Company Law and Practice · Share and Share Capital - Concepts

Share Capital of a Producer Company under Section 378ZB

Updated 11 October 2026 · Fact-checked

Under Section 378ZB, the share capital of a Producer Company consists of equity shares only. The shares a member holds should, as far as may be, be in proportion to the member's patronage of the company. To answer questions, state the rule, then link it to voting under Section 378D and conclude.

Understand Share Capital of Producer Companies (Section 378ZB)

A Producer Company is a special type of company, mainly for primary producers such as farmers. Its rules sit in a separate part of the Companies Act, 2013. Section 378ZB is the provision on its share capital.

Section 378ZB(1) says the share capital of a Producer Company shall consist of equity shares only. This is different from an ordinary company limited by shares. Section 43 allows such a company two kinds of share capital: equity and preference. A Producer Company cannot have preference share capital.

Section 378ZB(2) says the shares held by a member shall, as far as may be, be in proportion to the patronage of that company. Patronage means how much the member uses or deals with the company's business. A member who supplies or uses more would normally hold more shares. The words 'as far as may be' make this a guiding rule, not an exact mathematical rule.

Shareholding does not decide voting power in the usual way. Section 378Z gives every member one vote. Section 378D then sets out who votes and how. If all members are individuals, each has one vote irrespective of shareholding or patronage. If members are only Producer Institutions, votes depend on their participation in the business in the previous year, as the articles specify. In the first year of registration, their votes depend on shareholding. If members are both individuals and Producer Institutions, each member has one vote.

So remember the split. Section 378ZB deals with what kind of shares and how many a member holds. Sections 378Z and 378D deal with voting. The articles can also restrict voting to active members, if they authorise it.

Key rules to remember

Kind of share capital: Producer Company share capital = equity shares only; Section 378ZB(1). No preference shares, unlike Section 43 for ordinary companies.
Shareholding rule: Shares held by a member ∝ member's patronage (as far as may be); Section 378ZB(2). It is a proportion to be followed as far as may be.
General voting rule: One member = one vote; chairman has a casting vote on a tie, except in election of the Chairman; Section 378Z, subject to Section 378D(1) and (3).
Voting, individuals only: One vote per member, irrespective of shareholding or patronage; Section 378D(1)(a).
Voting, Producer Institutions only: Votes based on participation in business in the previous year, as the articles specify; in first year, based on shareholding; Section 378D(1)(b) and its proviso.
Voting, mixed membership: One vote per member; Section 378D(1)(c).
Restriction to active members: Voting may be limited to active members if the articles authorise it; Section 378D(3), applies in special or general meetings.

How to solve Share Capital of Producer Companies (Section 378ZB) questions

Use this method for any question on share capital or voting in a Producer Company.

1Identify the company as a Producer Company and say that Part on Producer Companies applies, not the ordinary rules.
2State Section 378ZB(1): share capital is equity shares only, so any preference shares are not allowed.
3State Section 378ZB(2): a member's shares should, as far as may be, be in proportion to patronage.
4If voting is asked, identify the membership type: individuals only, Producer Institutions only, or mixed.
5Apply Section 378Z and Section 378D(1) to find votes per member. Check the first-year proviso for Producer Institutions.
6Check whether the articles restrict voting to active members under Section 378D(3).
7Write a clear conclusion that answers the exact question asked.

Quickest way: Three-question check

When to use it: Use it when a short-answer or case question gives you limited time.

Ask: what kind of shares? Answer: equity only (378ZB(1)).
Ask: how many shares per member? Answer: in proportion to patronage, as far as may be (378ZB(2)).
Ask: how do they vote? Answer: one vote per member, except Producer-Institution-only membership, which follows previous-year participation (378D).

Common mistakes in Share Capital of Producer Companies (Section 378ZB)

Saying a Producer Company may issue preference shares like any company under Section 43.
Students carry the general rule on kinds of share capital into every company type.
Fix: Remember Section 378ZB(1): equity shares only. Section 43 is the general rule for ordinary companies limited by shares.
Saying votes are in proportion to shares held, as in Section 47.
Section 47 links votes on a poll to paid-up equity capital, so it feels automatic.
Fix: For Producer Companies, use Sections 378Z and 378D. Individual members get one vote each irrespective of shareholding.
Treating the patronage rule as exact and strict.
Students ignore the words 'as far as may be'.
Fix: Quote the phrase. The proportion is to be followed as far as may be.
Applying previous-year participation to all members for voting.
Students mix up the cases in Section 378D(1).
Fix: That test applies only where membership consists of Producer Institutions only. Individuals only, and mixed membership, get one vote per member.
Forgetting the first-year proviso.
It is a short proviso that is easy to skip.
Fix: In the first year of registration, Producer Institutions' votes are based on their shareholding.
Putting Section 378ZB and Section 378D together as one section.
Both are in the same Part and deal with members.
Fix: Cite 378ZB for share capital and 378D for membership and voting, and 378Z for the one-member-one-vote rule.

Worked examples

Example 1

Green Valley Producer Company Limited wishes to raise funds by issuing 10% cumulative preference shares to its farmer members. Advise whether this is permissible.

Show the solution

Provision: Section 378ZB(1) says the share capital of a Producer Company shall consist of equity shares only.
Analysis: Preference shares are not equity shares. Under Section 43, preference share capital is a separate kind carrying a preferential right to dividend and repayment of capital.
Because the share capital must be equity only, a preference share issue falls outside what Section 378ZB(1) permits.

Answer: The issue is not permissible. A Producer Company can have equity share capital only under Section 378ZB(1).

Example 2

A Producer Company has only individual farmers as members. Member A holds 500 shares and supplies large quantities of produce. Member B holds 50 shares and supplies little. How many votes does each have at a general meeting, assuming the articles do not restrict voting to active members?

Show the solution

Provision: Section 378Z gives every member one vote, subject to Section 378D(1) and (3).
Membership consists solely of individuals, so Section 378D(1)(a) applies: one vote per member irrespective of shareholding or patronage.
The articles do not restrict voting to active members, so Section 378D(3) does not change the result.
Section 378ZB(2) affects how many shares each holds, in proportion to patronage as far as may be. It does not change the votes.

Answer: Each of A and B has one vote. Votes do not depend on the number of shares or the level of patronage.

Exam tips

In a long answer, give the provision first, then facts, then the conclusion, citing Section 378ZB and Section 378D.
Quote 'equity shares only' and 'as far as may be' exactly. Examiners look for these phrases.
Compare Producer Company voting with Section 47 for ordinary companies to show depth, but keep the comparison short.
For case questions, first name the type of membership before stating the votes.
Do not quote figures or percentages that the sections do not contain.

Practice questions from Share and Share Capital - Concepts

Share Capital of Producer Companies (Section 378ZB): frequently asked questions

What does Section 378ZB say?

It has two parts. The share capital of a Producer Company shall consist of equity shares only, and the shares held by a member shall, as far as may be, be in proportion to the patronage of the company.

Can a Producer Company issue preference shares?

No. Section 378ZB(1) limits its share capital to equity shares only. This differs from Section 43, which allows equity and preference capital in an ordinary company limited by shares.

Do members of a Producer Company vote according to their shares?

Generally no. Section 378Z gives every member one vote. Section 378D says individual-only membership has one vote per member irrespective of shareholding or patronage. Producer-Institution-only membership is the case where votes depend on business participation.

What does patronage mean in a Producer Company?

It means the extent to which a member uses or deals with the company's business, such as supplying produce. Section 378ZB(2) links a member's shareholding to it as far as may be.

Can voting be limited to active members?

Yes, if the articles authorise it. Section 378D(3) allows a Producer Company to restrict voting rights to active members in any special or general meeting.