Producer Company is a business enterprise owned by producers and is registered under Chapter XXI A of the Companies Act, 2013. A Producer Company combines the institutional strengths of Mutual Assistance which are similar to the Cooperative Principles with the liberal regulatory framework of Company Law, specifically where;
Some major differences between a Producer Company and a Cooperative as specified by the ICA is given below:
| Producer Company vis- a – vis Cooperatives | ||
|---|---|---|
| Producer Company (Act) | Cooperative Act | |
| Legal Framework | A central Act, enabling in nature | A State Act, restrictive in nature |
| Area of Operation | Not restricted | Restricted |
| Shareholder | Only user member can hold shares | Non-users can also hold shares |
| Voting Rights | One member, one vote. Members of a Producer Company having only Producer Institutions as its members will have patronage based voting rights | One member one vote |
| Audit | Regular audit by a Chartered Accountant as per the provisions of the Companies Act | Audit by Cooperative Audit Department, or in some states, by an auditor from a panel of auditors approved by Government |
Some major differences between a Producer Company and a Cooperative as specified by the ICA is given below:
| Producer Company vis-à-vis Other Companies | |
|---|---|
| Producer Company | Other Companies |
| Only producer can be members/shareholders | Anyone can be a shareholder |
| Owned by user members | Owned by investors |
| One member, one vote or patronage-based voting | Voting rights based on shareholding |
| No trading of shares is permitted. However, transfer of shares among members is permitted. | Trading of shares is permitted |
| Limited dividend | No limit on dividend |
| Patronage-based returns | Capital- based return |
India is an agricultural economy with the rural population depending on agriculture for their livelihood. Most of these farmers are of small and medium holders. Such farmers are unable to connect their produce directly to the market. This increases the chance of exploitation of these small producers. In order to avoid exploitation, it becomes necessary that small producers get organized and form their own organization, which can connect their products directly to the market and give them maximum benefit. Before 2003, producer farmers had only one option to organize themselves in large numbers and form their own institution which is known as “cooperative society”.
Cooperatives in India, with a few exceptions, have evolved as social organisations and as vehicles to implement welfare programs. Cooperatives in developed countries are professionally-managed business enterprises and are incorporated and operate under laws that also govern companies and corporations.
When economic liberalisation and globalisation opened up Indian markets to competition, it was assumed that competitors were more or less equally endowed with resources, opportunities and skills. However, this was not so in rural India. Based on the recommendations of a high-powered committee appointed by the Government of India, the Companies Act, 1956 was amended in the year 2002 to include Part IX-A (now part XXI A Companies Act, 2012). This Part provided both for incorporation of new Producer Companies, as well as voluntary conversion of existing cooperatives with inter-State operations into Producer Companies. The amendment came into effect in February, 2003.
This new legislation was aimed at setting up and building producer-owned enterprises as a powerful countervailing force against possible exploitation of smallholder-producers by investor-owned corporations.