Cooperative Organization

Meaning and definition: It is a form of organization where a number of persons having common needs organize themselves into a group to meet their needs. Members are usually those who have limited means and try to further their economic interests. Mr. H.Calvert: A cooperative society is a form of organization, wherein persons voluntarily associate together as human beings on the basis of equality for the promotion of economic interests of themselves. Talmaki: It is an association of the weak who gather together for common economic need and try to lift themselves from weakness into strength through business organization. International Labour Organization: A cooperative organization is an association of persons, usually of limited means, who have voluntarily joined together to achieve a common economic end, through the formation of democratically controlled business organization, making equitable contributions to the capital required and accepting a fare share of risks and benefits of the undertaking. Characteristics and Principles It has the following characteristics and principles: 1. Voluntary Association: The membership of the society is voluntary and open to all persons having common interests. Persons can become members voluntarily and leave any time by giving proper notice to the society. A member of a cooperative organization can withdraw his capital. 2. Separate Legal Entity: The cooperative society has a separate entity from its members. It has a permanent life and a common seal. It can purchase property and enter into contract with other persons. It can sue and be sued. It can open ban account in its name. 3. Equality: The basis of this organization is equality. Its members have equal rights. All members have equal voice in the management of its affairs. The rule is one member, one vote. This rule is based upon the principles of cooperation and equality. 4. Democratic Management: Each member has a right to take part in the management. But members elect a managing committee to carry on the management. The members of the managing committee are responsible for their actions to the general body of members. Thus, the control of cooperative business ultimately remains with the members.

5. Distribution of Surplus: In cooperative organization, the surplus profit at the end of the year can be distributed as dividend among shareholders. A portion of profit is used for the general benefits of the members. Some portion of profit is distributed among the members in proportion to their individual purchases from the society. 6. Liability: The liability of the members of the society may be limited or unlimited. In case of limited liability of society, the liability of members is limited. But in case of society with unlimited liability, the members are liable for all the obligations of the society. 7. Transfer of Share: A member can transfer his share according to rules. He can transfer his share only when he has held such share for not less than 1 year. The transfer can be made only to the society, or to the member of the society. 8. Service Motive: It is formed to provide certain essential services and facilities to its members. Every member works for the general interest of the society and not for himself.

Types of Cooperative Society

Following are the different types of societies. 1. Credit Cooperative Societies: Their objective is to provide loans to their members. To provide loans, they get funds from other financial institutions. All the members are responsible to return the loan. In this way, the societies protect its members from those moneylenders who give loans at a higher rate. 2. Consumers Cooperative Societies: The aim of these societies is to remove middlemen from the field of trade. These societies purchase necessary goods for its members directly from producers or wholesalers, thus the members get the commodities at the lowest price. 3. Producers Cooperative Societies: These societies are formed with the object of assisting the small producers. The members produce the commodities some times, producers produce and deliver to the society. The members get benefits from these societies. 4. Marketing Cooperative Societies: In these societies, producers are admitted as members and they deliver their products tot eh society. Sales societies take the responsibility to store them till they are needed in the markets. Sometimes, sales societies also assist the members with finances and raw materials. The sale proceeds of the products are distributed among the members.

5. Farming Cooperative Societies: In these societies, small agriculturists join together to cultivate their land. The aim of these societies is to enable the small agriculturists to get the benefits of large-scale farming. 6. Housing Cooperative Societies: These societies are formed mostly in urban areas. In these societies, mainly the persons who intend to build a house become members. These societies receive finance out of the deposits of its members. The members secure financial assistance at low rates from these societies.

Advantages of Cooperatives
Following are the advantages of cooperative organization 1. Easy formation: It is easy and simple to form a cooperative society. Any 10 adult persons can form a cooperative society and get it registered with the Registrar of cooperatives. 2. Open Membership: Any person having common interest can become its member. A member can leave the society at any time when he decides after returning his shares. 3. Relief by Government: The various relieves are provided to such societies by the Government such as educative values which are essential for better living. 4. Social Services: Cooperative encourages follow feeling among members and imparts moral and educative values which are essential for better living. 5. Elimination of Middleman: The consumers control their own supplies through the cooperatives, and the middlemans profit is eliminated and the consumers secure commodities at reasonable price. 6. Minimum Inventories: In cooperatives, the nature of demand is known in advance, so there is no need to have surplus stock at hand. In other organizations, the commodities have to be stocked in expectation of demand which may result in losses. 7. Management expenses: The expenses of management in the case of cooperative are lower. Due to the idea of cooperation, mostly people work voluntarily in cooperatives. Further the remuneration paid to the employees is lesser. This leads to reduction in price for the consumers and increase in their purchasing power.

8. Distribution of wealth: In cooperatives, the surplus is distributed among the members on the basis of purchases they make from the society. This brings the consumers at par with the other members of society. It also equalizes the distribution of wealth. 9. Sense of Loyalty and Brotherhood: According to law the societies are required to spend a part of the profit for the benefit of the public. Thus, the cooperatives create a sense of loyalty and brotherhood among the members. 10. Feeling of Confidence: The Cooperative Societies protect the economically weak persons of the society from exploitation by big businessmen. Further it creates confidence in the minds of the people who are financially weak. 11. Sense of Competition: The efficiency of other types of organizations improves due to cooperatives. The businessmen realize that without improving their efficiency, they cannot compete with the cooperatives. 12. Equal Status: The management of a cooperative society is done in a democratic way. All the members have full say in the working of cooperatives. Each member has one vote so the cooperative societies function in a democratic manner. 13. Limited Liability: Members liability remains limited to the extent of capital contributed by him unless the society chooses to make its liability unlimited. This gives distinct advantage to the members. 14. Long Life: Unlike sole proprietorship or partnership, the cooperative society does not come to an end on the death, insanity, insolvency etc. of its members. Hence, it has stability and continues to exist for a longer period. 15. Employment Opportunities: Cooperative societies also provide job opportunities to the public. The societies employ skilled and unskilled workers. The members of the societies also get employment according to their abilities. Thus, the societies share the burden of the government for providing employment. 16. Economic Development: Cooperative societies are engaged in doing different types of business. They contribute towards the economic development of country. The housing societies help in building houses. The consumers societies supply goods to the members at lower price. Similarly the credit societies give loans to its members.

Disadvantages of Cooperatives
The disadvantages of cooperative organization are as under: 1. Difficulty in Cooperation: When the organization expands its business, it is difficult to follow the principles of cooperation. Cooperatives cannot manage and succeed in the enterprises which are engaged in the production of commodities requiring high quality of skill. Moreover, they do not succeed in those businesses where demand is irregular. 2. Inefficient Management: The cooperatives are not managed efficiently. Generally, the cooperatives are not interested to work for the society. Further, members of managing committee are elected on the basis of considerations other than efficient service. 3. Inefficient Employees: It is difficult for the cooperatives to get efficient employees to look after the business, as they demand high remuneration. Due to limited resources it is difficult for societies to employ such persons. 4. Mismanagement and Rift: Many societies face difficulties due to mismanagement and rift among the members. The members of the managing committee take little interest in the affairs of the society. 5. Limited Capital: Usually, the societies are run with limited capital and are unable to get the support of the rich. The inadequacy of capital and other limitations make the cooperatives dependent to government support. 6. Absence of Motivation: Another limitation is the absence of motivation. There may be no direct link between work and reward and the rate of remuneration available to the management is regulated by law. Further, the remuneration of employees is lesser than the remuneration paid for similar jobs in other organizations. 7. Lack of Secrecy: Maintaining secrecy is very important for the success of a business enterprise, but a cooperative society is not in position to maintain secrecy. 8. Rigid Government Rules and Registration: Excessive government regulations and control over cooperatives may adversely affect the flexibility of the operations and efficiency of management.

Formation of Society

The cooperative society can be formed and registered under the Cooperative societies Act, 1925. The registrar of Cooperative Societies has the powers for the registration of a society. Condition for Registration: A society can be registered subject to the following conditions: 1. Object: a. The object must be the promotion of economic interest of the members. b. The method of securing this object must be in accordance with cooperative principles. 2. Liability: The members have to decide about the liability. The liability may be limited or unlimited depending upon the nature of the objects. 3. Personal: a. Minimum of ten persons are required to form cooperative society. The members must be adult. b. Where the object is the creation of common fund out of which loans may be granted, the members must come from the particular locality. 4. Procedure of Registration: Following is the procedure of registration. a. An application signed by intending members must be given to the registrar. b. The application for registration must be accompanied by 3 copies of the proposed bye-laws. c. The applicants provide other information required by the registrar. d. Every application for the registration of a society must be in the Form. e. The application shall state the name of the proposed society, its objects and particulars of share capital. Registration: If the registrar is satisfied with the objects and bye-laws of the proposed society, he may register the society. Evidence of Registration: On registration, the registrar shall issue a certificate of registration, which shall be conclusive evidence that the society is duly registered. Effect of Registration: Once the society is registered, it becomes an artificial person created by law with permanent life. It gets the right to hold property and to enter into agreement with others. After the registration, it can admit new members and commence its business. Distinction between company and cooperative society

Following are the points of distinction between the two: Joint Stock Company Cooperative Society 1. Registration: It is registered under the companies It is registered under the Co-operative Ordinance, 1984. Societies Act of 1925. 2. Objects: A company is formed with the main A society is formed service to its members. object of earning profit for the shareholders. 3. Number of Members: The minimum member may be 1 in The minimum number of members is 10 for private and 3 in public company. The forming a cooperative society. There is no maximum members for a private maximum limit on membership. company is 50 and for public company its depends on its shares. 4. Sale of Shares: In company, sale of shares takes place The membership of cooperative society is only in certain situations. The shares open to the public. In other words, sale of are sold at below or above or at the shares always continues. A share is old at recorded price. the recorded price. 5. Purchase of Shares: In company, there is no limit on the In cooperative society, a member can purchase of maximum number of purchase shares up to one fifth of share shares by a member. capital or ten thousand rupees. 6. Transfer of Shares: In case of public company, a member In case of cooperative society, a member can transfer shares to any person. can transfer his share to a member of the society only. 7. Right to vote: In company right to vote depends on In a cooperative society, each member has the amount of capital invested by the only one voting right. shareholders. 8. Management: In company the members cannot take In cooperative societies all members can part in the management. They assign participate in management. the work of management to the directors. 9. Distribution of profit: In company the profits are distributed In society if there is any surplus profit it is among the shareholders on the basis of distributed among the members on the share capital contributed by them. The basis of their dealings with the society. The rate of dividend is fixed by rate of dividend is not. shareholders. 10. Concessions: The concessions like income tax, The government can exempt societies from registration fee, stamp duty and super registration fee, income tax, super tax,

tax are not available to companies. 11. Capital: The share capital of the company is fixed. A change in capital requires formalities. 12. Limited Area: A company operates within a vast area and so the shareholders cannot control the affairs of business.

stamp duty by notification. The capital of the society is not fixed. It depends on incoming and outgoing members. A cooperative society operates within a limited area and so all members can control the affair of business.

Business Combinations
Meaning and definition: Combination means to combine. Business combination means combining of two or more business units producing same products at different stages of production or different products. Business combinations prevent wastages and results in effective achievement of a common goal. Some units combine for different purposes such as eliminating competition, controlling production, pricing marketing and research. Some definitions are as under: Ralph Estes: Business combination is the joining of two or more companies to form a single organization for the conduct of business activities. Haney: to combine is to become one of the parts of a whole, and combination is merely a union of persons to make a whole or group for the prosecution of some common purpose. Causes Following are the various causes of combinations: 1. Strict Competition: Earlier business firms were small so there was little competition among the business units. Now competition is strong. Producers use both fair and unfair means to sell their products. The producers find it difficult to continue the business. Thus, the competition has become a powerful cause of combination. 2. Effect of Taxes: When import duty is increased, the imported goods cost more than the domestic products. This eliminates foreign competition and new units come into existence to take advantage. Competition becomes so strong that the producers realize the need for combination. 3. Advantages of Large Scale: The advantages of large-scale organization attract the businessmen towards combinations. Organization on large-scale basis results in benefits like purchase, production, marketing, finance etc. Good may be purchased in large quantities and benefits may be achieved regarding transport, discounts, price fluctuation etc. 4. Joint Stock Companies: The companies also help in the formation of combinations. In partnership, consent of all the partners is required to combine with the other businesses but in companies the consent of all members is not required to combine with other companies. Again, a few persons can easily control other companies by buying shares of such companies. 5. Desire to Create Monopoly: In a monopoly, the prices are higher and the businessmen earn more profits. To earn more profits, businessmen form combinations. There is greater chance of earning more profits if business units supply raw materials needed for production. The businessmen can raise the prices of their goods without fear of decrease in demand for such goods.

6. Trade Cycle: The trade cycle, i.e. booms and depressions occur at regular intervals in capitalistic economy. Combinations take place during such periods. During depression the inefficient firms cannot compete so they combine with efficient ones. In times of boom, combination takes place on account of the expansion of existing units to prevent risks. 7. Personal Desire: Everyone wants to become the big boss. People want to raise the living standard of their family. The desire of better life encourages people to earn maximum profits. The control over many industrial units is a major reason behind combination. 8. Organization Ability: The business runs with efficient management. In developing countries, there is a lack of trained management. So business units can become successful if they combine with those which are run by experienced people. The lack of trained management can be solved with combination. 9. Reorganization: Reorganization reduces waste and inefficiency from business. Business units combine for regulating production, prices, etc. It needs cooperation of all the units in an industry. For this purpose the combination of efficient units with inefficient units becomes necessary. 10. Government Policies: The changing policies of government lead to combination. The loss of one business unit resulting from changing policies of the government can be adjusted against the profit of another unit. Thus, the small business units can become successful through combination with successful business units. 11. International Market: In order to enter into international markets the size of the unit must be large. Combinations of different units reduce the risks involved in buying and selling in markets of international character. 12. Patent Rights: In combination the business units combine their trade secrets, patents and experiences for the common benefits of the entire group. The collective efforts of the group help the development of the research. Further, it is easy to standardize the products and reduce the variety of goods. Hence, wastage can be reduced. 13. Capitalization: The promoters encourage combinations of business units to earn profits by means of over-capitalizing big-size business units. Few succeed in making a huge profit and thus induce others to form such combinations. 14. Infrastructural facilities: Developed infrastructure and improved means of transport and communications also help in business combinations in national and international markets. Infrastructure leads to the emergence of multinational corporations that operates their subsidiaries world wide. 15. Diversification:

The desire to diversify into new lines of products contributes to business combinations. When two firms producing different products combine they can diversify their operations into larger geographical area. 16. Expansion: The desire to expand or to capture a bigger share of market or to cater for increased number of customers also promotes business combinations.

Objectives
Following are the objectives of combinations: 1. Economy in Production: Economy in production can be achieved through combination of many business units. Economy in production by purchasing materials, fuels, etc. in large quantity is possible due to combination. The costs can be reduced by installation of automatic machinery. Economy can also be achieved by research and development. 2. Working Capital: The working capital of a separate business unit is normally more than their requirements. When these units combine, such extra working capital can used properly. 3. Economy in Management: Secretarial and administrative wok may be centralized and few efficient persons may be able to do the work. As a result of better management per unit cost can be reduced. Big units can employ experienced persons by offering good salaries and chance of promotion. Such competent persons help in reducing the management expenses. 4. Economy in Marketing: Economy in marketing can also be achieved through more sales and advertisement. Combining units can avoid middlemen and sell directly to the consumers. As there is no competition so they can concentrate on production instead of spending on marketing. 5. Stability in Prices: After combination, there is no unnecessary competition among the combining units. Thus, the businessmen are in a position to charge reasonable prices for their products from consumers. Thus, stability in prices of the goods can be achieved through combination. 6. Availability of Funds: The big unit can easily arrange funds. A business has greater credit worthiness. The big unit can use some portion of profits for improvements and maintenance. Additional funds can be easily raised for expansion. This helps to reduce costs and prices. 7. Investment Opportunities: The big unit can easily arrange funds. A business has greater credit worthiness. The big unit can use some portion of profits for improvements and maintenance. Additional funds can be easily raised for expansion. 8. Survival:

Business combination helps to avoid conflict that arises due to strong competition and threat between various firms. Types: The following are different types of combination: 1. Horizontal Combination: Where the different business units of similar nature producing similar products join together under some single management, it is called horizontal combination. For example, two or more cement factories may combine to achieve some common objective. It leads to concentration of industrial powers in the hands of a few persons. It is also known as parallel combination. Vertical Combination: When different business units involved in various stages of production of a final product combine into one establishment, it is called vertical combination. For example, firms engaged in sugar cultivation, sugarcane crushing, manufacturing of sugar, may combine to form a vertical combination. It is also known as sequence or process combination. Lateral Combination: When the different business units engaged in the manufacturing of related products join together, it is lateral combination. In other words, the finished products of many units form the raw material for another. For example, a printing press may join the other units engaged in the supply of paper, ink, etc. Diagonal Combination: When one main business unit combines with another supplying subsidiary goods or services required for the main process of production, it is called diagonal combination. For example, an industrial concern may combine with a transport unit and a workshop. It is also know as service combination. Circular Combination: When the business units engaged in the manufacturing of different products combine under a central management, a circular combination takes place. For example, if a cement factory, a steel mill and a sugar mill combine, it is a circular combination. It is also called mixed combination.

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Forms of Combinations
When business units are combined on the basis of ownership, it is called forms of combination. The various forms of combinations are as follows: 1. Simple Association: Following are the three kinds of simple association. a. Trade Association: Trade association is the combination of businessmen of a particular trade or industry. It is a non-profit organization formed for the purpose of promoting the interest of its members. Generally, the businessmen of the same line of business become the members of such associations, e.g All Pakistan Textile Mills Association. The main functions of trade associations are as follows:

1. To supply market information to its members. 2. To maintain technical staff for the assistance of member units. 3. To provide legal advice to its members. 4. To find the new markets for the products of its members. 5. To increase the efficiency of the members. 6. To reduce the competition among members. 7. To collect, compile, analyze and provide information relating to business. 8. To inform the government about the problems of the members. 9. To send the representatives on boards and committees of government. 10. To help the members to settle their disputes. 11. To prescribe code of ethics to be followed by the members. 12. To undertake activities regarding market research and advertisement on behalf of members. b. Chamber of Commerce and Industry: 1. To promote trade, commerce and industry of the country. 2. To collect industrial information. 3. To provide legal assistance to its member. 4. To arrange for the settlement of disputes between the members. 5. To act as the spokesman of the business community. 6. To communicate to the government the views of commercial community. 7. To discuss common problems and inform to the government. 8. To undertake enquiries and conduct research. 9. To organize industrial fairs, exhibitions and seminars. 10. To provide information to exporters and importers. c. Informal Agreement: Informal agreement is combination formed by the business units in order to achieve some common purpose. They may be formed for the purpose of regulating production, prices, dividing the markets, determining the terms of credit allowed to the customers and similar issues. These are verbal agreements among the members.

Difference between Trade Association & Chamber of commerce

The following is the difference between the two: Trade Association Chamber of Commerce and Industry It consists of members who are engaged in It consists of members who are engaged in the same trade. the different trades from a particular region. It is concerned with the interest of all It is concerned with the interest of businessmen of different trade of a businessmen of a particular trade. particular region. Its members are competitors. It has a narrow scope. Its members may be competitors and noncompetitors. It has a wide scope.

2. Federation: Federation is a more stable form of business combination. It is a combination of competing business firms that join together for a specific purpose and ensure stability of their combination through enforcement of disputes settlement machinery. It has the following two types: a. Pool: It is an agreement among the members producing and dealing in similar products. Under a pool, members join together to regulate the demand or supply of a product without losing their separate entities. It is made in writing. It has four categories. Output pool: Under this pool, the units dealing in the same line join together in order to control production. The current demand in the market is estimated and on the basis of this demand, quotas of output are fixed for various members. ii. Traffic pool: The traffic pool is generally formed by transport companies. The main object is to limit competition among the transport companies. The purpose of pool is to regulate and restrict competition on different routes. In order to achieve its purpose freight rates and allotment of certain ports and determined. iii. Market Pool: In a market pool the entire market is divided among the members of pool. Each member is expected to sell his product as per agreement. iv. Income and Profit Pool: Under this pool, the prices are fixed for the goods by the central board consisting of all members. In some cases, prices and output are fixed in advance and quotas are allotted to various members. Advantages: 1. It can be formed easily and without much expense. 2. There is no danger of over capitalization. 3. Internal freedom of member unit is not affected. 4. It is flexible and adjustable to changing conditions. Disadvantages: 1. It exploits the consumers by raising the prices. 2. It encourages inefficiency among the member units. 3. It lacks stability because agreement cannot be enforced. b. Cartel: A cartel is defined as a voluntary agreement between independent business units doing similar type of business to secure a monopoly of the market. Its object is to dominate the market by the elimination of competition through various measures. Cartels are of different types. i. Price-Fixing Cartel i.

In this type prices are fixed for goods and members cannot sell below these prices. ii. Term Fixing Cartel In this type terms regarding sale are prescribed. The terms may be regarding rate of discount, period of credit, insurance, etc. iii. Customer Cartel In this type, each member unit is allotted certain customers. iv. Zone Cartel In this type of cartel, the market is divided among the units. v. Quota Fixing Cartel In this type, production quotas are fixed for each member and no member should produce more than the allotted quota. vi. Syndicate In this type, the member units sell their products to the syndicate at a price called accounting price. In turn the syndicate sells to consumers at a price higher than accounting price and the profit earned is distributed among members on an agreed basis. Advantages: 1. Every member is assured of a reasonable profit. 2. The members can concentrate on production and this leads to reduction in cost of production. 3. In marketing the product economies can be achieved. Disadvantages: 1. Inefficient firms are allowed to continue. 2. It has failed to stabilize the demand. 3. It is weak and ineffective. 3. Consolidation Consolidation has the following two types. a. Partial Consolidation: It is established through temporary consolidation of business units without losing their individual identities. The shareholders of the combining units under a trust agreement transfer a controlling number of shares to a board of trustees in exchange of trust certificate. It has separate legal existence just as the combining units. The control and administration of the