Co-Operative Societies | Meaning, Principles, Types, Functions, Features

A cooperative society is a voluntary association comprising individuals, businessmen, traders, or organizations who share common needs and interests. Members contribute their resources to collectively advance the economic and welfare interests of the group.   Principles of Cooperative Societies: Open and voluntary membership. Democratic management and control through voting, where each member has an equal […]

A cooperative society is a voluntary association comprising individuals, businessmen, traders, or organizations who share common needs and interests. Members contribute their resources to collectively advance the economic and welfare interests of the group.

 

Principles of Cooperative Societies:

  1. Open and voluntary membership.
  2. Democratic management and control through voting, where each member has an equal vote regardless of shareholding.
  3. Surplus distribution based on participation or patronage.
  4. Neutrality in race, politics, and religion.
  5. Encouragement of saving and thrift habits.
  6. Promotion of education among members.
  7. Protection of members from exploitation by normal market forces.
  8. Sale of only pure goods, ensuring quality and authenticity.

 

Types of Cooperative Societies:

  1. Consumers’ Cooperative Society: Formed by consumers pooling resources to buy essential commodities in bulk.
  2. Retail Cooperative Society: Association of independent retailers buying in bulk.
  3. Wholesale Cooperative Societies: Associations of wholesalers purchasing large quantities from manufacturers.
  4. Producers Cooperative Society: Formed by producers of similar commodities to promote their products and share resources.

 

Functions of Producers Cooperative Societies:

  1. Negotiation for better prices from buyers.
  2. Provision of joint transport facilities.
  3. Provision of specialist advice and information.
  4. Facilitation of short-term loans from specialized institutions.
  5. Provision of joint storage facilities.
  6. Education of members.

 

Credit and Thrift Cooperative Society:

An association of low-income earners jointly pooling resources, encouraging saving habits, and providing low-interest loans. Surpluses are distributed as dividends, and non-members may borrow at a higher interest rate.

 

Multipurpose Cooperative Society:

Formed by existing cooperatives, engaging in various profitable activities that serve the interests of members.

 

Features or Characteristics of Co-Operative Societies

  1. Continuity in existence is maintained.
  2. Membership requires a minimum of two individuals with no specified upper limit.
  3. Member liability is confined to the shares they hold.
  4. Initial capital is generated through the purchase of shares; additional capital may be sourced from members through loans.
  5. Shares are non-transferable but can be withdrawn or augmented at any time.
  6. Operates on democratic principles.
  7. Surplus is distributed based on patronage.
  8. Functions as a distinct legal entity.
  9. Management is entrusted to a committee elected by members.
  10. Aims to promote the interests of its members.

 

Advantages of Co-Operative Societies

  1. Encourages thrift and savings habits.
  2. Inherent democracy in control and management.
  3. Facilitates easier access to loans for members.
  4. Ensures perpetual existence despite member deaths.
  5. Enhances the standard of living for members.
  6. Prevents the exploitation of goods.
  7. Assists in marketing members’ products.
  8. Fosters investment.
  9. Promotes the production of high-quality goods.
  10. Facilitates easy access to loans from banks or government agencies.
  11. Active in consumer protection activities.

 

Disadvantages or Problems of Co-Operative Societies

  1. Difficulty in loan recovery, sometimes reaching impossibility.
  2. Inefficient management due to inexperienced elected members.
  3. Inadequate capital due to a prevalence of low-income members.
  4. Risk of misappropriation and embezzlement of funds.
  5. High levels of illiteracy among members.
  6. Indiscriminate enrollment of members.

 

Similarities Between Co-Operative Societies And Limited Liability Companies

  1. Both are recognized as legal entities.
  2. Members acquire shares in both structures.
  3. Both hold Annual General Meetings (AGM).
  4. Registration is a requirement for both.
  5. Shareholders (members) receive dividends.
  6. Both enjoy perpetual existence.

 

Difference Between Co-Operative Societies And Limited Liability Companies

1. Formation:

Co-operative Societies are registered under the Co-operative law of the Ministry of Commerce.

    1. Limited Liability Companies are incorporated under the Companies and Allied Matters Act (CAMA) of 1990.

2. Management:

  1. Co-operative Societies are managed by an elected Management Committee.
  2. Limited Liability Companies are managed by an elected Board of Directors.

3. Distribution of Profits:

  1. Co-operative Societies distribute profits on a patronage basis.
  2. Limited Liability Companies distribute profits in proportion to the number of shares held by individuals.

4. Members Voting Rights:

  1. In Co-operative Societies, all members have equal voting rights.
  2. In Limited Liability Companies, voting rights are based on the number of shares held by each individual.

5. Aim:

  1. The primary aim of Co-operative Societies is to promote the welfare of their members.
  2. Limited Liability Companies aim to maximize profits for their shareholders.

Sources of capital/finance for a co-operative society:

  1. Voluntary Contribution of Members: Members contribute voluntarily to the capital of the cooperative society.
  2. Retained Profits (Ploughed-Back Profits): Co-operative Societies can use retained profits for further development and growth.
  3. Fines and Other Special Levies: Co-operative Societies may impose fines and special levies on members for specific purposes.
  4. Loans from Banks: Cooperative societies can secure loans from banks to meet their financial needs.
  5. Loans from Government Agencies and Independent Agencies: Co-operative Societies have the option to obtain loans from government agencies and independent organizations, such as NGOs.
  6. Loans from Umbrella Bodies (e.g., Credit Unions): Cooperative societies can access financial support from umbrella bodies like credit unions, which act as larger financial entities supporting smaller cooperatives.

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