Producer Company / FPO

Producer Companies are registered under Chapter XXIA of the Companies Act 1956, which was retained by Section 465(1) of the Companies Act 2013 — Chapter XXIA of the 1956 Act continues to govern Producer Companies until specific provisions are notified under the 2013 Act. The Companies (Amendment) Act 2020 inserted Sections 378A to 378ZU into the Companies Act 2013 to provide a dedicated framework for Producer Companies, but these provisions apply prospectively. A Producer Company must be formed by a minimum of 10 individual producers or by two or more producer institutions or by a combination of 10 or more individual producers and producer institutions under Section 581C of the Companies Act 1956. The primary object must be any of the activities specified in Section 581B, including production, harvesting, processing, procurement, grading, pooling, handling, marketing, selling, or export of primary produce.

A Producer Company (FPO) operates on a cooperative-like model with unique features: members hold equity shares (Active Member shares), and dividends are limited to 25% of the paid-up equity capital per year under Section 581ZF of the Companies Act 1956. The FPO must maintain a Reserve Fund under Section 581ZC by transferring at least 20% of net profits each year before declaring dividends. Board of Directors must consist exclusively of persons elected from among the member-producers under Section 581O. Patronage bonus — profit distributed to members in proportion to their participation in business — is permitted under Section 581ZD and is a distinct feature from ordinary dividends. External equity investment (including from SEBI-registered AIFs or NABARD-promoted instruments) is permitted through investor shares, but voting rights on investor shares are restricted to protect member-producer control.

Yes. Section 80PA of the Income Tax Act 1961, inserted by Finance Act 2018, provides a 100% deduction of profits and gains from eligible business of Producer Companies having a total turnover of up to ₹100 crore for a period of five consecutive assessment years beginning from AY 2019-20. For AY 2026-27 (FY 2025-26), this deduction is still available to qualifying FPOs. The eligible business for Section 80PA purposes is defined by reference to the activities in Section 581B of the Companies Act 1956. Additionally, Section 10(1) exempts agricultural income from tax at the central level, though state agricultural income tax may apply. Producer Companies must file ITR-6 and claim the Section 80PA deduction in Schedule VI-A. The deduction is not available if the FPO opts for the concessional tax rate under Section 115BAB.

NABARD's Equity Grant and Credit Guarantee Fund scheme (FPO Promotion Scheme 2020-2025) provides equity grants of up to ₹15 lakh per FPO to match member equity subscriptions on a 1:1 basis, subject to guidelines issued under Department of Agriculture, Cooperation & Farmers Welfare (DACFW) scheme documents. The equity grant is released through NABARD-empanelled Implementing Agencies (CBBOs) upon verification of member equity contribution. Under the Companies Act 1956 framework, the equity grant received from NABARD is credited to the FPO's share capital account as additional paid-up capital against the issuance of equity shares to NABARD or as a government grant recognised under Ind AS 20 / AS 12, depending on whether the shares are actually issued. The FPO should also register with the Small Farmers' Agribusiness Consortium (SFAC) to access the Credit Guarantee Fund which provides guarantee cover up to 85% on project loans from lending institutions under RBI Master Direction FIDD.CO.FSD.BC.No.8/05.02.001/2017-18.

There is no statutory minimum paid-up capital prescribed for a Producer Company under Chapter XXIA of the Companies Act 1956, but the Memorandum of Association must specify the intended share capital and it must be sufficient to meet the working capital needs of the entity. A Producer Company is permitted to accept deposits from its active members under Section 581ZN of the Companies Act 1956, subject to the conditions that such deposits do not exceed the limits prescribed by the Central Government and bear interest not exceeding the rate prescribed by the RBI from time to time. This is an exception to the general restrictions on acceptance of deposits by private companies under Section 73 of the Companies Act 2013, which does not apply to Producer Companies in view of the continued applicability of the 1956 Act provisions. Loans to members are also permitted under Section 581ZL from the Producer Company's general funds subject to board approval and repayment terms specified in the Articles of Association.