Co-operative society

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Summary : 

Summary So far you have learnt about sole proprietorship, partnership and joint stock company as different forms of business organisation. You must have noticed that besides many differences among them in respect of their formation, operation, capital contribution as well as liabilities, one common similarity is that they all engage in business activities to earn profit. Without profit it is impossible for them to survive and grow. But there are certain organisations which undertake business activities with the prime objective of providing service to the members. Although some amount of profit is essential to survive in the market, their main intention is not to generate profit and grow. They pool available resources from the members, utilise the same in the best possible manner and the benefits are shared by the members. Let us know more about them.

9.1 Objectives : 

9.1 Objectives explain the meaning of co-operative society; state the characteristics of a co-operative society; describe the procedure of formation of a co-operative society; identify different types of co-operative societies; discuss the advantages and disadvantages of a co-operative society; and assess the suitability of co–operative society form of business organisation.

Types of Co-operative Societies : 

Types of Co-operative Societies

1. Consumers’ Co-operative Society : 

1. Consumers’ Co-operative Society These societies are formed to protect the interest of general consumers by making consumer goods available at a reasonable price. They buy goods directly from the producers or manufacturers and thereby eliminate the middlemen in the process of distribution. Kendriya Bhandar, Apna Bazar and Sahkari Bhandar are examples of consumers’ co-operative society

2. Producers’ Co-operative Society : 

2. Producers’ Co-operative Society These societies are formed to protect the interest of small producers by making available items of their need for production like raw materials, tools and equipments, machinery, etc. Handloom societies like APPCO, Bayanika, Haryana Handloom, etc., are examples of producers’ co-operative society

3. Co-operative Marketing Society : 

3. Co-operative Marketing Society These societies are formed by small producers and manufacturers who find it difficult to sell their products individually. The society collects the products from the individual members and takes the responsibility of selling those products in the market. Gujarat Co-operative Milk Marketing Federation that sells AMUL milk products is an example of marketing co-operative society

4. Co-operative Credit Society : 

4. Co-operative Credit Society These societies are formed to provide financial support to the members. The society accepts deposits from members and grants them loans at reasonable rates of interest in times of need. Village Service Co-operative Society and Urban Cooperative Banks are examples of co-operative credit society.

5. Co-operative Farming Society : 

5. Co-operative Farming Society These societies are formed by small farmers to work jointly and thereby enjoy the benefits of large-scale farming. Lift-irrigation cooperative societies and pani-panchayats are some of the examples of co-operative farming society.

6. Housing Co-operative Society: : 

6. Housing Co-operative Society: These societies are formed to provide residential houses to members. They purchase land, develop it and construct houses or flats and allot the same to members. Some societies also provide loans at low rate of interest to members to construct their own houses. The Employees’ Housing Societies and Metropolitan Housing Co-operative Society are examples of housing co-operative society

Characteristics of Co-operative Society : 

Characteristics of Co-operative Society

i. Open membership : 

i. Open membership The membership of a Co-operative Society is open to all those who have a common interest. A minimum of ten members are required to form a cooperative society. The Co–operative societies Act does not specify the maximum number of members for any co-operative society. However, after the formation of the society, the member may specify the maximum number of members

ii. Voluntary Association : 

ii. Voluntary Association Members join the co-operative society voluntarily, that is, by choice. A member can join the society as and when he likes, continue for as long as he likes, and leave the society at will.

iii. State control : 

iii. State control To protect the interest of members, co-operative societies are placed under state control through registration. While getting registered, a society has to submit details about the members and the business it is to undertake. It has to maintain books of accounts, which are to be audited by government auditors.

iv. Sources of Finance : 

iv. Sources of Finance In a co-operative society capital is contributed by all the members.However, it can easily raise loans and secure grants from government after its registration.

v. Democratic Management : 

v. Democratic Management Co-operative societies are managed on democratic lines. The society is managed by a group known as “Board of Directors”. The members of the board of directors are the elected representatives of the society. Each member has a single vote, irrespective of the number of shares held. For example, in a village credit society the small farmer having one share has equal voting right as that of a landlord having 20 shares.

iv. Service motive : 

iv. Service motive Co-operatives are not formed to maximise profit like other forms of business organisation. The main purpose of a Co-operative Society is to provide service to its members. For example, in a Consumer Co-operative Store, goods are sold to its members at a reasonable price by retaining a small margin of profit. It also provides better quality goods to its members and the general public.

v. Separate Legal Entity : 

v. Separate Legal Entity A Co-operative Society is registered under the Co-operative Societies Act. After registration a society becomes a separate legal entity, with limited liability of its members. Death, insolvency or lunacy of a member does not affect the existence of a society. It can enter into agreements with others and can purchase or sell properties in its own name.

vi. Distribution of Surplus : 

vi. Distribution of Surplus Every co-operative society in addition to providing services to its members, also generates some profit while conducting business. Profits are not earned at the cost of its members. Profit generated is distributed to its members not on the basis of the shares held by the members (like the company form of business), but on the basis of members’ participation in the business of the society. For example, in a consumer co-operative store only a small part of the profit is distributed to members as dividend on their shares; a major part of the profit is paid as purchase bonus to members on the basis of goods purchased by each member from the society

vii. Self-help through mutual cooperation : 

vii. Self-help through mutual cooperation Co-operative Societies thrive on the principle of mutual help. They are the organisations of financially weaker sections of society. Co-operative Societies convert the weakness of members into strength by adopting the principle of self-help through mutual co-operation. It is only by working jointly on the principle of “Each for all and all for each”, the members can fight exploitation and secure a place in society.

Advantages of Co-operative Society : 

Advantages of Co-operative Society

i. Easy Formation : 

i. Easy Formation Formation of a co-operative society is very easy compared to a joint stock company. Any ten adults can voluntarily form an association and get it registered with the Registrar of Co-operative Societies.

ii. Open Membership : 

ii. Open Membership Persons having common interest can form a co-operative society. Any competent person can become a member at any time he/she likes and can leave the society at will.

iii. Democratic Control : 

iii. Democratic Control A co-operative society is controlled in a democratic manner. The members cast their vote to elect their representatives to form a committee that looks after the day-to-day administration. This committee is accountable to all the members of the society.

iv. Limited Liability : 

iv. Limited Liability The liability of members of a co-operative society is limited to the extent of capital contributed by them. Unlike sole proprietors and partners the personal properties of members of the co-operative societies are free from any kind of risk because of business liabilities.

v. Elimination of Middlemen’s Profit : 

v. Elimination of Middlemen’s Profit Through co-operatives the members or consumers control their own supplies and thus, middlemen’s profit is eliminated.

vi. State Assistance : 

vi. State Assistance Both Central and State governments provide all kinds of help to the societies. Such help may be provided in the form of capital contribution, loans at low rates of interest, exemption in tax, subsidies in repayment of loans, etc.

vii. Stable Life: : 

vii. Stable Life: A co-operative society has a fairly stable life and it continues to exist for a long period of time. Its existence is not affected by the death, insolvency, lunacy or resignation of any of its members

Limitations of Co–operative Society : 

Limitations of Co–operative Society

i. Limited Capital : 

i. Limited Capital The amount of capital that a cooperative society can raise from its member is very limited because the membership is generally confined to a particular section of the society. Again due to low rate of return the members do not invest more capital. Government’s assistance is often inadequate for most of the co-operative societies.

ii. Problems in Management : 

ii. Problems in Management Generally it is seen that co-operative societies do not function efficiently due to lack of managerial talent. The members or their elected representatives are not experienced enough to manage the society. Again, because of limited capital they are not able to get the benefits of professional management.

iii. Lack of Motivation : 

iii. Lack of Motivation Every co-operative society is formed to render service to its members rather than to earn profit. This does not provide enough motivation to the members to put in their best effort and manage the society efficiently.

iv. Lack of Co-operation : 

iv. Lack of Co-operation The co-operative societies are formed with the idea of mutual co-operation. But it is often seen that there is a lot of friction between the members because of personality differences, ego clash, etc. The selfish attitude of members may sometimes bring an end to the society.

v. Dependence on Government : 

v. Dependence on Government The inadequacy of capital and various other limitations make cooperative societies dependant on the government for support and patronage in terms of grants, loans subsidies, etc. Due to this, the government sometimes directly interferes in the management of the society and also audit their annual accounts.

Slide 35: 

Advantages Disadvantages • Easy formation • Open membership • Democratic Control • Limited Liability • Elimination of Middleman’s Profit • State Assistance • Stable Life • Limited Capital • Problems in Management • Lack of Motivation • Lack of Cooperation • Dependence on Government

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