Cooperative Society

The word cooperative means working together with others for a common purpose.

Meaning: A cooperative society is a voluntary association of persons who join together with the motive of the welfare of the members, driven by the need to protect their economic interests in a democratic way. A cooperative society must be registered under law; on registration it gains a distinct legal identity, can enter into contracts and hold property in its own name, and its members' liability is limited to their capital contribution. In India, societies operating within a single state are governed by that state's Cooperative Societies Act, while those operating in more than one state are governed by the Multi-State Cooperative Societies Act, 2002 (since updated by amendments).

Features

• Voluntary membership: Membership is open and voluntary — a person is free to join and to leave at any time (after giving the required notice). Membership is open to all irrespective of religion, caste or gender.
• Legal status: Registration is compulsory, giving the society a separate identity from its members. It can contract, hold property, sue and be sued, and is unaffected by the entry or exit of members.
• Limited liability: Members' liability is limited to their capital contribution, which fixes the maximum risk a member bears.
• Control: Decision-making power rests with an elected managing committee. The members' right to vote and elect this committee gives the society a democratic character.
• Service motive: The society emphasises mutual help and welfare, so the motive of service dominates. Any surplus is distributed among members as dividend as per the society's bye-laws.

Merits

• Equality in voting status: The principle of 'one man, one vote' applies — every member has equal voting rights regardless of capital contributed.
• Limited liability: Members' liability is limited to their capital, so their personal assets are safe from business debts.
• Stable existence: The death, bankruptcy or insanity of members does not affect continuity; the society operates unaffected by changes in membership.
• Economy in operations: Members often give honorary (unpaid) service, middlemen are eliminated, and since customers or producers are themselves members, the risk of bad debts is low — all of which reduce costs.
• Support from government: As it embodies democracy, the society receives government support through low taxes, subsidies and low-interest loans.
• Ease of formation: Being a voluntary association, it can be registered through a simple procedure with few legal formalities.

Limitations

• Limited resources: Capital comes from members of limited means, and the low rate of dividend discourages more investment or membership.
• Inefficiency in management: Societies cannot afford expert managers (they cannot pay high salaries), and the honorary members who run them are usually not professionally equipped.
• Lack of secrecy: Open discussion at members' meetings and disclosure requirements under the Societies Act make it hard to keep operations secret. …