Reduce compliance costs for producers.
Ease of formation, business management, taxation and
Flexible regulatory compliances
Suggested changes in LLP Act 2008
Incorporation of Producer LLPs by an amendment to the Act
A model agreement be inserted under the LLP Act, 2008 for ready use by Producer LLPs. Model agreement will be helpful in guiding the decisions of the Producer LLP and ensuring smooth functioning.
A producer has been defined as any person engaged in any activity connected with or relatable to primary produce, such as farmers and persons engaged in handloom, handicraft or other cottage industries.
Producer organisations play a pivotal role in reducing transaction costs and provide a forum for members to share mutually beneficial information, coordinate activities and make collective decisions.
It has been further noted that such an institutional support mechanism makes small producer agriculture more viable and can increase producers’ income.
While producer institutions have traditionally been organised in the form of co-operative societies, the concept of Producer Companies was introduced in the Companies Act, 1956 through the Companies (Amendment) Act, 2002. The amendment above sought to include mutual assistance and co-operative principles within the regulatory framework of company law, with suitable modifications. Under Section 378C of the Companies Act, 2013, a producer company may be incorporated where the objects of such company include matters relating to production, harvesting, procurement of primary produce; processing and packaging of produce; manufacture, sale or supply of machinery or equipment to members; providing education on mutual assistance principles to members; and rendering technical consultancy services, training and development for the promotion of interests of its members.
In light of the benefits associated with producer institutions and the comparative
advantages of LLPs vis-à-vis companies, particularly concerning reduced compliance burden, The Company Law Committee (2022) headed by Corporate Affairs Secretary Rajesh Verna (Herein after referred as “ the committee” deliberated whether Producer LLP’s may be incorporated within the LLP Act, 2008.
The Committee noted that Producer LLPs would serve as a more desirable option for small producers since LLPs have been provided with a range of relaxations in the conduct of their affairs. For instance, an LLP is not required to get its accounts audited unless its turnover exceeds Rs. 40 lakhs or its capital contribution exceeds Rs. 25 lakhs. The Committee felt that Producer LLPs are expected to function on a threshold lower than this stipulated limit and agreed that incorporating Producer LLPs would significantly reduce compliance costs for producers. Similarly, the LLP model offers ease of formation, business management, taxation and flexible regulatory compliances, which may be particularly beneficial for producers.
Therefore, to enable producer institutions to take advantage of the light touch regime under the LLP Act, 2008, the Committee recommended enabling the incorporation of Producer LLPs by an amendment to the Act. The Committee further underscored the importance of an LLP Agreement to guide the decisions of the Producer LLP and ensure its smooth functioning. Accordingly, it was recommended that a model agreement be inserted under the LLP Act, 2008 for ready use by Producer LLPs.