Manual for Producer Company Practical insights of Registration Process Access Livelihoods Consulting (ALC) India Private Limited Plot No.-4, Matrunilayam, Telephone Office Lane, Sainagar Colony, Picket, Secunderabad – 500 009 Andhra Pradesh - INDIA Email: info@alcindia.org, www.alcindia.org Phone: 040 - 40177321, 27891147 Table of Contents 1. Preparations for Registration of Producer Company ....................................................... 3 1.1 Mobilization activities in the Pre- Registration Phase .................................................. 3 1.1.1 Village level meetings................................................................................................................. 3 1.1.2 Meetings with active members and leaders ............................................................................ 4 1.1.3Village level workshops and meetings on Producer Company formation:......................... 4 1.1.4 Organization of Exposure Visit for Active Members ............................................................. 6 1.1.5 Identification of Promoters ........................................................................................................ 6 1.1.6 Orientation of Promoters on the Registration Process........................................................... 7 1.2 Legal activitiesnecessaryfor the Registration .................................................................. 7 1.2.1 Appointment of the Chartered Accountant (CA) or Company Secretary (CS).................. 7 1.2.2Application for Allotment of PAN (Permanent Account Number) Card ............................ 8 1.2.3 Application for Director Identification Number (DIN) ......................................................... 8 1.2.4Application for Digital Signature Certificate (DSC)................................................................ 9 1.2.5Application for Company’s Name ............................................................................................ 9 1.2.6 Drafting of By-Laws (Memorandum of Association & Articles of Association).............. 10 1.2.7 Declaration from Promoters, Affidavitand Consent Letter ................................................ 12 1.2.8 Forms Nr 1, 18, 32 ..................................................................................................................... 13 1.2.9Submission of AOA & MOA .................................................................................................... 13 1.2.11 Getting Certificate of Incorporation from ROC .................................................................. 14 1.2.12 Conduct 1stBoard Meeting within 30 days of registration ................................................ 14 1.2.13Open Bank Account on name of PC ...................................................................................... 15 1.2.14 Make a business plan for the company ................................................................................ 15 1.2.15Conduct AGM within 90 days of registration...................................................................... 16 2.Annexure...................................................................................................................................... 17 1 Annexure Figure 1: PAN-Application Form 49a ............................................................................................. 17 Figure 2: PAN- Card .......................................................................................................................... 17 Figure 3: Required Details for Form DIN -1 ................................................................................... 18 Figure 4: Signatures in the MOA ..................................................................................................... 19 Figure 5: Signatures on the AOA ..................................................................................................... 20 Figure 6: Declaration of Promoters .................................................................................................. 21 Figure7: Affidavit ............................................................................................................................... 22 Figure 8: Consent Letter of Directors ............................................................................................. 23 Figure 9: Form 1 (tob e filled out for all promoters> page 2-10) ................................................. 24 Figure 10: Form 18.............................................................................................................................. 27 Figure 11: Form 32 (to be filled out for all Directors> pages 2-12) .............................................. 29 Figure12: Share Certificate ................................................................................................................ 33 2 1. Preparations for Registration of Producer Company Once supporting persons or organizations have accepted the responsibility to act as initiators of registering a producer company, several actions have to be taken in order to mobilize the producers and fulfill the legal requirements of the government. This chapter will explain in detail the various steps necessary to lead a group of producers to a successful registration of their own company. 1.1 Mobilization activities in the Pre-Registration Phase The transformation of a community based organization into a Producer Company with socio-business aspects requires strongly motivated leaders and visionaries from the local area. Since the Producer Company concept has only been introduced very recently, it is still an unfamiliar legal and practical model for many, development practitioners and rural people alike. Thus, to create a thorough understanding in the local communities might be slightly complicated initially, but with the committed efforts of professionals and local leaders it can be done smoothly and efficiently. Identification of local leaders in the targeted local area is a crucial starting point. The implementation activities should be launched with their help. But obviously, the initiators should not attempt to tackle the registration process straightaway, because the community people will only believe in these persons if they have gained their trust by supporting the business activities of the members and made them aware of the prospects of this business venture. So the initial pre-registration phase should be devoted more to system establishment and rapport building between initiator and community and within the members of the business entity. Once the business is established and a majority of members are actively participating, more focused activities targeting the mobilization and legal registration of the Producer Company can be initiated. 1.1.1 Village level meetings Village level meetings are one of the important aspects of building rapport with the farmers and bringing them into the system. The initial phase of meetings should concentrate on explaining how the initiators will proceed to work and future plans/vision. Generally, village level meetings should be conducted in the monthly Gram Sabha, when a large percentage of the local population attend to discuss village level issues. This is a good platform to identify active members and leaders from each village. Usually, a minimum of two to three meetings in each village is necessary in order to ascertain this crucial group of people. For these meetings, the Unique Selling Proposition (USP) of the particular sociobusiness venture has to be clearly defined. 3 1.1.2 Meetings with active members and leaders The dissemination of the concept and the vision of forming the producer company gets taken care of by this group of persons. They represent each village and have a good rapport within the communities. So ultimately, making them understand the vision and the processes involved in the Producer Company formation is very important. Generally, calling monthly meetings, sharing the monthly business transaction and discharging some responsibilities (like promoting the concept, increasing the membership base, establishing relationship with industries, corporates, vendors, etc.) to leaders and a few active members have proven to be a good methods to increase active participation. 1.1.3Village level workshops and meetings on Producer Company formation: Once the members understand the business prospects and value chain, it is advisable to convert their economic group into a Producer Company. It is very important to be very clear on the pros and cons of every legal form in India for producer based organization. If the producers have selected to be registered under Producer Company, then a power point presentation on the Producer Company Act (in brief and touching the main points) has to be presented to the members. This presentation should be given in the local language, so that the audience (farmers, villagers) feel comfortable in understanding some terminologies and written matters. The facilitators should convey/dialogue in local language which enables the farmers to think and act. This meeting and workshop is critical and important for us because we can further segregate the leaders and active members with whom we can take up the process of registration. But this can only be done if we have conducted two-three meetings with the group because in one shot or in one meeting it is not possible for them to understand the concept of Producer Company. The presentation on Producer Company Act should include the following points: 1. About the Act a. Under which section of Company Act1956 b. Registrar c. Rules are applicable as private company 2. Definitions a. Primary Produce b. Primary Producers 3. Who can form PC 4. Authorized Share capital a. Minimum and Maximum b. How to collect and from where? 5. Voting rights 4 6. Benefits to the members of PC a. Dividend b. Patronage Bonus c. Medical and Education Loan d. Health Insurance 7. Governance and Board Structure a. Board members including expert directors from outside b. Board members (Minimum 5 and maximum 15) c. Board term (minimum of 1 year and maximum of 5 years) d. Expert Directors ( Maximum 3 and minimum 1) e. Rotation of Board of Directors 8. Decisions taken in the General meeting a. Audited financial report b. Fixing Dividend c. Patronage Bonus d. Changes in AOA e. Many more (But share only important) 9. Structure of PC 10. Meeting and Quorum (Board and General Meeting) 11. Special provision in the Act a. Active members can take the benefit of the patronage bonus b. Discontinuation of membership of non-active members c. Dividend on the share capital d. Expert directors can be appointed e. Provision of withheld price 12. Phases of Registration a. Appointment of Company Secretary b. Power of Attorney for Chartered Accountant 5 c. d. e. f. g. h. i. j. k. l. Application for PAN and DIN Application for Digital Signature Certificate (DSC) Application for Company’s Name (four options have to be submitted) Submission of AOA & MOA Forms Nr 1, 18, 32 Declaration from Promoters Getting Certificate of Registration from ROC Open Bank Account on name of PC Conduct Board Meeting within 30 days of registration Conduct AGM within 90 days of registration 13. Capacity Building Program at Producer Level a. Orienting Producers on PC Act b. Roles and Responsibilities of Directors and Office Bearers c. Advantages of Doing Business in Collectives d. Completing legal Formalities (Income Taxes etc.) e. Framing Rules for the Company (Price Policies for Services, Value-Chain etc.) 1.1.4 Organization of Exposure Visit for Active Members Once the core group of active members is identified and their involvement in the registration process is assured, an exposure visit to a successfully established Producer Company will be organized for these leaders. This visit will provide a great opportunity to strengthen feelings of group solidarity and to motivate them further to actively participate. At the same time it can demonstrate the economic benefits of the Producer Company Model. The members will be able to understand the concept and the governance practices much more clearly by the hands-on explanations of fellow producers, who have gone through the same procedures of registration and maybe even initial mixed feelings or confusion as themselves. During this visit, the accompanying initiators will also get a chance to establish a stronger bond of trust with the members, which will turn out to be useful in the following stages of the formation process. 1.1.5 Identification of Promoters Members, who have been particularly active in using the services or supplying the products, attended meetings frequently and showed a keen interest in understanding the Producer Company concept will be selected as Initial Promoters. They should strongly believe in the benefits of doing business as a collective. Additionally, it will be useful if those chosen as Initial Promoters have a good reputation in the community and are motivated to spread info about Producer Companies to fellow farmers/producers. 6 Generally, ten initial promoters are selected from the already identified group of active members. They should represent the diversity of the villages which will form the Producer Company, in terms of demography, gender and geographical area. 1.1.6 Orientation of Promoters on the Registration Process After identification of the promoters a meeting should be held in which the promoters are made aware of the next steps of the registration process and their involvement in those. The presentation given to the Promoters should include the following aspects: List of Promoters PAN (Permanent Account Number) card of each Promoter o Address proof (electricity/ phone bills) & Photo identity proof (Driver’s license, Voter ID, Passport) > true copy Application for DIN o DIN Form has to be filled out o PAN Card and address proof > true copy o 2 passport sized photographs Application for Digital Signature Certificate (DSC) o PAN Card and address proof > true copy o 2 passport sized photographs Application for the company’s name o Promoters have to finalize four names in the order of preference o List of four names has to be given to the CA o Address of the company and the responsible police station Drafting MOA & AOA o Framing rules for their own company 1.2 Legal activities necessary for Registration This section will deal with the various steps that lead up to the official registration of the company. In order to reach this goal, it is absolutely necessary to get the details in the formalities right. 1.2.1 Appointment of the Chartered Accountant (CA) or Company Secretary (CS) In order to disburden the producers and the promoting organizations from having the sole responsibilityfor the legal formalities of the registration process, a Chartered Accountant (CA) or Company Secretary (CS) can be appointed In this case, they have to execute a power of attorney in favor of the person who is authorized to take actions on their behalf 7 A power of attorney letter duly stamped and executed by the director with the DSC has to be submitted to the ROC The CA/CSis authorized to handle all the legal documents filedto the Registrar of Companies (ROC) (e.g. making PAN Cards for members, DIN application, submitting documents for the Company’s name) and MCA also provides help with drafting of AOA and MOA. 1.2.2Application for Allotment of PAN (Permanent Account Number) Card Application Forms (Form No. 49a) are available onlineon the website of the Income Tax Department1or from appointed CA The PAN card of each Promoter has to be obtained in order to apply for the Director Identification Number (DIN) o In order to apply, true copies (with a notary or gazette officer’s signature) of several proof documents have to be submitted: Address proof (electricity/ phone bills) & Photo identity proof (Driver’s license, Voter ID, Passport) Challenges encountered in the application process: o o o o PAN forms have to filled out in English, rural population has a limited knowledge of English, so a facilitator is needed at the time of registration Father’s name is required for the PAN Card, married female members tend to fill in their husband’s name in the form, which results in the necessity to apply again Names on the several proof documents and the submitted photographs should be the identical, otherwise the application will be rejected, which then leads to a significant delay in the registration process; to avoid this situation, an affidavit with the signature of a notary officer has to be provided that the said person is identical or another ID proof, which has the correct spelling of the name, has to be submitted In order to acquire the true copies, villagers themselves or a facilitator have to travel to the nearest municipality office to get the notary/gazette officer’s approval of the documents; usually it takes several visits to get all the documents signed 1.2.3 Application for Director Identification Number (DIN) 1 DIN Form (Form No. DIN - 1) has to be filled out in order to register the company’s directors http://india.gov.in/outerwin.php?id=http://www.incometaxindia.gov.in/ [21.03.2012] 8 The form can be downloaded or filled out online at the website of the Ministry of Corporate Affairs (MCA) 2 Submission of a (scan-) copy of the PAN Card is a must; several other documents are allowed as a second ID proof: o Voter Identity Card, Passport, Driver’s License and address proof > all in true copy Additionally, 2 passport sized photographs have to be submitted In case a CA was hired, he/she will take care of photo-/scan-copying the proof documents, filling out the form and submitting everything to the Ministry of Corporate Affairs Once the DIN Application was successfully accepted, the MCA will issue the DIN and send a notification as a hardcopy to the address and a softcopy to the emailaddress stated on the application form; because many rural villagers don’t have access to the internet, the email-address of the responsible initiator/facilitator should be given, in some cases it might also be advisable to provide a centralized address to collect the notifications instead of having them directly sent to the producers Once the DINs have all been approved, a list of the Directors can be found online at the MCA website and printed out 1.2.4 Application for Digital Signature Certificate (DSC) The DSC, which authorizes a person to sign the company’s official documents, is necessary in cases of documents which are submitted to the ROC or MCA This selected person should ideally be one of the directors, who is frequently available and is actively involved in the financial matters of the company The forms are available through certification agencies(e.g. Tata Consultancy Services, Ancord Solutions) which handle the applications. The application costs may vary from agency to agency, it may be roughly around 1500 Rs.; usually the CA takes care of the whole process, he/she might have a contract with a specific Certification Agency The proof documents are the same as the ones required for the DIN; 2 Photos and the original signature of the authorized person have to be submitted also 1.2.5 Application for Company’s Name 2 In order to brainstorm for the name selections, a meeting with the directors and active members has to be conducted. The producers should be informed that the name is essential for the identification and marketing of the company. It should http://www.mca.gov.in/MCA21/Din.html [22.03.2012] 9 reflect the agricultural activities, in which the producers are involved, as well as their local region. During this meeting, the producers should be encouraged to actively get creative and to think about the reasons why a particular name is chosen and what this means for the future vision of their company Each name has to include the suffix “…Producer Company Limited”, indicating the status of a Producer Company Additionally, it has to be ensured, that the selected names are not already assigned to another company or violate the provisions of emblems and names3 . This can be ascertained on the web portal of the ROC, which lists all existing Producer Companies. The final four shortlisted names have to be submittedto the ROC in a list of preference, alongside with the reasons for the selection of names and the objectives of the company In case a CA is appointed, he/she will fill out the necessary details to apply for a name in the e-form 1(A) on the online portal of the ROC; the signature of the applicant has to be attached to the form and a fee of 500Rs. has to be deposited in a regional bank authorized by the MCA Once a name is approved by the ROC, the MOA and AOA have to be drafted within 60 days; if this deadline is exceeded, the name approval will expire; in this case another application has to be submitted and a service fee is due 1.2.6 Drafting of By-Laws (Memorandum of Association & Articles of Association) 3 The MOA and AOA both help to frame the legal basis of the company, the main difference between the two being that the MOA focusses on its broad objectives and the AOA lay down the rules through which those objectives can be obtained A standard template of MOA & AOA should be translated into local language and the important parts for discussion have to be highlighted This document should then be circulated among the promoters and a group of 15-20 active members, they should go through it and prepare themselves for discussion The next step is the organization of a few workshops with the responsible group for the fine tuning of the MOA & AOA; these workshops should be held in the local language to enable the producers to fully understand the aspects of the MOA & AOA and be actively involved in the decision-making The presentation of drafting process should cover these topics/articles: See: Prevention of Improper Use Act, 1950 10 1. MOA: Producer Company’s Objectives a. Defining Activities b. Future Activities c. Benefits to Producers from above activities 2. AOA: Producer Company’s Rules a. Geographical Area of Operation b. Address of the Company c. Rules for Membership d. Rules for active/inactive members e. Rule for seizing Membership f. Advantages of active Members g. Advantages for Members h. Voting Rights for Members i. Share Value j. Framing Rules for Board k. Functions of Board Members l. Framing Rules for Board Meetings and AGM m. Function of AGM n. Distribution of Net Profit After the presentation is given, the core supporting team should go through the discussed details and, with the support of the Chartered Accountant, come up with the best possible particulars Then these results should be discussed again with the Promoters to get their approval Once the details are finalized by the core team and the producers, the drafts get sent to the CA for final inputs If the CA finalizes the draft, he will inform the supporting team Then the supporting team will call the Promoters to sign the MOA and AOA in person and write down their personal details (name, father’s name, occupation, address) in the presence of a notary lawyer Additionally, the number of shares subscribed to by the individual Promoters has to be mentioned in the last section of the MOA only Then the lawyer will stamp and sign the documents Challenges of Drafting MOA & AOA: When defining objectives, write in broad, general terms to avoid later complications; changing details in MOA & AOA is cost intensive and time consuming When drafting the MOA & AOA, not all legal topics have to be discussed with the producers to avoid confusion 11 Some decisions might take more than one meeting to be finalized, so generally, a few meetings are necessary for the drafting process The group of producers should remain the same throughout the drafting process to ensure smooth discussion Interferences of local politics (for example when discussing the area of operation, selecting the directors) might come up and influence the drafting of the AOA, the facilitator of the promoting organization carefully has to mediate between different groups of members to assure inclusion 1.2.7 Declaration from Promoters, Affidavit and Consent Letter Declaration: o Once the MOAs and AOAs are finalized, a declaration from the Producers has to be drafted, stating their name, age, address and specific agricultural or animal husbandry occupation o In case the producer is not able to write and read in English, the declaration assures that the person was informed about the MOA and AOA in the local language and has agreed to the details o A photograph of the producer has to be pasted to the declaration letter along with four revenue stamps of five rupees each o These declarations then have to be taken to a commercial bank to get astampof 50 or 100Rs.; this fee has to be paid by the producers themselves o Afterwards, the declarations have to be signed by a gazette officer or notary lawyer in the presence of the individual promoters and a witness; during this process, the notary lawyer will check if the statements made by the producer are true. Affidavit: o An affidavit has to be prepared for all directors, stating the above mentioned personal details o In this affidavit, the producers will sign 5 paragraphs related to their eligibility to become a director of the Producer Company: their involvement in an agricultural/ animal husbandry occupation their agreement to the MOA & AOA of their specific Producer Company they are not currently a member or are not planning to apply for the membership in another producer organization engaged with similar activities; that they are also not having any kind of business interactions with middlemen/traders/agents involved in the same business as the producer company o A photograph of the producer has to be pasted to the affidavit letter along with four revenue stamps of five rupees each 12 o o These affidavits then have to be taken to a commercial bank to get a stamp of 50 or 100Rs.; this fee has to be paid by the producers themselves Afterwards, the affidavits have to be signed by a gazette officer or notary lawyer in the presence of the individual promoters and a witness Consent Letter: o A simple consent letter has to be drafted, stating that the specific promoter is giving his/her consent to be a director of the company Challenges: o Due to the involvement of the producers in various occupational and household tasks, it has proved to be difficult to schedule a time when they are able to attend all at once to sign the Declaration, Affidavit, MOA and AOA in front of the lawyer; the supporting organization might have to schedule these activities in batches of a few members at once o When using another affidavit form as a template, attention should be paid to fill in the correct details and not blindly copy the previous form o It is not possible to overwrite on the documents, in case any mistakes occurred, the form has to be filled out again o Because some of the producers might not be literate, the supporting organizations have to train them how to write their names, occupations, address 1.2.8 Forms Nr 1, 18, 32 1.2.9Submission of AOA & MOA The finalized MOA, AOA, Declaration, Affidavit and Consent Letter documents have to be converted into a pdf-format and submitted to the ROC along with the above mentioned forms The registration costs of MOA and AOA have to be paid online 13 Within a few days, the ROC will review the documents In case there are any mistakes, they will contact the CA with their queries and within 30 days the irregularities have to be taken care of, otherwise a penalty fee will be charged Examples of queries: o Lack of proofs of the occupational engagements of the producers o Too many incidental objectives are given in the MOA, some have to be deleted or merged o Number of shares subscribed by producers not mentioned in Form 1 o Promoters subscribed the MOA and AOA in Gujarati without giving true translation in English o Name and address of subscribers were not incorporated in MOA Any query which cannot be easily corrected by the CA and is related to the setup of the Producer Company, like the change of objectives, should be discussed with the Promoters in a meeting and joint decisions should be taken accordingly 1.2.11 Getting Certificate of Incorporation from ROC Once all the queries have been cleared in the permitted timeframe, the ROC will send a softcopy of the Certificate of Incorporation to the CA The producer company is now officially registered, a success that should be celebrated with the supporting team and promoters 1.2.12 Conduct 1st Board Meeting within 30 days of registration The agenda for the 1st Board Meeting has to be drafted by the supporting team in the local language as well as in English and signed by the Managing Director (MD) One week before the meeting, the agenda should be circulated to the directors as well as special invitees (potential expert directors, CEO etc.) in hardcopy Topics of the agenda should be: o Notification of Company’s Registration certificate o Opening of the Company’s Bank Account (when, which bank, which amount of money etc.) o Finalization of the authorized signatory o Sharing of Final MOA and AOA o Planning for Distribution of Shares o Suggesting persons for the posts of CEO and Expert Directors (till 1st General Meeting) o Appointment of Chairperson and MD o Approval for making the business plan 14 o Any other topics raised by the chairperson Resolutions of the agenda should be documented in English and in the local language 1.2.13 Open Bank Account on name of PC After the first board meeting, as per the resolution, a bank account should be opened in the producer company’s name To open a bank account, several documents are required: o Copy of Board Meeting+ Resolution, MOA, AOA, Copy of Certificate of Incorporation, Photographs & ID proofs of the authorized signatories, PAN of the company A bank account can be opened with a minimum of 5000 Rs. It should be a current, not a savings account A national/commercial bank should be given preferencefor the opening of an account The signatories and the facilitator should be present in person while opening the bank account 1.2.14 Make a business plan for the company The reason for drafting another business plan after the registration, is to reevaluate the actual shareholder base and, based on those figures, calculate new projections for the future business of the company Those figures, which are identified with the consultation of the directors, have to be presentedto the directorsin the 1stGM for approval The supporting team should have a template for a business plan, based on previous experience A meeting with the producers (about 15 active members and directors) has to be organized to finalize service portfolio of the producer company; in this meeting, facilitation is key to get to know their demands of services and reason for that Several leading questions can be useful to start the business plan drafting with: o Which services do we want to offer? o In how many villages and to how many members do we want to provide services? o How much will it cost to offer these? o How much revenue do we want to create with the services? o How much shouldwe chargethe members for thoseservices? o Which staff is required and how much salary do we have to pay? o Which will be the additional sources of funds that could be accessed? Donations, share capital, funds from NGOs, loans from banks, government schemes etc. 15 o o o How much interest will be due when loans are taken from the bank? Administrative and transport costs Profit and loss statements 1.2.15 Conduct 1st General Meeting within 90 days of incorporation All shareholders have to be informed about the meeting and the agenda has to be circulated in the local language at least 15 days before the meeting Topics to be included in the agenda are: o Appointment of Chairperson o Adoption of MOA & AOA o Approval of Registration Expenses o Appointment of Directors o Appointment of Managing Director o Adoption of budget and program activities > business plan o Appointment of Auditor and Expert Directors After the meeting, the meeting minutes have to be written in the local language as well as in English In case any new director or expert director is appointed or the MOA or AOAs are adapted, the changes have to be reported to the ROC 16 2.Annexure Figure 1: PAN-Application Form 49a Figure 2: PAN- Card 17 Figure 3: Required Details for Form DIN -1 REQUIRED DETAILS OF DIN 1. Full Name & Address __________________________________ __________________________________ 2. E-Mail Address __________________________________ 3. Father’s Full Name __________________________________ 4. Date of Birth __________________________________ 5. Copy as Identity Proof of any one: Passport Election Card Driving License Income Tax PAN Card 6. Copy as Address Proof of any one: Passport Election Card Driving License Electricity Bill Telephone Bill Bank Account Statement 7. Passport Size Photo – ONE (STD Code) Phone No. 8. Telephone Number 9. Mobile Number 18 Figure 4: Signatures in the MOA 19 Figure 5: Signatures on the AOA 20 Figure 6: Declaration of Promoters 21 Figure7: Affidavit 22 Figure 8: Consent Letter of Directors 23 Figure 9: Form 1 (tob e filled out for all promoters> page 2-10) 24 25 26 Figure 10: Form 18 27 28 Figure 11: Form 32 (to be filled out for all Directors> pages 2-12) 29 30 31 Figure 12 32 Figure12: Share Certificate 33 34