Cooperative Society — Meaning, Features and Principles

Meaning of a Cooperative Society

A Cooperative Society is a voluntary association of persons, usually of limited means, who join together on a basis of equality to promote their common economic interests through self-help and mutual help, and who get the society registered under the applicable Cooperative Societies Act. In Andhra Pradesh, cooperative societies are registered and regulated under the state's own cooperative-societies legislation, alongside the older central Cooperative Societies Act, 1912, which continues to apply where a state has not fully replaced it. The guiding idea is "each for all and all for each" — members pool their resources to obtain, collectively, benefits (better prices, credit, marketing access, and so on) that they could not easily obtain individually.

Essential features of a Cooperative Society:

1. Voluntary membership. Any person can join a cooperative society of his or her own free will, and equally, can leave it by giving due notice — no one can be compelled to join or to remain a member.
2. Open membership. Membership is open to all persons who share the common economic interest the society is formed to serve, without artificial restriction, subject only to the society's own reasonable bye-law conditions (such as residing in the area of operation).
3. State control and registration. A cooperative society must be registered under the Cooperative Societies Act, after which it is subject to a degree of government supervision — audit of accounts, inspection, and rules on elections to its managing committee — greater than that imposed on a partnership or a JHF business.
4. Separate legal entity, with perpetual succession. Once registered, a cooperative society becomes a body corporate, with a common seal, capable of holding property, entering into contracts, and suing or being sued in its own name — its existence is unaffected by the death, insolvency, or resignation of any individual member, exactly the durability that a JHF business or an unregistered partnership lacks.
5. Democratic management — "one member, one vote." However much capital a member has contributed, every member has exactly one vote in the society's general body — a sharp contrast with a joint stock company, where voting power is generally proportional to shareholding.
6. Service motive, not profit maximisation. A cooperative society exists primarily to serve its members' economic interests — securing them cheaper credit, fair prices, or a ready market — rather than to maximise a return for outside investors; whatever surplus does arise is used for the common benefit of members rather than distributed purely as profit.
7. Limited liability. The liability of members of a cooperative society is generally limited to the extent of the capital they have contributed (or, in some categories, to a multiple of it as fixed by the bye-laws), never extending to their personal property in the way an ordinary partner's or a Karta's liability can.
8. Capped return on capital, with surplus shared as patronage. Bye-laws typically cap the dividend payable on members' share capital at a modest rate; any further surplus is generally used for the members' common welfare or distributed as a patronage refund/bonus in proportion to each member's actual dealings with the society (for example, a marketing society sharing surplus in proportion to the volume of produce a member marketed through it), rather than as profit on capital invested.

Principles of Cooperation

A cooperative society is not just "registered under an Act" — it is expected to function according to certain well-recognised principles of cooperation, first articulated by the Rochdale Pioneers in England in 1844 and since restated as the guiding principles of the cooperative movement worldwide:

1. Voluntary and open membership — membership is open to all who can use the society's services and are willing to accept the responsibilities of membership, without artificial restriction.
2. Democratic member control — members actively participate in setting policies and making decisions, on a one-member-one-vote basis, regardless of capital contributed. …