Private Limited Companies and Public Limited

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 Companies. However, the following are some of the various tax incentives available to the
Producer Companies:

a. The Income derived by a Producer Company through agricultural activities as defined

in Income Tax Act, 1961 as amended from time to time, is treated as agricultural
income and is exempted from taxation.

b. The Government of India has vide the Finance Act, 2012, reduced the customs duty
on the import of agricultural equipment and their parts which would benefit the
Producer Companies engaged in agricultural activities to a great extent.

c. Producer Companies engaged in the business of growing and manufacturing tea or

coffee or rubber are eligible for deduction in respect of deposit of any amount with a
Nationalised Bank or any other bank in accordance with scheme as approved between
the Company and the respective Board.
NGO CHARTER: TRAINING /
AWARENESS PROGRAMS
1.35 What critical areas could be covered during training/ capacity building of BOD of
POs/ other staff?
The critical areas to be covered under training /capacity building of Board of Directors of a
PO and staff of PO are as under:
a. Vision and Mission: The vision and mission of the PO is very important for the Board
Directors as well as other staff. Creating value to the members by solving existing
NGO problems in the value chain, marketing and reasonable share of price realisation in the
TRAINING rupee spent by the consumer on the members’ produce, should be the focus. All other
MODULES activities / services should be to engage the members comprehensively throughout
the year and to reduce their expenditures and increase their welfare.
b. Good Governance: Governance which is responsible, transparent and keeping the
interest of the members of the PO above all the considerations is a must for the
success of a PO. Various aspects of good governance to be covered.
c. Sustainability: Another most important aspect to be covered in the training is that the
PO should not venture into unsustainable ventures which may create short term
profits and harm the long term interests / welfare of the community.
d. Networking: The success of a PO depends on the networking and continuous
interactions with various stakeholders. The BODs and staff should have the
understanding and importance of networking to obtain maximum benefits to their
members under convergence mode.
e. Social Capital: The training should concentrate on making the PO relevant to the
members at all times, which creates social capital and trust.
f. Statutory Requirements: The BoD and staff should have an understanding of the
constitution of the PO, statutory provisions under which it is formed, various other
requirements under the statute and compliance thereof.

11 KEY TRAINING
MODULE
 Detailed Project Reports (DPRs) are the outputs of planning
MORE TRAINING and design phase of a project.
MODULES

g. Business Planning: The training should cover aspects of business planning to maximise
benefits as well as to reduce the business risks. The aspects like DPR preparation,
Balance Sheet Analysis, simple financial ratios for profitability, ratios that are seen by
banks for financing, need to be covered.
h. Financial Management: The training also should cover management of the finances
like maintenance of books of account, Management Information System, share
capital, borrowings, savings, loans, cash flow, funds flow, receivables management,
payables management, investments etc.
i. Monitoring: The BOD module should have various aspects of monitoring to ensure
that the business goals are achieved and the business is carried out in a professional
manner.

1.36 What support is available for PO from SFAC?

Mainly two types of support is available to the POs from the Small Farmers Agribusiness
Consortium (SFAC). Details are available at www.sfacindia.com.
a. SFAC operates a Credit Guarantee Fund to mitigate credit risks of financial institutions
which lend to the Farmers Producer Companies (registered as Producer Company
under Part IX-A of Companies Act) without collateral. This helps the FPCs (one form of
PO) to access credit from mainstream financial institutions for establishing and
operating businesses.
b. SFAC provides matching equity grant up to Rs. 10 lakh to the FPCs to enhance
borrowing power, and thus enables the entities to access bank finance.
1.37 What type of financial support is available for PO from NABARD?
NABARD provides financial support to the POs only through project mode through two
financial products. A fund titled “Producers Organisation Development Fund” has been
created by NABARD towards this end. Details are available at www.nabard.org (Financing and
Supporting Producer Organisations).
a. Lending to POs for contribution towards share capital on matching basis (1:1 ratio) to
enable the PO to access higher credit from banks. This is a loan without collateral
which will have to be repaid by the PO after specified time. The maximum amount of
such assistance is Rs. 25 lakh per PO with a cap of Rs. 25,000 per member.
b. Credit support against collateral security for business operations. Also, credit support
without collateral security for business operations to FPCs which are eligible under
Credit Guarantee scheme of SFAC. The credit product can be customised as per
requirement of the business. In general, credit support is available for business
SOLAR activities and creation of assets like building, machinery, equipment, specially
POWERED designed vehicles for transportation etc. and/or working capital requirements
MOBILE including administrative and other recurring costs connected with the project as
COLD
ROOMS
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eligible for
CREDIT
 composite loan. Capital expenditures like purchase of land, vehicles for general
transportation & personal use, etc., will not be considered for support.
1.38 Are there other support available to the PO from NABARD?

NABARD also provides technical, managerial and financial support for hand-holding, capacity
building and market intervention efforts of the PO. Such support is available in the form of
grant, loans, or a combination of the two based on the need of the situation, and is available
only to those POs which avail credit from NABARD. Capacity building support will not be given
in isolation in general. It would essentially be a part of the overall project having loan
component. Grant, if any, will be maximum 20% of the loan amount. Capacity building should
broadly cover any activity relating to functioning of a producer organization. Some such
activities are given below:
a. Skill development in order to enable members to improve production/productivity
b. Business planning
c. Technological extension through classroom training
d. Exposure visits, agricultural university tie ups, expert meetings, etc.
e. Any other capacity building initiative which directly benefits the P.O.
f. NABARD through its Farm Sector Promotion Fund (FSPF) is providing financial
assistance to various institutions including Farmers clubs for:
i. facilitating adoption of appropriate technologies by the agriculturists through
the provision of training cum exposure visits, organizing for demonstrations
on the use of the various technologies
ii. organizing financial credit counselling
iii. providing support for financial literacy
iv. Dissemination of appropriate technologies to the various people in need
thereof
v. Promotion of Producer Organisation

1.39 How can NABARD help the POs in marketing their produce?

NABARD also provides support to the POs to access markets for their produce. Some of these
activities are as below:
a. Credit and/or grant support for setting up of marketing infrastructure facilities for sale
of produce.
b. Support for marketing through rural haat and rural mart which had already been
established through NABARD support.
c. NABARD may facilitate tie-ups with buyers for Producers Organization's produce.
d. Through existing schemes of National Horticulture Mission and Ministry of Agriculture,
NABARD may support creation of infrastructure wherever possible.
1.40 What support is available to the POPIs from NABARD?
NABARD provides incentives for the POPI for taking care of the PO within the overall ceiling
of 20% grant support to the PO. The incentive scheme is as below:
a. Max 5% of loan amount for POs up to 5 years old

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 b. Max 2.5% of loan amount for POs more than 5 years old
c. The incentive is given 10% in advance, 70% linked to timely repayment of instalments
and rest 20% at the end subject to satisfactory repayment.
1.41 What support is available for PO from Government of India?
Government of India provides budgetary support to SFAC for its Equity Grant and Credit
Guarantee Fund Scheme for the Farmer Producer Company. For creation of storage and other
agricultural marketing infrastructure under the Integrated Scheme for Agricultural Marketing
(Ministry of Agriculture, Government of India), FPOs are eligible to get higher subsidies.
Details are available at www.agmarknet.nic.in. CAPART, Ministry of Rural Development also
operates schemes through which support for some activities can be obtained by the PO.
Details are available at www.capart.nic.in. Training institutions supported by the Ministry or
Rural Development, Government of India (www. rural.nic.in) also impart skill and capacity
building training which can be made use of by the PO for its members.

14
 CHAPTER 2
Producer Organisations as Cooperative Society
2.1 What are the legal provisions for registering a PO be as a Cooperative Society?

Producer Organisations can also be formed and registered as a Cooperative Society under the
following Acts:

a) Cooperative Societies’ Act of Individual State

b) Autonomous Cooperative Societies’ Act existing in many States (minimal State
intervention)
c) Multi State Cooperative Societies’ Act, which is a Central Act

2.2 What are Statement of Objects for Cooperative Societies?

a) The Cooperative Society can be established for purpose/s of credit, production or

distribution
b) Unlimited society is not the best form of cooperation for agricultural commodities.
However, such societies do exist and are working in several States. Unlimited society
can distribute profits with the permission of State Government

2.3 How are Societies registered?

a) A society which has as its object the promotion of economic interests of its members
in accordance with cooperative principles can be registered as a Society
b) Similarly, a society established with the object of facilitating operation of such a
society can also be registered under the Act
c) A registered society can be member of another society, but liability of such other
society must be limited, unless State Government directs otherwise

2.4 Who can form a society?

a) A society can be formed with at least 10 members of age above 18

b) If object of the society is creation of funds to be lent to its members, all the members
must be residing in the same town, village or group of villages or all members should
be of same tribe, class, caste or occupation, unless Registrar otherwise directs
c) The provision of minimum 10 members or residing in same town / village, etc. is not
applicable, if a registered society is a member of another society
d) The last word in the name of society should be ‘Limited’, if the society is registered
with limited liability
e) Registrar is empowered to decide whether a person is agriculturist or non-agriculturist
or whether she / he is resident of the same town / village, etc. and his decision would
be final

15
2.5 What are the rights and liabilities of members?

a) If liability of members is not limited by shares, each member shall have one vote
irrespective of amount of her / his interest in the capital
b) If liability of members of a registered society is limited by shares, each member will
have as many votes as may be prescribed by the bye laws
c) If a registered society has invested in shares of other registered society, it can vote by
appointing a proxy
d) A member of a registered society shall not exercise his rights as member, unless he
has made payment to the society in respect of membership or has acquired interest
in society, as may be prescribed by rules or bye-laws

2.6 How will the society be managed?

a) Each society will be managed by a Committee or the Governing Body

b) Officers of a society include a Chairman, Secretary, Treasurer, Members of Committee
or other persons empowered under rules or bye-laws to give directions in regard to
business of society

2.7 Is the registered society a body corporate?

a) A registered cooperative society is a body corporate with perpetual succession and

common seal (just like a company)
b) It can hold property, enter in to contracts, institute and defend suit and other legal
proceedings, and
c) Do all things necessary for the purpose of its constitution

2.8 Are there any restriction on loans by the Society?

 A registered society can give loans only to its members; however, it can give loan to
another registered society with permission of the Registrar
 A society with unlimited liability cannot lend money on security of movable property
without sanction of the Registrar
 State Government by issuing a general order, can prohibit or restrict lending of money
on mortgage of immovable property by any registered society or class of registered
society

2.9 Who will inspect the affairs of society?

a. Registrar can hold an enquiry or direct some person authorised by him to hold enquiry
in following circumstances:
i) Of his own motion
ii) Request of the Collector
iii) Application by majority of Committee Members of society or
iv) At least one-third of members of society

16
 b. All officers and members shall furnish necessary information to the Registrar or to a
person authorised by him

2.10 Can a society be dissolved?

a) Registrar, after inspection or inquiry, or on application received from 75% of members

of society, may cancel the registration of society, if in his opinion, the society should
be dissolved
b) Any member can appeal against the order of the Registrar within two months to the
State Government or other revenue authority authorised by the State Government
c) If no appeal is filed within two months, the order of dissolution shall become effective
d) If appeal is filed, the order will become effective only after it is confirmed by appellate
authority

2.11 Are provisions of Companies Act, applicable to a registered cooperative society?

The provisions of Companies Act are not applicable to a registered cooperative society

2.12 Whether PACS can act as PO?

PACS, being a registered cooperative society, has been providing credit and other services to
its members. It has been observed that PACS are generally meeting the credit requirements
of its members. However, there is a need to provide other services to the farmers and hence,
PACS should be developed as a unit to meet all their needs. PACS are generally providing the
following facilities to the members:

i. Input facilities in form of cash or kind component to members

ii. Agriculture implements on hiring basis
iii. Storage facility

PACS can play an important role in providing these facilities to the farmers. In order to enable
PACS to provide more services to its members and generate income, an initiative was taken
to develop PACS as multi service centres. Some of the PACS are also assisting farmers in
marketing of their produce. Thus, PACS can provide both backward and forward linkages to
its members, thereby acting as a PO, in order to promote efficient crop production practices
for its members on one hand and opportunities for better price realisation of their produce,
on the other. Following facilities can be taken up by PACS acting as a PO to the farmers:
a) Agro-Storage centre:
a. Upgradation of the existing storage facility or construction of new godown
along with sorting/ grading unit as per Negotiable Warehouse Receipt System.
This will enable them to issue warehouse receipts. Based on these receipts, the
farmers can get loan against the crop stored and can cultivate the next crop.
Thus, the farmers will be facilitated to get better price by holding the crops
without affecting the fund flow position.

17
 AGRI-EQUIPMENT

b) Agro-service Centre:
a. Purchase of hi-tech agri-implements like power tiller, land leveller, rotary
slasher, movers, seed driller, multi crop planter, paddy transplanter, sprayers,
combine harvester etc. depending upon the requirements of members. The
earning will be from the rental of these equipment.

c) Agro-processing centre:
a. Primary Processing: Sorting, grading unit, waxing/ polishing unit, pre-cooling
chambers, etc.
b. Secondary Processing: Value addition to produce e.g. Mini rice mill, atta chaki,
horticulture produce processing etc.

d) Agri -information centre :

a. Testing lab for soil & water, creating panel of experts for providing services on
payment basis, knowledge dissemination centre, arrange training to farmers.
The testing lab & expert guidance will be available to farmers at a cost.

e) Agri Transportation & Marketing Facilities :

a. Procurement of produce, direct market linkage after aggregation and/ or
processing, setting up of rural mart etc. The PACS, which are either in the area
of marketing or intend to undertake this activity, may create this channel to
facilitate the farmers in marketing.

2.13 What role State Government / State Cooperative Bank can play in developing PACS as
PO to serve as a Multi Service Centre (MSC)?

PACS can either use their own sources or avail credit facilities from StCB or CCB. In such a
case, the grant support from PODF is not available. CCB or RRB can avail of refinance facilities
as per the usual terms & conditions. Regional Office will keep a track of the facilities being
developed at PACS level and monitor the same at regular interval. In cases where loan is from
the StCB or DCCB, or own resources are being used and financial support from NABARD is not
being taken, NABARD could guide in project formulation, if necessary, so as to enable best
utilisation of funds. Financial support to PACS acting as a MSC / PO is also available through
Producer Organisation Development Fund (PODF) of NABARD.

***

StCB: State and

Central Co-operative
Banks
RRB: Regional Rural
Bank
DCCB: (District)
Central Coop Banks

18
 CHAPTER 3

Producer Organisation Registered as Producer Company

3.1 What is a Producer Company? with necessary changes

"Producer Company" means a body corporate carried out
a. registered under amended Companies Act, 1956,
b. the terms of section 465 of the Companies Act, 2013, the provisions of the Part
IX A of the Companies Act, 1956 shall be applicable mutatis mutandis to a
producer company
c. the objects of producer company shall confirm to the activities included in
581B of the Companies Act, 1956

3.2 Who are members of a Producer Company and their position in a company?
a. In a producer company, only primary producers or producer organisations can become
members
b. Membership is acquired by purchase of shares in a Producer Company
c. A Producer Company can act only through its members
d. Members create the company
e. Members can also wind up the company share capital
f. Members act through their General Meetings

3.3 What is the minimum share capital for a producer company?

a. The minimum Authorized Capital of Producer Company is Rs.5 lakh.
b. The Authorized Capital of the company can be more than Rs. 5 lakh as indicated in the
Memorandum of Association.
c. The authorized share capital should be sufficient for carrying out the objects
mentioned in the memorandum.
d. The authorized share capital should be realistic.
e. The minimum paid up capital for Producer Company is Rs. 1 Lakh.

3.4 What are the preparatory arrangements for registration and incorporation of a Producer
Company (PC)?
The preparatory steps to be followed for the incorporation of a PC are
a. Identify a cluster where the PO can be formed.
b. Conduct Baseline and Feasibility Studies to ensure that a viable PO can formed in the
cluster. Plan for business activities that are possible to improve the incomes.
c. Meet the villagers (primary producers) and introduce the concept of Producer
Company to them.
d. Explore the need for a Producer Company (PC) with the primary producers. The
primary producers should understand the benefits and feel the need for it.
e. Take the interested primary producers on an exposure visit to a functioning Producer
Company and enable meaningful interaction among them.
f. Create a critical group of primary producers, who are very enthusiastic about the idea
of Producer Company and empower them further with the concept and details and
benefits of a producer company.

preparation for 19
FPO formation.
preparation for
FPO
formation....
g. Use the critical group for canvassing among other eligible members about the need,
urgency and benefits of a Producer Company.
h. Allow enough time to the prospective primary Producer Company members to
understand the idea. Make frequent visits to them and clarify all their doubts. The
objective should be that the prospective members have right understanding, and
willing to participate and work together for their mutual benefit. It may take typically
3 to 6 month time for this kind of social mobilisation.
i. Have focused group meeting and motivate eligible members to become shareholders.
j. Hold a meeting with the prospective shareholders and discuss objectives and possible
business ideas for the company.
k. Revise the business plan for the company taking into account the views of the
prospective members.
l. Once the primary producers are willing to form a Producer Company and are ready to
contribute to the share capital
a. Identify Promoter Directors.
b. Prepare a draft Articles of Association (AoA).
c. Prepare a draft Memorandum of Association (MoA). Hire the services of a
consultant to get the AoA and MOA drafted, if necessary.
d. Call first informal meeting of the shareholders to approve
i. Articles of Association
ii. Memorandum of Association
iii. Selection of Promoter
iv. Authorized capital and cost of each share
m. Collect the capital and savings also if possible.

3.5 What are the legal formalities for formation of a Producer Company?
a. Obtain Digital Signature of the Nominated Director, who will be affixing DSC on all the
documents to be submitted to RoC online, on behalf of the company.
b. Chose maximum 4 names for the Producer Company in order of preference.
c. Apply for the name availability in Form – INC1.
d. Once name is available, a letter is received from RoC indicating it. The documents to
be submitted to ROC thereafter are:
e. Articles of Association (AoA).
f. Memorandum of Association (MoA).
g. Form No. INC-22 for Registered Office.
h. Form No. DIR-12 for Directors’ Appointment.
i. Apply on-line for Directors Identification Number (DIN) for the proposed Directors.
j. INC-7 – Affidavits by subscribers to Memorandum of Association to be filed, in case, if
they have signed in Hindi.
k. Power of Attorney in favour of a consultant to authorize him to make necessary
changes in MoA and AoA as required by the RoC.
l. Submit the documents to RoC for Incorporation of Producer Company.
m. Obtain Certificate of Commencement in INC-21

20
 3.6 What is Digital Signature Certificate?
a. Digital Signature Certificates are equivalent to the paper certificates e.g. Driving License,
Pass port etc. The certificates serve as a proof of identity of a person for a particular
purpose. DSCs are used by the people for filing various important documents on-line.
b. All documents need to be signed digitally and submitted online to the RoC as per MCA21
e-Governance programme and in accordance with Information Technology Act 2000.
c. Digital Signature Certificate (DSC) is to be obtained for signing documents of the PC for
submission online by the authorized person of the PC.
d. Form for obtaining Digital Signature Certificate (DSC) is available from the Certifying
Agencies of Certifying Authorities.
e. After filling the form, it is to be submitted to Certifying Authorities.
f. The DSCs are issued with one or two year validity normally and can be renewed thereafter.
g. There are three classes of DSCs namely Class 1, Class 2 and Class 3. Class -2 DSC need to
be used by an individual for filing various forms for Producer Company or to file an Income
Tax Return.
h. The cost of obtaining Class -2 (DSC) is market driven and depends on the Certification
Agency and it costs Rs. 1000/- for one year and Rs. 1200/- for two years, as quoted by M/s
Varacity an agent of M/s Safescript and (n)Code Solutions which are Certifying Authorities.

3.7 What is a Certifying Authority (CA) for Digital Signature Certificate and list the CAs?

The IT Act provides for the Controller of Certifying Authorities (CCA) to license and regulate
the working of Certifying Authorities. The Certifying Authorities (CAs) issue Digital Signature
Certificates for electronic authentication of users. At present the following organisations are
authorized as Certifying Authorities under CCA, Government of India.

a. NIC (For Government Departments / Undertakings only) (http://nicca.nic.in)

DCS issuing b. (n)Code Solutions CA(GNFC) (www.ncodesolutions.com)
agencies c. Safescript (www.safescrypt.com)
d. TCS (www.tcs-ca.tcs.co.in)
e. MTNL (www.mtnltrustline.com)
f. Customs & Central Exercise (www.icert.gov.in)
g. e-Mudhra (www.e-mudhra.com)
h. IDRBT

3.8 What is Director Identification Number (DIN)?

a. Ministry of Company Affairs (MCA) maintains the details of all the Directors of
all the companies with a unique Identification Number which is called Director
Identification Number (DIN).
DIN: Director b. Every director needs to have a DIN form MCA. DIN form is available on the
Id Number website of MCA. Before formation of the PC all the Directors / Chairman
should have DIN.
c. If any Director got a DIN, the same need not be obtained afresh.
d. MCA on online application provides DIN at a cost of Rs. 1000/- against identity
proof. For identity only PAN Card, Voter ID Card, Passport or Driving License
number is accepted.

21
 NAME OF FPO : BASICS

3.9 How the company is named?

a. Every Producer Company name should be unique.
b. Every Producer Company name should end with “Producer Company Limited” which
indicates its status as Producer Company.
c. The Producer Company may be named in such a way that it inspires the entire
membership and creates a sense of ownership for its members and is to be indicative of
AVOID the objectives of the company.
d. It is a better idea not to use the name of the Producer Organization Promoting Institution
(POPI) directly or indirectly in the Producer Company name. Using POPI name will not
help in creating ownership in the minds of the members.
e. Apply for the name online to MCA in e-form INC-1.
f. A fee of Rs. 1000/- is to be paid along with e-from INC-1.
g. Digital Signature of the applicant for the name is to be attached.
h. If the name is not available, RoC will inform about the same. This necessitates submission
of fresh set of names in the same application.

3.10 What is Memorandum of Association (MoA)?

a. MoA is a document that indicates what activities the company can undertake.
b. MoA needs to be prepared carefully to cover all the activities planned for the present and
future of the Producer Company in a broad manner.
MOA c. MoA should be prepared and printed on both sides of the paper.
d. It is to be subscribed/signed by the requisite number of subscribers/promoters in his/her
own hand along with details like father’s name, occupation, address and the number of
shares subscribed for, by them.
e. MoA needs to be dated after the date of stamping of the Articles of Association (AoA).

3.11 What is Articles of Association (AoA)?

a. AoA is a document that specifies the rules for a company's operations.
b. It defines the company's purpose and lays out how tasks are to be accomplished within
AOA the organization.
c. It includes the process for appointing Directors and how financial records are handled.
d. AoA should be prepared and printed on both sides of the paper.
e. It is to be subscribed/signed by the requisite number of subscribers/promoters in his/her
own hand along with details like father’s name, occupation, address and the number of
shares subscribed for.

3.12 What are the documents to be submitted to the Registrar of Companies (RoC) for
incorporation of a Producer Company?
a. Copy of the letter of RoC confirming the availability of name.
b. MoA and AoA duly stamped and signed.
c. Form INC-22 indicating the Registered Office of the company with full address.
d. Form DIR-12 in duplicate with details about the directors of the company.
e. Form INC-7 on stamp paper declaring compliance with all and incidental matters
regarding formation of companies.
LIST OF DOCS
TO BE
22
SUBMITTED
TO ROC
 LIST OF DOCS
TO BE
SUBMITTED
TO ROC...
f. Consent of each of the Directors along with form DIR-12.
g. An affidavit indicating that MoA is fully understood by the subscribers/signees, if they
sign in Hindi.
h. Power of Attorney to the agent who is dealing with the RoC to make corrections in MoA
and AoA, if necessary, to the satisfaction of the RoC.

3.13 What is Certificate of Commencement (CoC)?

a. CoC is issued by the RoC as a conclusive proof of formation of a Producer Company.
b. Producer Company is effective and comes into existence from the date mentioned in the
Certificate of Registration granted by the RoC.

3.14 What is the legal status of a Producer Company?

a. On incorporation and from the date mentioned in the Certificate of Commencement
(CoC), the company becomes a person in the eyes of law.
b. It has perpetual succession, meaning members may come and go, but it will go on until it
is wound up by following the process of law.
LEGAL
c. It has a common seal, which is affixed on all the documents executed on behalf of the
STATUS
company in the presence of a director and signed by the authorized signatory or
OF FPO
signatories.
d. It is empowered to hold the properties in its own name and has its own right.
e. It can enter into contracts in its own name.
f. It can sue others and can be sued by others.
g. In simple terms it has contractual capacity in the eyes of law just like any other person
who has contractual capacity.

3.15 How much time is taken for registration of a Producer Company?

It may take anything between 2 to 6 months.

3.16 How much it costs for registration of a Producer Company?

a. It is estimated that it may cost Rs. 40,000/- approximately.
b. It depends on the fee charged by CA, Company Secretary and Authorized Agents etc.

3.17 Who will bear the cost of the registration of a Producer Company?
a. Initially the promoters of the company will bear the cost of registration of the
company.
b. The promoters are generally the Producer Organisation Promoting Institution (POPI)
or the initial directors.
3.18 Whether Producer Company reimburses the cost of registration to the promoters?
The cost of registration may be reimbursed to the promoters duly approved by its
general body in its first meeting with a resolution passed to that effect.

3.19 Who will run a Producer Company?

The company is run / governed by members/shareholders, Board of Directors and
Office bearers.

23
 COMPANY HIERARCHY / STRUCTURE

3.20 Who are Board of Directors (BoD)?

a. Board of Directors are elected by the members.
b. BoD may act collectively only through meetings.

3.21 Who are Office Bearers?

c. An office bearer is a person who is selected / appointed to look after the day-
to-day affairs of the Producer Company.
d. The office bearers include Chief Executive officer (CEO), Accountant, godown
keeper, etc.
e. The company pays salaries to all the office bearers.

3.22 How to become a member of a Producer Company?

a. By subscribing to the MoA.
b. By an agreement in writing to become a member and with an entry in the
register.

3.23 What is the authority of the members on the company?

Members exert authority on the company only through General Meetings. The General
Meetings alone can do the following:
a. Approve Budget and adopt Annual Accounts of the Company
b. Approve the quantum of withheld price
c. Approve the patronage bonus
d. Authorize the issue of bonus shares
e. Appoint an auditor
f. Declare a dividend and decide on the distribution of patronage
g. Amend the MoA and AoA
h. Specify the conditions and limits of loans that may be given by the Board to
any Director
i. Approve any act or any other matter that is specifically reserved in the
articles for decision for members

3.24 What are the rights of the members?

a. to transfer one’s shares
b. to vote on resolutions at meetings of the Company
c. to requisition an extraordinary general meeting of the Company or to make a
joint requisitions
d. to receive notice of a general meeting; to attend and speak in a general
meeting
e. to move amendments to resolutions proposed at meetings
f. in case the member is a corporate body, to appoint a representative to
attend and vote at general meetings on its behalf
g. to require the company to circulate its resolutions

24
 h. to enjoy the profits of the company in the form of dividends
i. to elect directors and to participate in the management of the company
through them
j. to apply to the Company Law Board in case of oppression
k. to apply to the Company Law Board in case of mismanagement
l. to apply to the court for winding up of the company
m. to share the surplus on winding up
n. to have a share certificate issued to him/her in respect of his/her shares

3.25 What are the voting rights of a member?

a. In case of Producer Company comprising only of individual members or combination
of individual members and producer institutions, then the voting rights shall be based
on one vote per member.
b. In case of Producer Company consisting only of producer institutions, then the voting
rights shall be based on the participation in the business of the Producer Company in
the previous year.
c. The Producer Company can restrict the voting rights to only its active members
provided it is authorized by its Articles of Association.

3.26 How a member is ceased of his/her membership?

d. By completely transferring his/her shares
e. By forfeiting his/her shares
f. By a valid surrender
g. By death
h. By the company selling his shares in exercise of its right under its Articles of
Association
i. By order of a court or any other competent authority attaching and selling the shares,
in satisfaction of a decree or claim
j. By the official assignee disclaiming his shares, on his adjudication as an insolvent
k. By rescission of contract of membership, on the grounds of misrepresentation or
mistake
3.27 How many Board of Directors are permitted in a Producer Company?
A producer company can have a minimum of 5 Directors and not more than 15 Directors.

3.28 What are the powers and functions of the Board?

a. The Board is responsible for formulating, supervising and monitoring the performance of
the Producer Company.
b. It should not act on the areas reserved for General Body.
c. It should not exercise executive powers.

Board
Limitations
25
Board Powers

3.29 What are the matters, which the Board generally deals with?
a. Determination of the dividend payable;
b. Determination of the quantum of withheld price and recommended patronage to be
approved at General Body Meeting;
c. Admission of new members;
d. Pursue and formulate the organizational policy, objectives, establish long term and
annual objectives, and approve corporate strategies and financial plans;
e. Appointment of Chief Executive Officer (CEO) and other officers, as may be specified in
the AoA. Control CEO and other officers by exercising superintendence and direction;
f. To sanction any loan or advance to members, who are not directors or their relatives, in
the course of its business;
g. Ensure proper books are maintained;
h. Acquire or dispose property of the company in the day-to-day affairs of the business;
i. Investment of the funds in the day to day business;
j. Ensure annual accounts are placed before the Annual General Meeting (AGM) with the
auditor’s report.

3.30 Who appoints the Board of Directors?

a. The names of the first Board of Directors are indicated in the MoA
b. The AGM elects the directors in the first meeting and thereafter whenever required
3.31 What is the period of tenure for the Directors?
The tenure of a director appointed by AGM is minimum one year and a maximum of 5 years.
3.32 Who is an expert Director?
a. Any person who is having expert knowledge in running the Producer Company can be
co-opted by the Board as an expert director.
b. Expert directors will not have right to vote in the election of Chairman.
c. Expert directors should not exceed one fifth of the total number of directors.
d. Expert director can become a Chairman.
3.33 Who is an alternate Director?
If a regular director is out of the State in which the meetings are held, for a period of 3 months
or more, another person can be appointed as director in his place, who is called an alternate
director. The tenure of the alternate director must be not less than 3 months. The moment
the original director returns, the alternate Director ceases to be the Director.
3.34 How the Directors are remunerated?
Generally the Directors are reimbursed the cash expenditure incurred by them for attending
the board meetings like expenditure on travel, lodging and food. However, if any Director,
spends more time for the company, provisions may be made for providing fixed allowances
like communication allowance, fixed daily allowance etc.

26
3.35 What should be the qualification of a Director?
Only individuals can be directors of a company. No educational qualification or minimum
holding of shares is required. Hence any individual can become a Director as per Section
465(1) of Companies Act, 2013.
3.36 What is the procedure for removing directors?
a. The shareholder directors of the company can be removed before the tenure by passing
an ordinary resolution at a general body meeting.
b. The Director ceases his post on completion of the tenure which ranges from 1 to 5 years.
3.37 What is the procedure for resignation of Director/s?
a. Any Director can resign from his post by giving intimation to the company in a manner
indicated in the AoA.
b. If AoA do not indicate any procedure for resignation, then a Director can resign by giving
reasonable notice. The resignation is deemed as accepted the moment the notice is given.
c. In case of Chief Executive Officer or Managing Director or whole-time Director, mere
notice of resignation will not be deemed as resignation. Their resignation will be
governed by the terms and conditions of the appointment. In this case acceptance of the
resignation is required to get relieved of their duties.
3.38 What is the accountability of a Director in a Producer Company?
a. A director or an officer who fails to provide information to a member or a person, for
whom he is required to provide information about the Producer Company, the Director is
liable for imprisonment for a term extending to 6 months and with a fine equivalent to 5%
of turnover of the company in the previous year
b. If there is a failure for convening an Annual General Meeting or other general meetings,
the Director shall be punishable with a fine extended up to Rs. 1 lakh. In case the default
continues, an additional fine extended up to Rs. 10,000/- per day.

3.39 Who appoints the CEO and what are his/her functions?
a. A full time CEO is appointed by the Board of Directors as per AoA
b. The CEO is to be other than a member
c. The CEO is accountable to both the Board of Directors and members

3.40 What are the functions of a CEO?

The functions of a CEO include the following:
a. Do administrative acts of routine nature including managing the day-to-day affairs of the
Company;
b. operate bank accounts or authorize any person, subject to the general or special approval
of the Board;
c. make arrangements for safe custody of cash and other assets of the Company;
d. sign business related documents as may be ‘authorized by the Board’ for and on behalf of
the Producer Company;
JD OF CEO
27
 JD OF
CEO...

e. maintain proper books of account, prepare annual accounts, place the audited accounts
before the Board and in the Annual General Meeting of the Members;
f. furnish the members with periodic information to appraise them of the operation and
functions of the Company;
g. make appointments to posts in accordance with the powers delegated to him by the
Board;
h. assist the Board in the formation of goals, objectives, strategies, plans and policies;
i. advise the Board with respect to legal and regulatory matters concerning the proposed
and ongoing activities and take necessary action in respect thereof;
j. exercise the powers as may be necessary in the ordinary course of business;
k. discharge such other functions, and exercise such other powers, as may be delegated by
the Board;
l. to provide timely information to the Members and Board of Directors for scheduled
company meetings or emergency or short notice meetings.

3.41 What is the minimum qualification for appointment of a CEO in a producer

company?
a. As indicated in AoA, the qualifications, experience and the terms and conditions
of service of the Chief Executive shall be such as may be determined by the
Board.
b. The Chief Executive Officer (CEO) of a Producer Company shall be a full time
employee of the company.
c. The CEO shall be appointed by the Board of Directors of the company amongst
persons other than members.
d. The CEO shall be ex-officio director of the Board and such director shall not retire
by rotation.

3.42 Provide details of a few Institutes promoting the establishment and management of
the Producer Companies?
The establishment and the management of the Producer Companies are undertaken by
various institutions as indicated below:
a. Small Farmers’ Agribusiness Consortium (SFAC): This organization provides
facilities to the agriculturists in the following manner:
i. It links the agriculturist with the banks which in turn provide the requisite
financial assistance.
ii. It provides training to the farmers on the various aspects of their activities
viz., use of various technologies, selection of the appropriate fertilizers,
etc.

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