Co-operative Society



Let us take one example. Suppose a poor villager has two cows and gets ten litres of milk. After consumption by his family everyday he finds a surplus of five liters of milk. What can he do with the surplus? He may want to sell the milk but may not find a customer in the village. Somebody may tell him to sell the milk in the nearby town or city. Again he finds it difficult, as he does not have money to go to the town to sell milk. What should he do? He is faced with a problem. Do you have any solution for him?

One day that poor villager met a learner of NIOS who had earlier read this lesson. The learner told him, you see, you are not the only person facing this problem. There are many others in your village and also in the nearby village who face a similar problem. Why don’t you all sit together and find a solution to your common problem? In the morning you can collect the surplus milk at a common place and send somebody to the nearby town to sell it.

Again in the evening, you can sit together and distribute the money according to your contribution of milk. Of course first you have to deduct all the expenses from the sale proceeds.

That villager agreed to what the learner said. He told everybody about this new idea and formed a group of milk producers in his village. By selling the milk in the nearby town they were all able to earn money. After that they did not face any problem of finding a market for the surplus milk.

This process continued for a long time. One day some body suggested that instead of selling only milk why not produce other milk products like ghee, butter, cheese, milk powder etc. and sell them in the market at a better price? All of them agreed and did the same. They produced quality milk products and found a very good market for their products not only in the nearby town but in the entire country.

Just think it over. A poor villager, who was not able to sell five litres of milk in his village, is now selling milk and milk products throughout the nation. He is now enjoying a good life. How did it happen? Who made it possible? This is the reward of a joint effort or co–operation.


Characteristics of Co-operative Society

 A co-operative society is a special type of business organisation different from other forms of organsation you have learnt earlier. Let us discuss its characteristics.

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:

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:

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:

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:

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:

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:

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:

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:

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

 A Co-operative form of business organisation has the following advantages:


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:

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:

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:

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:

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

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:

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


Disadvantages of Co–operative Society

Besides the above advantages, the co-operative form of business organisation also suffers from various limitations. Let us learn these limitations.

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:

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:

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:

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:

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.











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