Introduction to Business

Assignment #02

Topic: Cooperative Society

Submitted to: Ms Pakeeza

Submitted By: Sahrish Jabbar

B.com -1

Roll No. 91651041

Lahore College for Women University

 Cooperative society

Introduction:
The object of sole trader ship, partnership and joint stock of company is to earn
profit but a cooperative society is formed to protect the rights of poor and to provide goods
and services at lowest price to members. In 1844, the cooperative movement was started by
Robert Owen in England with 28 flannel weavers and decided to establish a store named
“Rochdale Society of Equitable pioneers”. It was a consumer cooperative society, which
increased the trend of establishing different societies. After this, in 1846 and 1851, the
Agriculture Credit Cooperative Societies and Cooperative Banks were established in
Germany. The cooperative society is established on the principle of self-help to increase the
feelings of mutual cooperation. In sub-continent, the movement of cooperative society was
started in 1895.

Robert Owen (1771–1858) was a social reformer and a pioneer of the cooperative

movement
Definition:
“Cooperative society is formed for the promotion of
thrift, self-help and mutual aid among agriculturists
and other persons with common economic needs so
as to bring about better living better business and
better method of production and for that purpose to
consolidate sources.”

(Cooperative Society Act 1925)

Objects:
 Render services, not for profit;
 Mutual help, not competition;
 Self help, not dependence;

Benefits of Cooperative
Society:
These are 5 benefits that cut across
a typical cooperative society in the
Nigerian context:

1. Savings:
Savings may not be as effective
as you want it to be with other methods
of saving. Like the ATM cards enables
you to make payments online, purchases and the likes through that savings account.
Meaning that whatever savings I have kept in those financial institutions is not actually a
savings. It’s just a temporary warehousing such money to be disbursed. But cooperatives
are as regimented that once you save you cannot withdraw your money except you are
terminating your membership.

2. Credits:
We all need credits to pay rents, meet short term needs, buy electronic
appliances, school fees and the rest. So credit is one major benefit members benefit
from. If you save in a commercial bank, you still may not reach the requirement of
getting a loan there but with the cooperative, as long as you adhere to the rules and
regulations and you can save consistently in a minimum period prescribed in the
bylaw, you are sure of getting a credit
3. Networking
Cooperatives give you the platform to network. With a cooperative society that
has members of about 200 -300 or more; it means that whatever it is you are doing as
an individual, you can showcase such products with the members of the cooperative.
Meaning you can network.
4. Dividend:
There is always dividends that is paid which a lay man will call returns on
investment. That simply means that when you have saved for a year, the cooperative is
bound to share what we call surplus to its members depending on what you have
saved.
5. Acquisition:
In the area of acquisition of properties, cooperatives come in handy to assist
such process in ease of payments and other benefits attached to being a member.

Characteristics of cooperative society:

1. Open membership:
The membership of a co-operative society is open to all those who have a
common interest. 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 members may specify the maximum number.
2. Voluntary organization:
A co-operative society is totally based on voluntary membership. Persons having
common interest can join as members. A member can join the society as and when he
likes. Continue for as long as he likes, and leaves the society at will.

3. State control:
To protect the interest of members, co-operative societies are placed under state
control thorough registration. While getting registered, a society has to submit details
about the members and the business it is to undertake.

4. Sources of finance:
In a co-operative society capital is contributed by all the members. However, it
can easily raise loans and secure grants form government after its registration.
5. Number of member;
The minimum number of members required is ten but there is no limit to the
maximum number of members. Any person can become a member of the society
following these rules and regulations.

6. Equality of voting rights:

Equality is the essence co-operative undertakings. Each member of has one vote,
irrespective of the number of shares held by him. Thus, the management of a co-
operative society is democratic.
7. Limited return on capital:
The members are given an incentive in the form of a percentage of interest on
capital.

8. Legal entity:
A co-operative society is required to be registered under the co-operative
societies act. It has its separate legal entity and perpetual succession. With the change
in the status of its members, the structure of a co-operative society is not changed.
9. Economic motive:
A co-operative organization is always formed with some economic motives for the
arrangement of cheap credit facilities, providing consumer goods at reasonable rated,
making available land for constructing houses, etc.

10. Cash trading: Co-operative societies conduct business on a cash basis and
allow no credit. Cash trading does not involve bad debts and credit collection
expenses. Thus, it helps the society to have a good wording capital and maintaining
short-term solvency.

12. Elimination of middlemen:

The main objectives of co-operative societies are to eliminate middlemen and
to establish direct contact between members and customers. This ensures availability
of goods at fair prices and to minimize unhealthy competition.
12, Political and religious neutrality:
Co-operative societies are neutral far as political and religious affiliations are
concerned.

Advantages of cooperative society:

Following are the advantages of cooperative society.

1. Easy formation:
It is easy to form a cooperative society. Any 10 adult persons can form a
cooperative society at any time and get it registered with registrar of cooperatives.
2. Relief by Government:
The various relieves are provided to such society by the Government such as loan
at lower rate of interest and taxability of income at lower rates.

3. Elimination of Middlemen:
The management of the consumer cooperative society directly purchases the
finished goods from the manufacturer and producer. Producer Cooperative society
procures the raw material from the producer. Thus they try to free themselves from the
grip of the middlemen and make the goods available to consumers at lower prices.

4. Taxes Facilities:
Government provides certain concessions to this form of organization i.e.
exemption from stamp duty, super tax, income tax and registration fees.

5. Improvement of Standard of Living:

Its main aim is to bring about greater benefit for its members. It supplied
daily necessities of life to its members at the lowest prices. Thus it is helpful for the
improvement and progress of standard of living.
6. Equal Status:
It is a democratic organization where at members enjoys equal voice in the
management of the cooperative business.
 7. Extensive Market:
As the goods are supplied to its members at cheaper rates, the general public is
attracted to become the shareholders of the society.
8. Employment Opportunities:
Thousands of people are engaged in different types of cooperative small scale
and cottage industries. Thus it removes the problem of jobless persons in developing
countries.

9. Equal Distribution of Wealth:

With the growth of the cooperative society wealth has not been concentrated
into a few hands. Thus this factor tends to equalize the distribution of wealth in the society.

10. Long life:

Unlike sole proprietorship or partnership, the cooperative society does mot come to
an end on the death, insanity etc. of its members. Hence, it has stability and continues to
exist for a longer period.

11. Saving in Management Expenses:

Cooperative society enjoys some economics in the field of management due

to voluntary services performed by the members themselves. Thus, it is possible to minimize
the expenses of management and supervision.

Disadvantages of cooperative society:

Following are the disadvantages of cooperative society:

1. Lack of Secrecy:
A cooperative society has to submit its annual reports and accounts with the Registrar of
Cooperative Societies. Hence, it becomes quite difficult for it to maintain secrecy of its
business affairs.

2. Lack of Business Acumen:

The member of cooperative societies generally lack business acumen. When such members
become the members of the Board of Directors, the affairs of the society are expectedly not
conducted efficiently. These also cannot employ the professional managers because it is
neither compatible with their avowed ends nor the limited resources allow for the same.

3. Lack of Interest:
The paid office-bearers of cooperative societies do not take interest in the functioning of
societies due to the absence of profit motive. Business success requires sustained efforts over
a period of time which, however, does not exist in many cooperatives. As a result, the
cooperatives become inactive and come to a grinding halt.

4. Corruption:
In a way, lack of profit motive breeds fraud and corruption in management. This is reflected
in misappropriations of funds by the officials for their personal gains.

5. Lack of Mutual Interest:

The success of a cooperative society depends upon its members’ utmost trust to each other.
However, all members are not found imbued with a spirit of co-operation. Absence of such
spirit breeds mutual rivalries among the members. Influential members tend to dominate in
the society’s affairs.

6. Lack of capital:
The co-operatives are launched by economically weaker
sections of society. The shares are generally persons may
associate it these societies. The resources of co-operatives
are limited to the extent of capital contributed by the
members and fund raising capacity from stated
cooperative banks.

7. Lack of motivation:

Co-operation brings an end to the feeling of individual self-interest. But men are selfish by
nature. Therefore, generally the members lack motivation to work more. Most of the time
‘every body’ responsibility becomes no bodies’ responsibility.

8. Cash trading:

The co-operative societies sell goods for cash and do not extend credit facilities. Many a
consumers from down trodden society need credit facilities. On the other hand, private
traders extend credit facilities to the consumers.

9. Lack of efficient management:

The co-operative societies, because of their limited resources, are unable to secure the
services of efficient managers. They manage the society by its members who lacks
managerial or professional skills. In efficient management may not bring greater success
over a period of time.
10. Disputes and differences:
The management of the society constitutes the various types of personnel from different
social, economical and academic background. Many a times they strongly differ from each
other on many important issues. This becomes detrimental to the interest of the society. The
different opinions and disputes may paralyses the effectiveness of the management.

Types of cooperative society:

The following are the main types of cooperative enterprises:
1. Producer Cooperative Societies:
These are formed to eliminate the middlemen and capitalist
groups from the industrial production. Its main purpose is to
produce goods for the requirements of its members. Surplus
productions are also supplied to out riders in the open
market at profit. All the necessary activities .as production,
management and marketing are performed by the members
themselves. Its members get dividend on the basis of the
capital invested by them.
2. Consumer Cooperative Societies:
The society is the voluntary association of ordinary people formed with the object of
obtaining daily requirements of the members. It directly
purchases the goods at large scale from the producer or
wholesalers at whole sale price. It thus eliminates capitalists,
retailers and other middlemen from the channel of distribution
and members are in a position to make their purchase at cheater
rate. Anyone can become member by purchasing one share of
the society. Sometimes goods are also supplied to non-members
but they do not share in the profit of the society. Profit earned
by the store is distributed among the members according to the value of the purchases
conducted by the manager who is elected by the members. Generally its two types are
popular in the world.
(a) Retail cooperative store.
(b) Wholesale cooperative store.
3. Marketing Cooperative Society:
It is the voluntary association of producers formed for the object of arranging the disposal of
their output. It pools together the output of the individual members and arranges to supply
the product at highest possible price. The profit of
the sale of the ~ products is distributed among the
contributing producers according to their individual
contribution to the pool. This kind of society is
particularly useful for the small producers and
agriculturists. It can be formed in two organizations
according to the local condition of the country i.e.
(a) Single purpose society
(b) Multi purposes society

4. Insurance Cooperative Society

This type of cooperative society is formed for the
objects of providing group insurance facilities to its
members. It makes the contract with sound insurance
company on collective terms and conditions and thus
pay lower premium rate to insurance company as
compared with ordinary policy holders. These are other
two forms of cooperative Insurance i.e.
1. Mutual office
2. Self concern.

5. Housing Cooperative society:

It is an association of middle and low income groups of people. Generally it is formed in
urban areas. The main purpose of this form of
society is to protect its members against
exploitation by landlords. It not only grants
financial assistance to its members but also
achieve the economics of purchase of building
material in bulk. In order to become a member of
the society one must buy at least one share of the
society. The liability of the member is limited to his capital contributed. It is also called
"Building Society" and may be divided into three types i.e.
(1) Housing Building Society
(2) Land Society
(3) Finance Society

6. Cooperative Farming Society:

This form of Society is formed with the
object of obtaining the benefits of large
scale farming and maximizing agricultural
products. It is basically agricultural.
Cooperative which is confined to
agricultural countries. Its members
generally relate to the formers including
those owing land. The cooperative forming
are of the following types:
 1. Cooperative collective farming Society.
2. Cooperative joint farming society.
3. Cooperative better farming society.
4. Cooperative tenant farming society.

7. Credit Cooperative Society

Credit cooperative society is the voluntary
association of .the financially weak persons
organized with the object of providing short term
financial requirements to them. This society
performs important role in the rural areas where the
dishonest money lenders have been exploiting simple
villagers by charging high rate of interest. The Funds
of the society consist of (a) Membership fees, (b)
Dispose of shares (c) Deposits from members and
non-members (d) Loan from govt. and semi govt.
The liability of members is unlimited. This assists the society in raising funds and ensures
that every member will take keen interest in the activities of the society. The society prefers
the poorer members in granting loan and charges low rate of interest from them. Generally
the society advances the amount for productive purposes but some loans are also given to
members for unproductive purposes. Credit cooperative society may be divided into two
types:
(1) Agricultural Credit Society
(2) Non-agricultural credit Society