FPO Compliance

FPO Company Compliances 

India's economy is heavily reliant on agriculture. Approximately 60% of the population makes their living from agriculture. However, India's farmers and primary producers have always faced hardships. Based on the suggestions of an expert group headed by economist Y. K. Alagh, the Companies Act, 1956 (hereafter referred to as "the Act") was amended in 2002 to include a new Part IXA (sections 581A to 581ZT), which established the idea of Producer Companies.

The Committee's goal was to draft legislation allowing cooperatives to be incorporated as companies and convert already-existing cooperatives into businesses while maintaining the distinctive aspects of cooperative enterprise under a framework of regulations akin to that of companies.

A Producer Company: What Is It?

A legally recognised group of farmers or agriculturists who want to raise their standard of life and guarantee a stable situation for their earnings, income streams, and profitability is known as a producer company. The requirements about a Producer Company under Part IXA of the Companies Act, 1956 shall continue to apply, according to Section 465(1) of the Companies Act, 2013 (the "Act"). Therefore, in accordance with the Act, a Producer Company may be founded by ten (or more) individuals, two (or more) institutions, or by a combination of the two (10 individuals and two institutions), provided that the business purpose of the Producer Company is as defined by the Act.

A farmer-producer business, as defined by the Act, is a hybrid of a cooperative society and a private limited corporation. 

Producer Companies' Permitted Activities

The Producer Company is permitted to engage in any of the following operations and must handle its members' produce:

1. Processing of its members' produce, which includes canning, packing, brewing, vinting, drying, distilling, and preservation;
2. Manufacturing, selling, or supplying tools, machinery, or consumables to its producer members; Educating the producer members of the producer firm and others on the concepts of mutual assistance;
3. To provide technical assistance, training, R&D, consulting, and other services necessary to advance the interests of producer members;
4. Power generation, transmission, and distribution; primary produce conservation and communication, revitalisation of land and water resources; primary produce insurance; producer insurance, and the promotion of mutuality and mutual help approaches;
5. The Board may make decisions regarding the welfare of its members; financing of marketing, procurement, processing, or other activities, providing credit facilities or other forms of financial support to its producer members.
6. Any additional action taken to further the mutual aid among producer members and the mutuality principles, whether it be incidental or auxiliary to the producer company's primary goals.
7. The term "primary produce" refers to goods that are produced by farmers and come from agriculture, including animal husbandry, floriculture, horticulture, viticulture, pisciculture, re-vegetation, beekeeping, forestry, plantation products, produce from handlooms, handicrafts, and other cottage industries. This definition was established by the Companies Act of 1956.

Pre-Incorporation Checklist

1. A production company can be formed by ten or more producers (individuals), with no maximum number of members.
2. A producer company may be formed by any two or more producer institutions.
3. A producer company must have a minimum paid-up capital to be incorporated.
4. A producer firm should have a minimum of 5 directors and a maximum of 15.
5. It can be changed into a multi-state cooperative society, but it can never be changed into a public firm.

Required Annual Reports for Farmer-Producer Organizations

The Companies Act of 2013 primarily governs Producer Companies. But since it's a business, it also needs to abide by the 1961 Income Tax Act. Given this, a Producer Company is required to comply with the following each year.

According to the Companies Act of 2013, a Producer Company must comply with the following yearly requirements.

The AGM, or annual general meeting

Every company registered under the Companies Act of 2013 is required, except for an OPC, to hold an annual general meeting. It will occur no later than six months after the fiscal year ends. The two AGMs cannot, however, be separated by more than 15 months. A producer company's first AGM must also be convened no later than ninety days from the date of establishment. 

Written notice of the general meeting must be provided at least 14 days before the event. The meeting agenda, the minutes from the previous general meeting, the Board of Directors' financial accounts and report, and the names of eligible candidates for election as directors should be attached to the notification.   

Furthermore, regardless of the number of shares they own in the company, each individual member of the Producer Company is entitled to one vote in the general meeting. Moreover, unless the articles specify a different number, the quorum—that is, the minimal number of members needed for a legitimate meeting—must consist of one-fourth of the total membership. 

Meetings of Boards

The Companies Act, 2013's regulations pertaining to Producer Companies stipulate that a minimum of four board meetings must be held annually, and a meeting must be held at least once every three months. A minimum of three directors, or one-third of the total number of directors, is required for such meetings. 

Report of the Director

Any corporation that publishes financial accounts must include a report from the board of directors. It must include information as outlined in Section 134 of the 2013 Companies Act. 

General Reserve

A Producer Company is required to keep a general reserve every year. If there are not enough funds to transfer to the reserve, members of the company donate the same amount according to their ownership stake. 

Internal Audit

A Producer Company is required by law to conduct an internal audit in accordance with the Companies Act of 2013. A chartered accountant will complete it at the intervals and according to the procedure outlined in the company's articles. 

The Repercussions of Non-Compliance

The Producer Company's noncompliance will have the following effects:

Remittance of Added Filing Costs

A corporation must pay the ROC additional filing fees if it does not submit forms by the deadline. For instance, a corporation must pay extra fees of Rs. 100 each day if AOC-4 or MGT-7 are not filed on time.

Company and its Officers' Penalties

A fine is also imposed on the corporation and the involuntary officers in the event of an annual compliance default. For example, failure to file AOC-4 or MGT-7 by the deadline entails penalties for the firm and its officers of Rs. 10,000 plus an additional penalty of Rs. 100 per day, up to a maximum of Rs. 2,00,000 for the company and Rs. 50,000 for the executives in default.

If the company's income exceeds Rs. 5 lakhs, a penalty of Rs. 5000 is imposed if form ITR-6 is filed after the deadline, October 31st. A fine of Rs. 1000 is assessed if a company's revenue is less than Rs. 5 lakhs. 

Directors' disqualification

A company's directors are only eligible if they file their financial statements (AOC-4) or annual return (MGT-7) for a continuous period of three fiscal years. After such a failure, they are not eligible for re-appointment to the same company or to any other company for five years.

Inactive Company

A firm is declared inactive by ROC and has its name removed from the register of companies following notice if it does not file its annual return (MGT-7) or financial statements (AOC-4) for a continuous period of two fiscal years.

Farmers can benefit from the idea of a Producer Company to do business in a structured manner. Nonetheless, because it provides a number of benefits, annual compliance is required for all businesses. Lawgical Adda has trained professionals that can help you with business registration and regulatory needs compliance.