Concept and features of a cooperative society
The word cooperative means working together for a common purpose. A cooperative society is a voluntary association of persons who join together to protect their economic interests. It works on the idea of self-help and mutual help.
Features
- Voluntary membership: people can join and leave at will, by giving notice. Membership is open to all, whatever their religion, caste or gender.
- Legal status: registration is compulsory, under the Cooperative Societies Act, 1912 or a state cooperative law. It then becomes a separate legal entity: it can own property, sign contracts, sue and be sued.
- Limited liability: members lose at most the money they put in.
- Control: an elected managing committee runs it. Each member has one vote, no matter how many shares he holds.
- Service motive: the main aim is mutual help. Any surplus is shared as a dividend or used for members.
Merits of a cooperative society
- Equality in voting: one member, one vote.
- Limited liability of members.
- Stable existence: death, insolvency or exit of a member does not end it.
- Economy in operations: members often work free, and there are no middlemen.
- Support from government: low taxes, subsidies and cheap loans.
- Ease of formation: just 10 adult members and simple registration.
Limitations of a cooperative society
- Limited resources: members are of small means and dividends are low, so capital stays small.
- Inefficiency in management: it cannot pay high salaries to skilled managers.
- Lack of secrecy: affairs are discussed openly in meetings.
- Government control: rules, audits and reports reduce freedom.
- Differences of opinion: quarrels among members can slow work.
Types of cooperative societies
| Type | Who joins | Aim and how |
|---|---|---|
| Consumer cooperative | Consumers | Get good-quality goods at fair prices by buying in bulk straight from makers and wholesalers, cutting out middlemen. Surplus is shared on the basis of purchases or capital. |
| Producer cooperative | Small producers (weavers, artisans) | Protect small producers from big firms: supply raw material, tools and machines, and help sell the goods. |
| Marketing cooperative | Small producers who want to sell | Pool members' output, sell it at a good price, and share the money by each member's contribution. They may also grade, pack and store goods. |
| Farmers' cooperative | Farmers | Get the gains of large-scale farming: share tractors, good seeds, fertilisers and irrigation, and raise output. |
| Credit cooperative | People who need loans | Give easy, low-interest loans to members from the members' own savings, and save them from moneylenders. |
| Cooperative housing society | People on low incomes who want a house | Build houses or flats at low cost and let members pay in instalments. |
Try it
Find one cooperative near you (milk dairy, bank, housing society). Ask: who can join, how many votes does each member have, and what service does it give?
Key formulas and definitions
- Cooperative = voluntary + registered + limited liability + one member one vote + service motive
- Minimum members to form: 10 adults
- Law: Cooperative Societies Act, 1912 (or state cooperative acts)
Worked examples
1. Weavers of a village cannot afford yarn and looms, and a big mill sells cloth cheaper. Which cooperative should they form?
A producer cooperative: it will buy yarn and looms in bulk for them and help them compete with the mill.
2. In a cooperative, Asha holds 50 shares and Babu holds 2. How many votes does each have?
One each. Voting power does not depend on shares.
3. A consumer co-op earned a surplus of ₹60,000. Members bought goods worth ₹2,00,000 and ₹1,00,000. If surplus is shared by purchases, how much does each get?
Ratio 2:1. First member ₹40,000, second member ₹20,000.
4. A cooperative has debts it cannot pay. Priya bought shares worth ₹500. What is the most she can lose?
₹500. Liability is limited to the capital she put in.
Common mistakes
- Saying votes depend on shares in a cooperative. It is always one member, one vote.
- Calling registration optional. It is compulsory for a cooperative (unlike a partnership).
- Mixing up marketing and consumer cooperatives: marketing helps members SELL; consumer helps members BUY.
- Thinking cooperatives never earn profit. They can have a surplus, but service is the main aim.