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;

  • Ownership limited to users;
  • Limited dividend on shares;
  • No trading of shares;
  • Return patronage-based and not capital-based


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 FrameworkA central Act, enabling in natureA State Act, restrictive in nature
Area of OperationNot restrictedRestricted
ShareholderOnly user member can hold sharesNon-users can also hold shares
Voting RightsOne member, one vote. Members of a Producer Company having only Producer Institutions as its members will have patronage based voting rightsOne member one vote
AuditRegular audit by a Chartered Accountant as per the provisions of the Companies ActAudit 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 CompanyOther Companies
Only producer can be members/shareholdersAnyone can be a shareholder
Owned by user membersOwned by investors
One member, one vote or patronage-based votingVoting rights based on shareholding
No trading of shares is permitted. However, transfer
of shares among members is permitted.
Trading of shares is permitted
Limited dividendNo limit on dividend
Patronage-based returnsCapital- based return

Why Producer Companies?

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.

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