Companies Act Section 378C

Companies Act, Section 378C: Formation and Registration of a Producer Company

Section 378C of the Companies Act, 2013 provides a detailed framework for the formation and registration of a Producer Company. It outlines who is eligible to form such a company, the process to be followed, the legal status and liability structure of the company once incorporated, and certain procedural matters relating to the reimbursement of costs and categorization of the company.

1. Eligibility for Formation of a Producer Company

The law allows for the constitution of a Producer Company by the following entities:

Ten or more individuals, each of whom must be a producer, i.e., someone engaged in an activity connected with or relating to primary produce (such as agriculture, animal husbandry, horticulture, forestry, fishery, etc.).
Two or more Producer Institutions, which are entities or organizations comprising producers.
A combination of the above that is, ten or more individuals along with one or more Producer Institutions.
These individuals and/or institutions must come together with the shared intent of forming a Producer Company whose objects fall within the scope specified under Section 378B (which includes production, processing, marketing, mutual assistance, financing, etc.), and must ensure compliance with the requirements laid out in this Chapter of the Act.

The incorporation must be carried out in accordance with the applicable provisions of the Companies Act related to registration of companies.

2. Registration Procedure and Role of the Registrar

Once the above group of eligible persons applies for incorporation by submitting the memorandum of association (MoA), articles of association (AoA), and other required documents to the Registrar of Companies, the following procedure applies:

The Registrar of Companies (RoC) will examine the documents and verify whether all statutory requirements under the Companies Act have been fulfilled with respect to the formation of a Producer Company, including:
Proper drafting and execution of the MoA and AoA, Satisfaction of eligibility conditions, and Fulfilment of preliminary formalities for registration. If the Registrar is satisfied that all such conditions are met, he shall, within 30 days of receiving the complete set of documents, proceed to:
Register the memorandum, articles, and any other accompanying documents. Issue a Certificate of Incorporation, which formally recognizes the Producer Company as an incorporated entity under the Act. This certification marks the legal birth of the Producer Company.

3. Nature of Liability of Members

Once registered, the Producer Company will operate as a company limited by shares. This means:

The liability of each Member is limited to the unpaid amount, if any, on the shares held by them. Members are not personally liable for the debts or obligations of the company beyond their unpaid share capital.
This limited liability status provides a protective legal structure, encouraging participation from producers who might otherwise be wary of unlimited exposure to financial risk.

4. Reimbursement of Promotion and Registration Expenses

The Act permits the newly formed Producer Company to reimburse its promoters for certain expenditures directly incurred in the course of establishing the company. These may include:

Legal fees, Costs associated with registration, Printing of the memorandum and articles of association, and Other direct promotional expenses.
However, this reimbursement is subject to approval by the Members at the first general meeting of the Producer Company. The Members collectively must ratify the amount and nature of such costs before they are reimbursed.

5. Corporate Status and Member Limit

Upon successful registration under sub-section (2), the Producer Company acquires the status of a body corporate, and for all legal and practical purposes, it is treated as a private limited company under the Companies Act, 2013. However, certain important distinctions apply:

Although it functions as if it were a private limited company, the limit on the number of Members, which typically applies to private companies, does not apply to a Producer Company. It can have an unlimited number of Members.
A Producer Company shall not, under any circumstances, be or be deemed to be a public limited company under this Act. This statutory distinction ensures that the cooperative principles and Member-driven character of a Producer Company are preserved, regardless of its size.