COOPERATIVEORGANISATION

Id u n d:
th is ehapter,
Definitionof a Cooperative Society
Meaning and
Organisacion
Characteristics of Cooperative and n Joint Stock Company
CooperativeSociety
Distinctionbetween a
Society
11.4 Formation of a Cooperative
Societies
Different Types of Cooperative
Organisation
11.6 Advantages of Cooperative
Organisation
11.7 Disadvantages of Cooperative
of protecting the interests of the weaker
Cooperativeorganisationdeveloped as a means
by the economically strong
sectionsof society against exploitation and oppression
wherein persons associate together
and powerfulsections.It is a form of organisation
For example, consumers
voluntarily and on equal basis to further their common interests.
may join hands to provide goods at cheaper rates by establishing direct contacts with
manufacturersand thereby eliminating the profits of middlemen. Similarly, people
belonging to the working class may form a cooperative society to provide houses at
low costs to the members.A cooperative society is based on the principles of self help
and mutual help and its primary motive is to render service to the members.

11.1 MEANINGAND DEFINITION OF A COOPERATIVE SOCIETY

Some popular definitions of cooperative organisation are given below:
Cooperative organisation is "a society which has its objectives for the promotion
of economic interests of its members in accordance with cooperative principles".
—The Indian Cooperative Societies Åct,1912
A cooperativesociety is "a form of organisationwherein
persons voluntarily
associate together as human beings on the basis of equality
for the promotion Of the
economic interests of themselves".
—Il. C. Calvert
Cooperativeis a joint enterpriseof those who are
therefore,come together not with a view to get not financially strongand'
profits but to overcome disability arising
out of the want of adequate financial
resources. ——11.1V.
Kern-an
Cooperativeis an associationof individuals
by honest means. to secure a common economicgoal
—Sir Ilorace PlumÅeti
258
 Cooperative
OrganisatiOD
A cooperative society is an
entemrise fortned and
directed by an
and the community as
its own members a whole,
A cooperative society is a union —l'aul Lautbcrt
of individualswho generally
established on the basis of democracy, join voluntanly.
and universality Cot'the purpose of'joint
performanceof economic acts of common interests
to improve the tuatcrial and vnoral
positionof its members, using the force of honest,
cash and catTYservices, and tnutual
help,which may be backed by Government support,
the net sutplus being applied partly
for general good and efficiency and partly shared
in proportion to the business done
by each member with the society and not in
proportion to the paid-up capital, which
is allowed only a moderate rate of interest.
—Mahesh Chand
cooperative organisation is "an association of
persons, usually of limited means,
who have voluntarily joined together to achieve a common
economic end, through
the formation of a democratically controlled business organisation,
making equitable
contributionsto the capital required and accepting a fair share of risks and
benefits of
the undertaking". —International Labour Of/icc

11.2 CHARACTERISTICS OF COOPERATIVE ORGANISATION

The distinctive features of cooperative organisation are as follows:
I. Voluntary association. A cooperativesociety is essentially a voluntary
association of persons desirous of improving their economic status through joint
action.Everyone having a commoninterestis free to join a cooperativesociety. Ile
can also leave the society after giving proper notice. He can withdraw his capital but
cannottransfer his share to another person. Nobody is forced to become a member or
to continue as a member.
2. Religious and political neutrality. The membership of a cooperative society is
open to all irrespective of caste, creed, religion, or political affiliation. New members
are always welcome to join the society. Cooperative societies represent universal
brotherhood.
3. Separate legal entity. After registration a cooperative society becomes a distinct
body independent of its members. It can own property and make contracts in its own
name. It becomes an autonomous and self-governing organisation.
4. One-man one vote. Every memberhas one vote irrespectiveof the number
Ofshares held by him. Rich persons holding more shares cannot dictate terms. The
Organisationof a cooperative society is democraticand all membershave an equal
voice in its management.
cooperative society is to provide service
Service motive. The primary aim of a
to its members. Its motto is 'each for all and all for each'. However,a cooperative
society may earn some profits for the benefit of its members.
of a cooperative society is not distributed
6• Disposal of surplus. The surplus to law, at least one fourth of
among members in proportion to their capital. According
 Xl
tSC Cornmerce for Class
A portion of the profits, not exceeding
to general reseße.
e profits must be transfened
locality in which the society is functioning.
the
utilised for the welfare of for the benefit of its members and
of a cooperative society are utilised
-hus, profits
he local community exceeding can be paid
not
Limited return on capital. A dividend society are thus assured of a
7. of a cooperative
members
members on the capital. The
fixed retun on their investment.
Religious and Separate
Political Legal Entity
Neutrality
One man
Voluntary One vote

Characteristics
of
Cooperative Organisation

Service
State Motive
Control
Equitable
Cash Distribution
Trading of Surplus

on cash basis. Cash trading

8. Cash Trading. Cooperativesocietiessell goods
capital. However, an
proudes protection against bad debts and maintains working
exception may be made in the case of members.
perpetual
9. Perpetual existence. Once registered a cooperative society enjoys
existence.It is created by law and law alone can dissolve it.
10. State control. Every cooperative society must be registered under the
CooperativeSocietiesAct, 1912or respective State cooperative laws. It is required to
obsene the prescribed rules and regulations. Government exercises supervision and
controlmer cooperativesocieties to ensure their proper functioning.

11.3 DISTINCTION BETWEEN A COOPERATIVE SOCIETY AND A JOINT

STOCK COMPANY
The main differencebetween cooperative organisation and company organisation are
given below:
1. Basic objects. The primary objective of a cooperative society is to provide
service, whereas a company seeks to earn profits. This does not mean that a cooperative
societydoes not earn profits or a company does not render service to society. It simply
means that all the activities of a cooperative society are guided and
by service motive
 Cooperative Organisation
fits incidental to this objectfie. On
the other hand. the
ptotit making and sen ices acti\ ittes of a cornpany
renderedto societyarv incidentalto profit
qiC.
Nuntber of members. The minimum
nutnber of persons is 7 in a public
v and 2 in a private ,eompany A
cooperati\e Nquires at least members.
The number of members is SOin a pri\ate company
and in cooperative
cNditsociety There is no mxximum limit in ease of public
cotnpanies and non-credit
Nx•peratß•societies.
Member •s liability. The liability of members
of a company is generally limited
theface u11ueof shares held or the amount of guamntee
gi\cn by thenl though the
companiesAct permits unlimited liability to companies. The
members of a cooperative
can opt for unlimited liability But in practice their liability
is generally limited.
4. Membership. The membershipof a cooperati\ßA societyis open at all times
and members have to pay the same amount per shar as old ones have paid. A
company;on the other hand, closes the list of members as soon as its capital is fully
People
subscribed. to become memberslater on have to buy shares at the
exchange.
5. Management and control. The managementof a cooperative society is
democraticas each member has one \0te and there is no systetn of proxy In a cotnpany,
thenumber depends upon the number of shares and proxies held by a tuembet
Thereis little separation between ovutership and management in a cooperatiy• society
dueto limited and local membership.
6. Distribution of surplus. The profits of a company are distributed as dis idends
mproportionto the capital contributed by the members.In a cooperati\e society a
mimmumpart of surplus must be set aside as a resen• and for the general xselfare of
thepublic.The rest is distributed in accordance the pau•onagepro\åded by different
membersafter paying dÅådend up to 10% on capital.
7. Share capital. In a company, one membercan buy any number of shares
butan individual cannot buy more than 10% of the total number of shares or shares
worth 1,000of a cooperative society A public company must offer new shares to the
existingmembers while a cooperative society issues new shares generally to increase
membership.The susbscription list of a cooperatise society is kept open for new
members whereas, the subscription list of a company is closed after subscriptions.A
companyis thus capitalistic in nature hile a cooperatis• society is socialistic.
8•Transferabilitv of interest. The shares of a public limited company atv freely
the shares of cooperatfi• society cannot be transtk•ttvdbut can be
returnedto the society in case a member ants to ithdraw his mentbership. A member
COOperativesociety can ssithdraw his capital by gis ing a notice to the society A
±areholder,on the other hand, cannot demand back his capital from the cotnpany until
Itis
up.
 ISC Commerce for Class Xl

9. Coserage. A cooperative society generally draws its membership from a limited

local area. The members have comnoonbond in the form of a common OCCUpation
employer or locality In a connpanymembers have no such relationship and are usuallyor
drawn from different parts of the countjy and even from abroad.
10. Exemptions and privileges. A cooperative socigty enjoys several exemptions
and privileges regarding income tax, stamp duty, etc. This is because the Government
seeks to encourage the growth of the cooperative movement. No such exemptions,
privileges, and assistance is available to a public limited company. A private limited
company, however, enjoys a number of exemptions and privileges under the Companies
Act.
I l. Governing statute. A company is governed by the Companies Act, 1956whilea
cooperative organisation is subject to the provisions of the Cooperative SocietiesAct,
1912 or State Cooperative Societies Acts.

11.4 FORMATION OF A COOPERATIVE SOCIETY

In order to get a Cooperative society registered, an application in the prescribed form
must be submitted to the Registrar of Cooperative Societies of the State in which the
society's registered office is to be situated. Any ten persons above the age of 18 years
and having common interest may submit a joint application for being formed intoa
Cooperative society. The application should contain the following information:
(1) The name and address of the society.
(ii) The aims and objects for which the society is being registered.
(iil) The names, addresses, and occupations of the members.
(iv) Share capital and its division.
(v) Method of admission of new members.
(vi) Two copies of the bylaws (rules and regulations) of the
society.
A Cooperative may adopt model bylaws given in the
Cooperative SocietiesAct
instead of framing its own bylaws.
Once the application for registration along with the copies
of bylaws is submitted'
the Registrar of Cooperative Societies will carefully scrutinise
them in order to ensure
that they are in accordance with the provisions and spirit of
the Cooperative Societies
Act. When he is fully satisfied in this connection he will
enter the name of the
in his register and will issue a certificate of registration.
After getting the certificate
registration, the society becomes a corporate body having a its
separate legal entity Of
own, with perpetual succession and limited liability of its
members.
A cooperative society can be registered only when it
satisfies the prescribed
conditions. Some of these are as follows:
l. There must be at least 10 adult members.
 2. The members should be
bound together
may belong to the same by some
occupation, common interest, e.g.,
locality, they
i. They must put up a joint or employer.
application to the
4. Each member must give an Registrarof Cooperative
undertaking to Societies.
5. A copy of bylaws must be buy at least one share.
submitted to the
The management of a cooperative Registrar.
Members of this committee society lies in the hands of a managing
are elected directly
annualgeneral meeting of the society. The by the members at the
managing committee consists of a number
ofmemberswho elect from among themselves
the following office
1. President, 2. Vice-president(s), bearers:
3. Secretary, 4. Joint Secretary,
if any, and
5. Treasurer.
The general body of shareholders lays
down the broad objectives and policies
cooperativesociety. The managing committee of the
determines detailed programmes and
proceduresof the society. The committee also
gets progress reports from the office-
bearersand it is accountable to the annual generalmeeting
of members.The offce-
bearersof the society work mainly in an honorary capacity.
The annual accounts of the
societyare audited and its annual report is submittedto the
Registrar of Cooperative
Societies.

11.5DIFFERENT TYPES OF COOPERATIVE SOCIETIES

Themain types of cooperative societies are given below:
1. Consumers' Cooperative Societies. Consumers' cooperatives are formed by
theconsumers to obtain their daily requirements at reasonable prices. Such a society
buysgoods directly from manufacturersand wholesalersto eliminatethe profits of
middlemen.These societies protect lower and middle class people from the exploitation
Ofprofithungry businessmen. The profits of the society are distributed among members
in the ratio of purchases made by them during the year. Consumers' cooperatives or
Cooperativestores are working mainly in urban areas in India. Super Bazar working
underthe control of Government is an example of consumers' cooperative society
2, Producers' Cooperatives. Producers' or industrial cooperatives are voluntary
associationsof small producers and artisans Whojoin hands to face competition and
Increaseproduction. These societies are of two types:
(a) Industrial service cooperatives. In this type, the producerswork independently
society. The society
and sell their industrial output to the cooperative
machinery to the members.
Undertakes to supply raw materials, tools and
The output of members is marketed by the society.
treated
(b) Manufacturing cooperatives. In this type, producer members are
society and are paid wages for their work. The society
as employees of the
every member The members produce
Provides raw material and equipment to
houses. The society sells the output in
goods at a common place or in their
are distributed among the members.
the market and its profits
 ISC Commerce for Class Xl

Success Story of Amul

1946, a group of farmers started a cooperative society to fr
In December markets and to maximise returnee
access to
themselvesfrom intermediariesto gain of Amul brand of milk
Milk Cooperative Union (Producer and
The Kaira District with other milk
It joined COOPeratives
milk products) was setup in Anand (Gujarat).
supervision of GCMMF. Today it collects about 5,50,000 litres
under the overall 6,000 crores through 5 lacsof
sells products of
milk from 2.15 million farmers and
The network covers 2.12 million farmers and 10,411
retail outlets across the country.
sillage-level milk collection centres.
voluntary associations of independent
3. Marketing Cooperatives. These are prices. The output of different
producers who want to sell their output at remunerative
agency to eliminate middlemen. The
members is pooled and sold through a centralised
in the ratio of their outputs. As a
sale proceeds are distributed among the members
important marketing functions such
central sales agency, the society may also perform
advertising and exporting products
as processing, grading and packaging the output,
are set up generally by farmers
warehousing and transportation,etc. Marketing societies
competition in the market
artisans, and small producerswho find it difficult to face
The National Agricultural
and to perform necessary marketing functions individually.
CooperativeMarketingFederation(NAFED) is an example of marketing cooperative
in India.
4. Cooperative Farming Societies. These are voluntary associations of small
farmerswho join together to obtain the economies of large-scale farming. In India
farmersare economicallyweak and their land-holdings are small. In their individual
capacity,they are unable to use modern tools, seeds, fertilisers, etc. They pool their
lands and do farming collectivelywith the help of modern technology to maximise
their agricultural output.
5. Housing Cooperatives. These societies are formed by low and middle income
group people in urban areas to have a house of their own. Housing cooperativesare
of different types. Some societies acquire land and give the plots to the membersfor
constructingtheir own houses. They also arrange loans from financial institutions and
Government agencies. Other societies themselves construct houses and allot themto
the members who make payment in instalments.
6. Credit Cooperatives. These societies are formed by poor people to provide
financial help and to develop the habit of savings among members. They help to protect
members from exploitation of money lenders who charge exorbitant interest from
borrowers. Credit cooperatives are found in both urban and rural
areas. In rural areas'
agricultural credit societies provide loans to members mainly
for agricultural activities
In urban areas, non-agricultural societies or urban banks
offer credit facilities to the
members for household needs.
In India, several national federations of cooperative
societies have been formed'
National Cooperative Consumers Federation,
National Federation of cooperative
Sugar Factories, National Agricultural Cooperative
Marketing Federation, National
Cooperative Dairy Federation, National
Cooperative Housing Federation, All India
State Cooperative Banks Federation are
some examples.
 coo
ADVANTAGES OF COOPERATIVE
ORGANISATION
coopetativeform of organisation offers the following
l. Ease of formation. It is quite easy advantages:
to form a cooperative
form society. Any 1()adults
on join together and themselves into a
cooperative. Very little time and money are
N uiredto get a cooperative registered. The legal
formalities are very few and simple.
2. Open melnbership. Any person having a
common interest can become members
ofa cooperative society and can leave the society at his own
pleasure. No discrimination
ismadeon the basis of caste, creed, religion, or political
affiliation. The cost of a share
is lowand even poor persons can buy it.
3. Limited liability. The liability of every
member is limited to the extent of his
sharein the society's capital. Therefore, the risk faced by every member is limited and
knoMn.
4. Continuity and stability. After registration, a cooperative
society becomes a
separatelegal entity. The death, lunacy, or insolvency of a member does not affect its
existence.Therefore, it enjoys continuity of operations.
5. Democratic management. Managementof a cooperative society is fully
Every member has an equal vote or voice irrespectiveof his capital
democratic.
contribution.The principle of 'one man one vote' is followed. A small group of members
cannotdominate the control of the society.
6. Internal financing. A large part of the profit of a cooperative society is
tansferredto general reserve every year. Dividend on capital cannot exceed 10%.
Therefore, plouging back of profits facilitates the expansion and growth of the society.
7. Low operating costs. The office bearers of a cooperative society offer honorary
service.Therefore, cost of management is low. Cash trading avoids bad debts and there
isnoneed to maintain huge stocks. As customers are primarily the members themselves
thereis saving in advertising and selling expenses. Elimination of middlemen also adds
toeconomyof operations.
8. Cheaper and better supplies. Cooperative societies supply better quality goods
atcheaperrates. Due to service motive, the focus is on the welfare of members. Surplus
is alsoshared by the members on equitable basis.
9. State patronage. The Government provides several concessions to cooperative
societiesin the matter of taxes, finance, etc. A cooperative society enjoys special
privilegesand exemptions.
10. Social utility. Cooperatives are non-competitive organisations. They
They help to prevent
Promote personal liberty, social justice, and mutual cooperation.
undertakings also serve
Concentration of economic power in a few hands. Cooperative
asa training self-government. They foster fellow feeling, self-help, thrift
ground for
andmoral
values among the members.
 11.7 DISADVANTAGES OF COOPERATIVE ORGANISATION
Cooperative societies sutler frotll the f0110\Ongdrassbacks:
l. l,irnitcd capital. A cooperative society is fotnted usually' by people limit
means. The principle of 'one man one vote' discourages tnembets to amounG
in the society. Therefore, a cooperatis•• society often faces shortage of funds. It is not
able to mobilise adequate capital for large-scale operations.
2. Inefficient mnnngeruent. A cooperatis••society is tnanaged by a managing
committeeconsistingof oflice-bearerselected by the metnbers. These Office-beaten
may not be competent and experienced. A cooperatisc society cannot afford to employ
expert professional managers at high salaries.
3. Lack of tnotÅation. Honoraryotlice-beatvnsofa cooperative society
little incentive to work hard for the society. There is no direct link effort and
reward. Members are often ignorant of the principles of cooperation. Office bearers
may misuse funds for personal interests. Lack of competition may slacken efforts.
4. Non-transferabilityof interest. The shares of a cooperative society are not
transferable.A member wants to quit the society has to submit his shares to the
society in order to get his money back.
5. Lack of secrecy. The affairs of a cooperative society are openly
discussed in
the meetingsof its members.Every member is free to inspect the
books and records
of the society.Therefore,it becomes difficult to keep the
secrets of business.
6. ExcessiveGovernment control. The
day-to-day working of a cooperatne
society is bound by legal rules and regulations.
Keeping of accounts, regular audit,
inspection are essential. Reports have to and
be submitted to the Registrar.
formalities restrict flexibility and initiative. Time-consuming
7. Rift among members. The
success of cooperatives depends
loyalty and cooperation of members. directly on the
Quite often disputes arise
committee and the members. Some among the managing
the society. Members are members may want to dominate the
drawn from different sections working of
of harmony and amity among of society. There is often lack
them.
COOPERATIVE ORGANISATION
ATA GLANCE
Advantages
l. Easy to form Disadvantages
2. Open membership I. Limited finance
3. Limited liability 2. Lack of expertise
4. Continuity 3. Lack of incentive
5. Democratic control 4. Non-transferability of
6. Low operating 5. Lack of secrecy interest
costs
7. State patronage 6. Legal formalities
8. Internal financing 7. Disputes among
9. Cheaper and members
better supplies
10. Social utility
 Coo erative Organisation
Distinction bemcen Company
and Cooperatiu•
of Distinction Company
Cooperative
Many legal formalities
l. Formation Few legal formalities
Law Under the CompaniesAct
2. Governing Under the Cooperative Societies
Act
3. Numberof members Minimum two in private Minimum
company and seven in public
ten, maximum no
limit. Membershiprestricted to
company. Maximum 200 a particular
locality or group.
in private company and no
limit in public company.
Membership open to all.
4. Management By Board of Directors By Managing Committee
5. Basic Object Earning profits Service to members
Votingrights One share one vote One member one vote
7. Transferability of Freely transferable Not transferable, but returnable
shares to the society
8. Capital Subscription No limit on individual holding Individual subscription to capital
of shares. New shares first may be limited. New shares
offered to existing members. issued to admit new members.
Subscription list closed. Membership open.
9. Distribution
of profits Dividend in proportion to Limited dividend, rest on
share in capital. equitable basis.
10.Privileges No special exemptions Special exemptions relating to
stamp duty, income tax, etc.
•ll. Retumof capital No member can demand back A member can demand his
his capital except at the time capital during life time of the
of winding up. society.
12.Scaleof operations Large scale Small scale

SUMMARY
and promote common
A voluntary association often or more persons formed to protect
Meaning:
Interests
throughmutual help on cooperative basis.
(haracteristics:(i) Voluntary association (ii) Religious and political neutrality (iii) Separate
of surplus (vii) Limited
entity(iv) One man one vote (v) Service motive (iv) Disposal
Oncapital(viii) Cash trading (ix) State control.
lypes of
cooperatives: Consumers' cooperatives (2) Producers' cooperatives (3) Marketing
(i) (6) Credit cooperatives.
ves (4) Farming cooperatives (5) Housing cooperatives
(i) (ii) Open membership (iii) Limited liability (iv) Continuity
(v) Dem Easy formation costs (viii) Cheaper and
Ocraticmanagement (vi) Internal financing (vii) Low operating
production(ix) State patronage (x) Social benefits.
Inefficient management (iii) Lack of motivation (iv)Non-
(1) Limited funds (ii)
tansferability (vi) Excessive Government control (vii) Rift among
members of shares (v) Lack of secrecy