Picture Credit- Mukul Sangwan https://myexpedition.in/
Structural transformation is an essential element of the growth and development of any economy. Since independence, the Indian economy has followed the classical transformation patterns, and agriculture is one of them.
However, Indian agriculture is still way behind. Indian agriculture has capabilities, and to achieve them, farmers need to understand the power of collective working.
In India, the producer companies were introduced 20 years ago, which is still an emerging concept in India. In 2002 the Producer Companies Act was enacted with a vision that Farmer Producer Organizations (also known as Farmer Producer Companies) would enable farmers or small producers to pool their resources and sell their products to increase profits and reduce the risks individual farmers. Around 85% of the landholdings belongs to marginal farmers. Being unorganized, farmers are unable to realize good value for their produce.
Pilots implemented by NABARD, SFAC etc., show that small and marginal farmers’ challenges can be resolved by organizing them into the FPOs. FPOs empower farmer-members to receive the benefits of economies of scale in the end to end farming process and timely access to adequate credit and market linkages schemes.
Nowadays, Corporate Houses are also keen to support FPOs for capacity building and honing their managerial skills so that FPOs can run their activities like a business and drive profits.
To form and establish a sustainable FPO, a comprehensive process including observing legal formalities, developing sound organizational structure and capacity building are crucial pillars. In this article, I am going to discuss the basic concept of FPOs, legal formalities in this article:
What is FPO?
FPO is a legal entity formed by producer groups like farmers, milk producers, fishers, rural artisans etc.
An FPO can be registered in any legal form such as Cooperative Society, Producer Company, Non-Profit Society, Trust or Section-8 Company which provides for-profit/benefit sharing among the members smoothly.
What are the key- features of FPO?
- It is formed by the group of producers for farm or non-farm activities.
- It is a legally formed entity.
- Producers are the shareholders/members of the organization
- It works for the benefit of member farmers/producers, and a part of the profit is to be shared among the members.
- Rest surplus is to be used for the business expansion of the FPO.
What are the different legal entity types to form FPO?
FPOs can be registered in any of the following legal forms:
- Producer Company under Section 465 of the Indian Companies Act, 2013.
- Section 8 under Indian Companies Act, 2013.
- Societies registered under Society Registration Act, 1860.
- Cooperative Society Act, 2002.
- Public Trusts registered under the Indian Trusts Act, 1882.
Is registration mandatory for FPO?
A legally registered entity can enter into contracts that are an integral part of running a business. For day-to-day activities, an FPO is required to enter into the contracts and agreements with banks, financial institutions, vendors, customers etc. It is recommended to register the FPO to enjoy all the available benefits a legal entity does.
Which type of legal entity is preferable for an FPO?
While choosing an entity type, the following factors may be kept in view:
- Primary producers should get the benefit from the surplus generated by the FPO.
- The legal form needs to fit into the business needs, organizational priorities, social capital and management capacity of the proposed FPO.
- The registration process should not be too demanding in terms of time and resources.
Comparative chart for the type of legal entities
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Forming a legal entity for FPO is comparatively easy while managing and developing an FPO needs special attention. In my next article, I will talk about certain crucial practical challenges and mitigation plans, including capacity building, technology and FPO Management.
Till then, if you are looking for someone who can help you to register the FPO, please reach out to us.
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