Investments by Producer Companies Under Producer Companies Rules, 2021

The Ministry of Corporate Affairs (MCA) notified the ‘Producer Companies Rules, 2021’ which is effective from 11.02.2021. The MCA suspended the ‘Producer Companies (General Reserve) Rules, 2003’ through this notification. These rules apply to the producer companies as defined under the Companies (Amendment) Act 2020.

The producer companies have features of a co-operative society and ease of compliance of a private limited company along with advantages of a legal entity. Thus, the Companies (Amendment) Act 2020 contains a whole chapter on producer companies. This chapter on producer companies covers every aspect and provides a comprehensive legal framework on incorporation, management, and governance of these producer companies.

The producer companies are legally recognised bodies of agriculturists or farmers having company objectives of procurement, production, handling, marketing, selling, or export of primary produce of their members or import of services or goods for their benefit.

The producer companies include the activities connected with farming or primary produce, production of handloom, and cottage industries. Their main aim is facilitating the formation of co-operative business as companies. They provide for converting the existing co-operative businesses into companies. 

The Producer Companies Rules state that the ‘Companies (Incorporation) Rules 2014’ will apply to the producer companies at the time of change of place of their registered office from one state to another. 

The rules provide that the producer companies can make investments from their general reserves in anyone or the combination of the following –

• Approved securities, units, bonds, and fixed deposits issued by the Central Government or co-operative societies or State Government or scheduled banks or state co-operative bank or central co-operative bank, or
• Securities stated in Section 20 of the Indian Trusts Act, 1882, or
• Shares, assets, or securities of public financial institutions as defined under the Companies Act 2013.

The Companies Act 2013 allows the farmers’ co-operatives to function as a corporate entity under the definition of the producer companies. All businesses involved in promoting or marketing primary produce or financing producer activities can incorporate a producer company. The producer companies can even provide infrastructure to producers, such as electricity, irrigation techniques, water resources, consultation, or land utilisation.

The chapter on producer companies under the Companies Act 2013 provides for a self-contained framework for the farmers and certain co-operatives to gain the benefit of corporate entities. This will in turn help them to access better credit facilities. It will help the farmers to opt for legal structure and establish producer companies. The Producer Companies Rules specify the instruments and areas in which the general reserves of the producer companies can be invested. These rules provide investment options for producer companies and help them to easily access formal credit.

For any clarifications/feedback on the topic, please contact the writer at mayashree.acharya@cleartax.in