Business Studies

Define Co-operative Society. Explain merits and demerits of Co-operative Society.


SOLUTION

A cooperative society is a voluntary association of persons of moderate means, who unite together to protect and promote their common economic interests. 

Features: 

  • Voluntary association: Everyone having a common interest is free to join a cooperative society and can also leave the society after giving proper notice. 
  • Legal status: Its registration is compulsory and it gives it a separate identity. 
  • Limited liability: The liability of the member is limited to the extent of their capital contribution in the society. 
  • Democratic control: Management and control lies with the managing committee elected by the members by giving vote. Every member has one vote irrespective of the number of shares held by him. 
  • Service motive: The main aim is to serve its members and not to maximize the profit. 
  • State control: They have to abide by the rules and regulations framed by government for them. 
  • Distribution of surplus: The profit is distributed on the basis of volume of business transacted by a member and not on the basis of capital contribution of members.

Merits-
  • Ease of formation: It can be started with minimum of 10 members. Registration is also easy as it requires very few legal formalities. 
  • Limited liability: The liability of members is limited to the extent of their capital contribution. 
  • Stable existence: Due to registration it is a separate legal entity and is not affected by death, lunacy or insolvency of any of its members. 
  • Economy in operations: There is economy in operation due to elimination of middle man and voluntary services provided by its members. 
  • Government support: Government provides support by giving loans at lower interest rates, subsidies and by charging less taxes. 
  • Social utility: It promotes personal liberty, social justice and mutual cooperation. They help to prevent concentration of economic power in a few hands.


Demerits- 

  • Shortage of capital: It suffers from shortage of capital as it is usually formed by people with limited means. 
  • Inefficient management: Cooperative society is managed by elected members who may not be competent and experienced. Moreover it can’t afford to employ expert and experienced people at high salaries. 
  • Lack of motivation: Members are not inclined to put their best efforts as there is no direct link between efforts and reward. 
  • Lack of secrecy: Its affairs are openly discussed in its meeting which makes it difficult to maintain secrecy. 
  • Excessive government control: It suffers from excessive rules and regulations of the government. It has to get its accounts audited by the auditor and has to submit a copy of its accounts to registrar. 
  • Conflict among members: The members are from different sections of society with different view points. Sometimes when some members become rigid, the result is conflict.
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