Cooperative Society - Meaning and Types

Cooperative societies are usually created with the objective of supporting their members. This sort of business organisation is founded mostly by weaker sectors of the society in order to avoid any type of exploitation from the economically powerful sections of the society.

Cooperative societies need to be registered under the Cooperative Societies Act of 1912 in order to act as a legal body.

Cooperative Society Meaning

A cooperative society, in essence, is a collectively owned and managed organisation formed by individuals with shared goals, pooling their resources and efforts to achieve common economic, social, or cultural objectives. It operates on the principle of mutual assistance and democratic participation, where each member has a say in decision-making and benefits proportionally from the group's activities. Cooperative societies can span various sectors, such as agriculture, housing, retail, and services, and are characterised by their emphasis on equitable distribution of profits and a commitment to the well-being of their members.

Functions of a Cooperative Society

Cooperative Societies function in diverse aspects of economic collaboration and social empowerment, fostering an environment of shared responsibility and equitable progress. A few of the functions performed by cooperative societies are:

Resource Pooling: Cooperative societies enable members to combine their resources, such as funds, land, or skills, for more efficient operations and better access to opportunities.

Affordable Services: They provide essential services and products at reasonable prices, ensuring that members receive quality goods without undue financial burden.

Market Access: Cooperatives facilitate market entry for small-scale producers by aggregating their products, boosting negotiating power, and expanding their reach.

Risk Mitigation: Members collectively manage risks through shared responsibilities, reducing individual vulnerabilities in unpredictable circumstances.

Democratic Management: The democratic structure empowers members to participate in decision-making, ensuring fairness and transparency in governance.

Skill Enhancement: Cooperative societies offer training and skill development, enhancing members' capabilities and fostering personal and professional growth.

Profit Distribution: The surplus generated by the cooperative is shared among members based on their contributions, promoting economic equality.

Social Support: These societies promote mutual support and social cohesion, fostering a sense of belonging and community involvement.

Access to Credit: Members can access credit facilities through cooperatives, easing financial constraints and promoting entrepreneurship.

Advocacy and Representation: Cooperatives advocate for members' interests and rights, amplifying their collective voice in policy matters.

Cooperative Society Act 1912

The Cooperative Society Act of 1912 holds significance as a legislative framework that governs the establishment and operation of cooperative societies. The act's provisions encompass several vital aspects:

Cooperative Society Key Features of the  Act 1912:

Formation and Registration:

• The act outlines the procedures for forming and registering cooperative societies, ensuring legal recognition.
• Societies are required to adhere to certain rules and regulations for their establishment.

Membership and Participation:

• The act emphasises open membership, allowing anyone willing to contribute and benefit to join.
• Members participate democratically in decision-making processes, ensuring transparency and fairness.

Limited Liability:

• Members' liabilities are generally limited to the extent of their contributions, protecting personal assets.

Voluntary and Open Membership:

• The act promotes voluntary participation and open membership, preventing exclusivity or discrimination.

Democratic Control:

• Cooperative societies operate democratically, with members having equal voting rights regardless of their contributions.

Profit Distribution:

• The surplus earned is shared among members based on their level of engagement with society.

Social and Economic Objectives:

• The act underscores the commitment of cooperative societies to economic betterment and social welfare.

State Supervision:

• Regulatory bodies oversee cooperative societies to ensure compliance with legal provisions.

Auditing and Reporting:

• Societies are required to maintain proper accounts and undergo regular audits to maintain transparency.

Types of Cooperative Societies

Cooperative societies come in various types, each designed to address specific needs and sectors. Understanding these types provides insight into the diverse applications of cooperative models in different industries. Given below are a few types of Cooperative societies:

• Consumer Cooperatives
• Producer Cooperatives
• Worker Cooperatives
• Credit Cooperatives (Credit Unions)
• Housing Cooperatives
• Marketing Cooperatives
• Supply Cooperatives

Advantages of Cooperative Societies

Cooperative societies offer an array of advantages, fostering economic empowerment, social cohesion, and sustainable development. These benefits underscore the significance of cooperative models in various sectors.

Economic Empowerment:

• Members pool resources for enhanced purchasing power and better market access.
• Shared costs reduce the financial strain on individual members, facilitating economic growth.

Equitable Profit Distribution:

• The surplus generated is distributed fairly among members, promoting income equality.
• This equitable sharing enhances members' financial well-being and incentivizes collaboration.

Risk Mitigation:

• Collective responsibility helps members manage risks and uncertainties together.
• Shared losses protect individuals from bearing the entire burden during challenging times.

Democratic Governance:

• Members participate in decision-making, ensuring diverse perspectives and transparency.
• This democratic structure prevents the concentration of power and promotes accountability.

Access to Services:

• Cooperatives provide essential services at affordable rates, benefiting members and their communities.
• Accessible services improve living standards and promote social welfare.

Skill Enhancement:

• Training and skill development programs offered by cooperatives improve members' capacities.
• Enhanced skills lead to personal growth, increased employability, and entrepreneurship.

Collective Bargaining Power:

• Cooperative societies negotiate collectively, strengthening members' position in markets.
• This enhanced bargaining power leads to better deals and improved terms for members.

Community Building:

• Cooperatives foster a sense of community and mutual support among members.
• Social cohesion leads to stronger networks, improved well-being, and community development.

Rural Development:

• Cooperatives uplift rural economies by promoting agricultural production and marketing.
• They provide farmers with access to resources, knowledge, and markets, driving rural progress.

Drawbacks of Cooperative Societies

While cooperative societies offer numerous advantages, they are not without their drawbacks. Identifying these limitations is crucial for a comprehensive understanding of their functioning and potential challenges.

Limited Capital Formation:

• Cooperatives may struggle to accumulate significant capital due to limited individual contributions.
• This can hinder large-scale investments and expansion.

Decision-Making Delays:

• In democratic decision-making processes, achieving consensus can be time-consuming.
• Delayed decisions may impede swift responses to market changes.

Conflict Resolution:

• Disagreements among members can lead to disputes and hinder cooperative operations.
• Resolving conflicts requires effective mechanisms to maintain harmony.

Lack of Specialisation:

• Cooperatives may lack specialisation in certain areas, affecting their competitive advantage.
• Professional expertise may be limited compared to specialised businesses.

Free-Rider Problem:

• Some members may benefit from cooperative services without contributing proportionally.
• This can lead to unequal sharing of costs and disrupt the cooperative's financial balance.

Leadership Challenges:

• Finding competent leaders can be challenging, affecting the effectiveness of cooperative management.
• Inexperienced leadership may impact decision-making and overall performance.

Exit Difficulties:

• Exiting a cooperative can be complex, with members facing difficulties in recovering their investments.
• This lack of exit flexibility can discourage potential members.

Dependency on Members:

• The success of cooperatives heavily relies on active member participation and engagement.
• Inactive members can hinder growth and hinder decision-making processes.

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