Co-operative Society :A co-operative society is an association of individuals who voluntarily pool their resources

and carry on the business for their own welfare and not for a profit seeking business. It is
democratic form of organization in which the consumers are the owners of the business.
From manager to clerk all are the owners of the business and all the management is in their
hands. In this organization capitalist is not involved.
Principles of Cooperative Society
1. Voluntary Membership :Any person can become the member of the society and can leave it any time.
2. Equal Rights :Each member of the society has an equal right to vote and ownership. Each shareholder has
one vote.
3. Democracy :The principle of democracy is adopted while making the decisions. The decision of the
majority is honored.
4. Honesty :It is the basic principle of this society. Its members should be honest. Selfish people can not
run the business of cooperative society.
5. Mutual Confidence :Cooperative society foundation it is laid down on mutual confidence. Members of the society
should trust each other and work like a team.
6. Welfare Main Objective :Its main objective is to provide goods and services to its members at lower price.
7. Cash Payment :Credit team is prohibited and goods are supplied to its members on cash payment.
8. Economy :The member of the society should act upon the principle of economy. They should not misuse
capital of the society and always keep in view best interest of the society.
9. Distribution of Profit :The profit can be distributed among the members according the cooperative act. One fourth
(1/4) of the profit can be kept in reserve. Then (10%) of the profit can be used for providing
facilities to the members.

10. Self Service :All the business activities are conducted by the members themselves. All are the owner and
all are the consumers. So self service rule is employed in the organization.
11. Spirit of Love and Cooperation :There should be spirit of love, sacrifice and cooperation among the members to achieve the
objectives

Meaning: -A Co-operative society is an organization, which is service oriented

rather than profit oriented. It is an association of persons who joint to form an
organization for mutual benefit. In other words, co-operative organisation is
defined as a form of organisation where in person voluntarily associate together
as human being on the basis of equality for economic interests for themselves.
Following points are the merits of co-operative society:
1. Easy Formation: -As per the co-operative society act 1956 it can be easily
formed. The minimum number of members required is 10. The Procedure of
registration with the registrar of co-operative societies is also simple and less
expensive.
2. Limited Liability: -In a co-operative society, the liability of each member is
limited. The liability of the members is limited to the face value of shares
purchased by them.
3. Low overhead cost: -The overhead costs are comparatively low. The members
of the managing committee may provide honorary services. It has government
support also.
4. Stability: -The Co-operative Society enjoys stability and continued existence. A
co-operative society has a long life. It is not affected due to death, insolvency or
insanity of a member. Hence, there is a stability of business.
5. Open Membership: -The membership of a co-operative society is open to all
members of the public. Irrespective of castes, creed, religion and so on.
6. Socially Desirable: -Co-operative societies are formed to help the poor and
middle-income people. They protect the society from the evils of monopoly and

concentration of economic power. Hence, it develops social desirability among

the people.
7. Reasonable Prices: -The members can make their purchases at reasonable
prices. This is because the main objective of the cooperative is to provide service
to its members. Profits become the secondary motive.
Following points are the de-merits of co-operative society
1. Limited Capital: -A co-operative society can collect limited capital only from the
members. As it is, a local organisation and member are poor and middle income
group.
2. Lacks of Business Secrecy: -In a co-operative society, it is not possible to
maintain secrecy. Democratic management also effects business secrecy.
Because the business done in this organisation is openly.

3. Lack of Motivation: -Most of the members in a co-operative organisation are

less educated and ignorant about the rights and principles of co-operative.
Hence, there is lace of motivation in a co-operative society.
4. Lack of Economies of Scale: -A Co-operative society lacks economics of scale.
This is because the co-operative conducts its business activities in a local area
on a limited basis.
5. Non-Transferability of Shares: -The shares of co-operative society are not
freely transferable to any one. Every member can purchase a limited number of
shares, as there are restrictions for purchasing more numbers of shares.
6. Political Interference: - The Co-operative organisation acts as a platform for
political interests. At the time of elections to managing committee, some of the
political parties get involved.
7. Limited Scope for Expansion: -A co-operative society is owned managed and
controlled by middle class people. The capital of this people is limited. Its area of
operation is also restricted to certain extent only. Hence, there is limited scope for
expansion.

8. Lack of Loyalty among Members: -The members are often not loyal to their
cooperatives. Some of the members may buy their requirements from private
traders rather than buying from co-operative.

Advantages:
1. Easy Formation:
Compared to the formation of a company, formation of a cooperative
society is easy. Any ten adult persons can voluntarily form themselves into
an association and get it registered with the Registrar of Co-operatives.
Formation of a cooperative society also does not involve long and
complicated legal formalities.

2. Limited Liability:
Like company form of ownership, the liability of members is limited to the
extent of their capital in the cooperative societies.

3. Perpetual Existence:
A cooperative society has a separate legal entity. Hence, the death,
insolvency, retirement, lunacy, etc., of the members do not affect the
perpetual existence of a cooperative society.

4. Social Service:
The basic philosophy of cooperatives is self-help and mutual help. Thus,
cooperatives foster fellow feeling among their members and inculcate
moral values in them for a better living.

5. Open Membership:
The membership of cooperative societies is open to all irrespective of
caste, colour, creed and economic status. There is no limit on maximum
members.

6. Tax Advantage:

Unlike other three forms of business ownership, a cooperative society is

exempted from income-tax and surcharge on its earnings up to a certain
limit. Besides, it is also exempted from stamp duty and registration fee.

7. State Assistance:
Government has adopted cooperatives as an effective instrument of socioeconomic change. Hence, the Government offers a number of grants, loans
and financial assistance to the cooperative societies to make their
working more effective.

8. Democratic Management:
The management of cooperative society is entrusted to the managing
committee duly elected by the members on the basis of one-member one
-vote irrespective of the number of shares held by them. The proxy is not
allowed in cooperative societies. Thus, the management in cooperatives is
democratic.

Disadvantages:
In spite of its numerous advantages, the cooperative also has some
disadvantages which must be seriously considered before opting for this
form of business ownership.
The important among the disadvantages are:

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 societys affairs.