Define Cooperative Societies, mention it’s Features, Advantages & Disadvantages

The word “cooperation” is derived from the Latin word “co-operari”. The word ‘co’ means ‘with’ and ‘operari’ means ‘to work’. Therefore, the word cooperation means working together. Therefore, those who want to work together for certain common economic goals can form a society, which is called a cooperative society.

A co-operative society is a voluntary organization of individuals working together to promote financial interests. It works on the principle of self-help and mutual aid. The primary goal is to provide services to members. The goal of a cooperative society is “for all and for all.” People come forward to form a team, gather their personal resources, make the best use of them and achieve some common benefits.


Define Cooperative Societies,  mention it's Features, Advantages & Disadvantages

Section (4) of the Indian Co-operative Societies Act, 1912 defines a co-operative society as “a community”.

H.C. Calvart defines a cooperative society as “an organization in which individuals voluntarily unite as human beings on the basis of equality in order to advance their economic interests.”

Features of Cooperative Societies

The main characteristics of the cooperative social form of a business organization are as follows.

1. Voluntary Organization: Co-operative societies are voluntary organizations started with the objective of serving the members. Everyone is free to enter or leave the Co-operative Society as they wish. Persons with common financial goals can join the community at any time. The main characteristic is voluntary membership of co-operative society.

2. Open Membership: In co-operative societies, membership is available to anyone with a common financial interest. Anyone can join voluntarily irrespective of caste, creed, religion, color and gender.

3. Number of members: At least 10 ordinary persons are required to form a co-operative society. In many state co-operative societies, if the members are individuals, the minimum number of members from each state should be 50. The Co-operative Societies Act, 1912 does not specify the maximum number of members of a co-operative society. However, once the community is created, members can specify the maximum number of members.

4. Registration of Association: In India, Co-operative Societies are registered under the Co-operative Societies Act, 1912 or under the State Co-operative Societies Act. Multi-State Co-operative Societies are registered under the Multi-State Co-operative Societies Act, 2002. Once registered, the community becomes a separate legal entity and acquires certain features. These are:

  • The Society enjoys perpetual succession.
  • It has its own common seal.
  • It is possible to enter into agreements with others.
  • This may lead others to sue in court.
  • Assets can be kept in its name.

5. State Control: As the registration of Co-operative Societies is mandatory, each Co-operative Society comes under the control and supervision of the Government. The activities of the associations are monitored by the Co-operation Department. Each community should audit its accounts from the government co-operative sector.

6. Capital: The capital of a co-operative society is provided by its members. Since the contribution of the members is very low, it is mostly dependent on the assistance of the government (loan), grants, supreme co-operatives or the state and central government.

7. Democratic Management: Co-operative societies are democratically managed. Each member has the right to participate in society management. However, the society chooses a board of directors for its efficient management. Board members are selected on the basis of ‘one vote per person’, regardless of the role of any member. The general organization of the community forms the broad structure on which the Board operates.

8. Service Purpose: The primary objective of every co-operative society is to provide services to its members. Its purpose is not to make a profit like all other types of business restrictions. Societies make a small profit when they sell goods to non-members to cover administrative costs.

9. One vote per person: Co-operatives have one vote per member irrespective of their contribution to capital. No one can control society by the power of his wealth. All members of society management have an equal voice.

10. Surplus Distribution: Surplus profits are distributed in the form of bonuses after the community members are given a limited dividend on their investment and a certain percentage is set aside for the common good of the community.

11. Return on investment: Members are entitled to a return on their capital investment before the surplus is disbursed in the form of a bonus. It encourages members to keep money with the community.

12. Cash Trading: One of the main principles of co-operatives is to trade on monetary basis. Co-operatives will prosper when the monetary policy is strictly adhered to. Money laundering stabilizes the economy of co-operatives and eliminates bad debts and accumulation costs.

Also read: Define Partnership Firm, Features, Advantages & Disadvantages

Advantages and Disadvantages

Advantages of Cooperative Societies

The Advantages of co-operative societies are as follows:

1. Simple Formation: Forming a cooperative is simple and straightforward. Many legal systems, such as a joint stock company, do not need to be complied with. Any mature member can form a society. The registration process is very simple.

2. Democratic Management: Each member of a co-operative society has only one vote, regardless of the number of shares he / she holds. Meetings are well attended and people are not allowed to vote by proxy. The management of society is democratic.

3. Service Purpose: Co-operative societies are started for service and not for profit. Offers products at low prices to members. Offers low-cost financial assistance to members. A sense of cooperation was created among the members.

4. Low operating cost: The administrative cost of a co-operative society is generally low. Management of a co-operative society in the hands of persons selected by the shareholders. Some people work to see the day-to-day activities of societies. Many members provide administrative services as services. Therefore, societies do not have to spend large sums on administrative staff.

5. Limited Liability: The liability of each member is limited to the extent of his capital contribution. The private property of the members cannot be used to cover the loss of the co-operatives.

6. Sustainability and Continuity: A co-operative society becomes a separate legal entity after registration. The death, bankruptcy, conviction and pension of any member shall not affect the stability and continuity of the co-operative society. These communities enjoy stability and continuity of activities.

7. Social Desire: Co-operative societies work for the social upliftment of the economically backward sections of the society. Provides education and training in a co-operative form of organization, democracy, autonomy, self-help, mutual aid and service-mindedness. Such companies are socially desirable to protect the weaker sections from the exploitation of those who aim to increase their profits.

8. Tax Benefits: A co-operative society is exempted from income tax and is charged an additional fee for its income up to a certain limit. It is exempt from stamp duty and registration fee.

9. State Support: The Government has adopted a policy of assisting co-operatives as a tool for socio-economic development of the weaker sections of the society by providing financial assistance in the form of loans and grants. The State Government provides incentives and concessions to co-operative societies and encourages the formation of such societies.

10. No speculation in shares: In a co-operative society, any person can buy shares at any time. Membership is always available for new members. Therefore, it is not possible to trade in shares of co-operatives.

11. Elimination of Intermediaries: Co-operatives remove intermediaries from the distribution channel as they buy goods directly from the manufacturer and sell them to the members at cheaper and better quality. Consumption exploitation is avoided.

12. Check other business: When business men try to exploit customers by increasing the price of their products, co-operatives offer products at reasonable prices. Cooperation is a test of other business entities. While co-operatives offer these products at a lower price, other companies should reduce their price.

13. Purpose of Mutual Development: Co-operative societies operate on the principle of “One for All, One for All” with the objective of mutual development.

Disadvantages of cooperative societies

The disadvantages of Cooperative Societies are as follows:

1. Inefficient management: Management team members do not show proper interest in management as they only pay for their services. Furthermore, a co-operative society cannot employ people with the required skills, knowledge and experience other than the institutional structure.

2. Limited financial resources: Special control and the principle of “one member, one vote” prevent the rich from joining society. Due to lack of funds, there is limited opportunity for expansion and growth.

3. Lack of unity among members: Members belong to different sections of the society. There is no reconciliation between them. Members do not understand the workings of society, so they begin to doubt each other. Many co-operatives fail due to constant group competition and quarrels between members.

4. Lack of motivation for hard work: Management team members do not take an active role and interest in management and community matters because their service brings great benefits to the community.

5. Shares cannot be exchanged: In cooperative societies, a member may not freely transfer his shares but may be allowed to withdraw his capital.

6. Strict State Regulation: As all co-operative societies are registered under the Co-operative Societies Act, 1912, these societies are required to comply with the Co-operative Societies Act and the laws and regulations of the Government.

7. Non-confidential: Community members choose individuals to control their communities. These individuals change over time. The affairs of a co-operative society will be disclosed to all members. So it is very difficult to keep business matters secret.

8. Lack of loyalty: The loyalty of the members of a co-operative society is not always firm and it cannot be enforced.

9. Political Intervention: Nominates government members to management committees. Each government seeks to send its own party members to these associations.

10. Lack of competitive power: Co-operatives with limited resources cannot compete effectively with large producers and they can reduce costs and overheads through mass production.

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