What is a Cooperative Form of Organisation? State its features, types, Merits and Limitations.

 

COOPERATIVE FORM OF ORGANISATION

Cooperative organisations are generally started by the poor and the economically week sections to promote their common economic interests through business propositions. The basic philosophy of cooperative organisation is self-help and mutual help. The primary objective of any cooperative organisation is to render service to. its members. In this respect, it is different from the other three forms of organisations which are primarily meant for making profits. The important features of the cooperative organisation are service in place of profit, mutual help in place of competition, self-help in place of dependence. and moral solidarity in place of unethical business practices.

As defined by International Labour Office "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 contributions to capital required and accepting a fair share of risks and benefits of the undertaking."

Calvert has defined cooperation as a "a form of organisation wherein persons voluntarily associate together as human beings on the basis of equality for the promotion of the economic interests of themselves."

The Indian Cooperation Societies Act, 1912, Section 4, defined it as "a society which has as its objectives the promotion of economic interests of its members in accordance with cooperative principles."

Based on these definitions we can state that the cooperative organisation is a 'voluntary' association of persons who are not financially strong and cannot stand on their own legs. They come together not with a view to get profits but to overcome destability arising out of the want of adequate financial resources. The basic objective of such an organisation is self-help and mutual help.

Cooperative organisations are to be registered with the Registrar of Cooperative Societies of the concerned state in which the society's registered office is situated. There should he minimum of 10 members to form a cooperative. But there is no maximum limit for membership.

Like the company form of organisation, the members of the society are the owners. They contribute the required capital and get a share in the profits, which is known as dividend. The liability of the members is limited.

Management is vested in the hands of the managing committee which is elected by the members in the annual general meeting.

 

Main Features

Based on the above discussion we can identify the following distinctive features of cooperative organisations.

1 Voluntary association: As stated above, persons desirous of pursuing a common objective can form themselves into an association and leave the same as and when one likes. This has two important connotation:

a) Any person can become a member irrespective of his caste, creed, religion, colour, sex, etc.

b) The members come together to form themselves into an association without any coercion or intimidation.

2 Autonomy and stability: Within the limits set by the constitution, the general law, and its charter, a cooperative society is a self-governing organisation. It is self-sufficient, self-renewing, and self-controlling within its jurisdiction. Like a company, a cooperative organisation also enjoys a separate and independent entity distinct from that of its members. As such, it has a perpetual life and is not affected by the entry and exit of members.

3 Democratic management: The management of cooperative organisation vests in a managing committee elected by members on the basis of 'one member-one vote' irrespective of the number of shares held by any member. It is the general body of the members which lays down the broad framework of policy within which the managing committee has to function. Democracy is, thus, the keynote of the management of a cooperative society.

4 Capital: The capital is procured from its members in the form of share capital. However, the share capital constitutes only a limited source of business finance. The major part is raised either by way of loan from the government and the apex cooperative institutions, or by way of grants and assistance from the central or state governments.

5 Government control: In India, all cooperative societies are registered under Cooperative Societies Act, 1919 or other State Cooperative Societies Act. Cooperative societies are subjected to detailed regulation under these Acts.

6 Service motive: The primary objective of any cooperative society is to provide servo to its members. As you know, in the case of the other three forms of organisations the primary objective is to earn profits.

7 Limited return on capital: In cooperative system, profits are distributed among the shareholders for the capital they have contributed. But the rate of dividend paid to the shareholders is limited to 9% as per the Cooperative Societies Act.

8 Distribution of surplus: In case of a partnership firm and a company, profits are distributed among the members in the ratio of the capital contributed by each of them. In ease of cooperative societies, after giving a limited dividend to shareholders, the surplus profits are distributed in the form of bonus. This bonus is not in the proportion of the share capital, but in the proportion of the business they have done with the society. For example, in case of a consumer cooperative society, bonus is paid in the proportion of the purchases made by the members from the society. Similarly, in case of a producer's society, bonus is paid in the proportion of the goods delivered for sale to the society.

Classification of Cooperatives

Cooperatives were started in different fields to promote the well-being of different sections of the society. Therefore, there are different types of cooperative societies. The important types are given below.

1 Consumer cooperatives: People who want to obtain their day-to-day household goods at reasonable prices form consumer cooperative societies. The main objective of these societies is to protect the members from the evils of unfair trade and the steep rise in prices. These societies purchase goods in bulk from wholesalers or producers and sell them to its members. sometimes also to non-members.

2 Producer's cooperatives: These are the societies formed by the small industrial producers and artisans. They are also called industrial cooperatives. The main objective is to protect the small producers and workers from exploitation. They provide credit facility, supply raw-materials, market the products produced by members, and help the members to buy machinery on hire purchase.

3 Marketing cooperatives: When the producers form into a cooperative society for the purpose of arranging the sale of their output, it is called marketing cooperative. These societies are started in order to protect producers from exploitation by the middlemen when they market their products.

4 Housing cooperatives: These societies mainly operate in urban areas. They are mainly formed to provide housing facility to its members. The housing societies acquire land, plan the lay out and construct houses, and later allot them to the members. Some of them simply develop the land and allot plots to its members who then construct houses on their own. The society helps in arranging loans for them.

5 Credit cooperatives: Credit societies are started by persons who are in need of credit. Such societies provide credit to their members at a reasonable rate of interest. These credit societies may be classified into agricultural credit societies and non-agricultural credit societies. Agricultural credit societies are started to provide loans to fanners to meet the expenses in cultivation. These societies may be further classified into two groups: i) societies which provide short term and medium term credit, and ii) societies which are concerned with long term credit.

Non-agricultural credit societies are formed by the employees of industrial units and various institutions. They can also be organised by small traders, artisans and people of low-income groups in towns and cities to meet their credit requirements. Under this category there are cooperative urban banks, thrift societies, employees credit societies, industrial cooperative banks, house mortgage banks, etc.

6 Farming cooperatives: Economies of large-scale operations cannot be derived by small farmers. Therefore, small farmers form into a cooperative society, carry on the work jointly and share the returns. These societies are most helpful to small and marginal farmers and enable them to get the advantages of large-scale operations. They may form a cooperative better farming society, a cooperative tenant farming society, a cooperative joint farming society, a cooperative collective farming society, etc. In addition to the cooperatives described above, there are many other types of cooperatives because the principle of cooperation is extended to a large number of activities and operations. There are cooperatives such as processing cooperatives, construction cooperatives, transport cooperatives, autorikshaw cooperatives, washermen cooperatives, fishery cooperatives, dairy cooperatives, sugarcane growers cooperatives, oilseeds growers cooperatives, etc. The aim of all these societies is to promote the welfare of their members.

Merits and Limitations

Different types of cooperatives have distinct merits and limitations. But there are some common merits and limitations which can be traced to all types of cooperative societies.

Merits

1 Easy formation: Formation of a cooperative society is easy as compared to the formation of a company. Cooperative society is a voluntary association and so it does not require long and complicated legal formalities at the time of formation. Any 10 adult persons can voluntarily form themselves into an association and get it registered with the Registrar of Cooperatives.

2 Limited liability: Like company form of organisation, liability of members is limited in cooperative societies also.

3 Social services: Cooperatives foster fellow feeling among members and impart moral and educative values in their everyday life Which arc essential for better living.

4 State assistance: Cooperatives have been adopted by the government as an instrument of economic policy. So, a number of grants, loans and financial assistance are offered by the government to these societies to make them function effectively.

5 Open membership: The membership of cooperative societies is open to everybody. Nobody is debarred from joining on the basis of economic position, caste, colour or creed. There is no limit on the maximum number.

6 Supply of goods at cheaper rates: The societies purchase goods directly from producers and sell them to the members at cheap rates. The middlemen are eliminated from the channel of distribution. The consumer cooperatives supply essential goods to the members at a time when there is scarcity of goods in the market. Even capital goods (like machinery, etc.) are procured directly from producers and are supplied to the members. So cooperative societies ensure regular supply of goods at cheaper rates.

Limitations

1 Lack of business acumen: Members normally do not have business experience. As a consequence, when they become the members of the Board of Directors the society is not conducted efficiently. Unlike companies, cooperatives cannot employ outside talents and trained personnel for improving the management competency. This is because such steps are incompatible with their avowed ends and limited means.

2 Absence of mutual interest: A cooperative can only succeed when the members are imbued with a spirit of cooperation. Unfortunately, some influential members use the cooperative society as a source of their personal gains.

3 Lack of interest: Sustained efforts over a period are the prerequisites for success in any business. But such a state of affairs does not exist in many cooperatives. Within a short period of its dramatic start, the cooperative becomes lifeless and inactive in its operation.

4 Lack of coordination: It cannot be denied that internal dissensions and rivalries among the members sap much of its strength and vigour. The absence of coordinated and joint action is responsible for the collapse of many cooperative associations.

5 Corruption: One of the most important drawbacks of a cooperative form of organisation is the prevalence of corrupt practices in the management and functioning of the cooperative societies.

6 Lack of secrecy: The affairs of cooperatives are generally exposed to the members and it becomes quire difficult for them to maintain secrecy in business affairs.

7 insufficient motivation: Since the rate of return on capital is low, the members do not feel involved in the affairs of the society.