To understand the meaning and characteristics of co-operative form of organisation.
To know the different types of Co-operatives
To evaluate the merits and limitations of co-operative organisation

All forms of business organizations whether sole trader, partnership of company centre around one theme namely maximization of profit. The co-operative form of organisation is different from these in one basic respect. Ti is set up not with profit as the guiding motive but with the fundamental object of organizing and rendering service for the organisation and its members. In a co-operative society, members participate in different capacities as producers, consumers workers and managers and secure the benefit of business activities through an equitable division of the business income.


               International Labour Organisation (ILO) defines a co-operative organisation as “an association of persons, usually of limited means, who have voluntarily jointed together to achieve a common economic end through the formation of a democratically controlled business organisation, making equitable contributions to the capital required and accepting a fair share of risks and benefit of the undertaking”. Dr. H.N. Kunzru, another leading authority on co-operation writes, co-operative is self-help as well as mutual help. It is joint enterprise of those who are not financially strong and cannot stand on their own legs and therefore, come together not with a view to get profits but to overcome disability arising out of the want of adequate financial resources.
            Thus, a co-operative society may be defined as “an association of persons, with limited resources and belonging to a homogeneous group, who join together on a voluntary and equal basis for the realization of their common economic interests in a democratic way.


1.    Voluntary association
A Co-operative society is a voluntary association of persons. Any person can join a co-operative society of his free will and can leave it at any time after giving due notice to the society.  While leaving he can withdraw his capital form the society. He cannot however, transfer his share to another person.

2.    Open membership
The membership of a co-operative organisation is open to all irrespective of race, caste or sex.

3.    Finance
The capital of a co-operative society is raised form members by way of share capital. since co-operatives are generally formed by relatively weaker sections of the society their capital collections are meager. Hence, the Government to encourage co-operatives lends financial support in the form of loan from the state and central co-operative banks.

4.    Liability of members
The liability of the members of co-operative society is limited.

5.    Democratic control
Democracy is the most significant characteristic of co-operative societies. The members elect the managing committee which manages the society. Since most of the co-operatives operate on a local scale, the meetings of the members are well attended and this puts the managing committee under close supervision. Each member irrespective of the number of shares held by him has only one vote, ‘One man one vote’ is the basic element of co-operative democracy. Member cannot vote by proxy. Again to strengthen democracy, some issues are not decided by a simple majority but by two-thirds or there fourths majority.

6.    Distribution of surplus
In co-operative organisation the surplus arising out of a year’s working is given to the members in the form of bonus which need not the proportionate to their respective capital contributions.

7.    Fixed return on capital
The capital is entitled to limited return and the co-operative pay fixed interest on paid up capital to its members.

8.    Service motto
A co-operative society is organized primarily with the object of rendering maximum service to its members. Through it also strives to get profit, the objective of getting profit is only secondary.

9.    State Regulations
The co-operatives are subject to considerable state control and supervision. The co-operative societies are registered under the co-operative Societies Act. 1912. The co-operative department keeps a watch on the working of the societies and tries to regulate in whenever necessary. Every co-operative has to get its accounts audited by an auditor from the co-operative department and has to furnish returns of membership and annual report and accounts to the Registrar of co-operatives.

10.   Education and training
A co-operative society also exhibits the feature of education and training to its members with the purpose of developing co-operative spirit.

However with the passage of time, some of the above principles have undergone modifications keeping in view the demands of the new and emerging situations.


             From the nature of their activities, business co-operatives may be broadly classified into the following categories.

1.    Consumers’ Co-operatives
2.    Industrial Co-operatives
3.    Marketing Co-operatives
4.    Co-operative credit societies
5.    Co-operative farming societies

1.    Consumers’ Co-operatives

A consumer co-operative society is a voluntary association of consumer formed to obtain their requirements of goods and services at reasonable prices. These co-operatives make their purchase in bulk from manufactures or wholesalers and sell the goods to members as well as to non-members at market prices. Such societies help in eliminating middleman and stabilizing prides. The surplus earned by such societies is distributed among members in the form of bonus.

2.    Producers’ Co-operatives

This is also called industrial co-operatives. These societies are voluntary associations of small producers formed for undertaking collective production or providing production facilities and services like new materials, tool, technical knowledge etc to its members. The members supply capital and may also provide labour. The products are sold to members and non- members.

3.    Monetaring Co-operatives

A marketing co-operative is a voluntary association of producers organized to arrange the sale of their output and performs essential marketing functions like grading, warehousing, and transportation. The main aim of these societies is to rationalize the whole marketing system so that it may be beneficial to members. The sale proceeds are distributed among the contributing producers according to their contribution to the pool.

4.    Co-operative credit societies

A co-operative credit society is a voluntary association of people with limited financial resources formed with the objective of extending short-term loans and developing the habit of saving among them. These societies may be formed by agriculturists, artisans, salary earners etc. The fund of these societies consists of share capital contributed by the members, deposits and loan form the co-operative central financing organizations and the Government grants and subsidies.

5.    Housing Co-operatives

A Co-operative housing society is a voluntary association of persons with limited resources formed to secure the ownership of a house or obtaining accommodation at fair and reasonable rent. Each member has to buy atleast one share and his liability is generally limited to the value of that share.

6.    Farming Co-operatives

These societies are basically agricultural co-operatives formed with the object or achieving the benefit of large scale farming and maximizing agricultural output. These societies aim at expansion of production, improvement of farming techniques, rational utilization of land and most desirable allocation of manpower.



1.    Easy formation

It is easy to form of co-operative society. Any ten adult persons can from it. No cumbersome legal formalities are involved and the cost of formation is also less. The rules and bye-laws are more or less standardized.

2.    Democratic management

The principle of ‘one man one vote’ makes the functioning of the society really democratic. There is a continuous interaction between the managers and the managed at the meetings. The operational expenses are also minimum.

3.    Scope for internal financing

Since, a portion of the profit is kept as reserve, it saves as a useful source of internal financing for the co-operatives.

4.    Limited liability

The liability of the members is limited to the proportion of their capital contributions mentioned in the bye-laws.

5.    Stability

The co-operative society enjoys perpetual existence. Its life is not affected by the death, retirement insolvency or lunacy of a member.

6.    Economic production and distribution

A co-operative society is able to produce and market goods and services at economical prices by procuring input resources at subsidized rates from the government.

7.    Special exemptions and privileges

A co-operative society enjoys a special exemption in matters of taxes, stamp duties, and registration fees and other benefits from the Government.

8.    Social benefits

Co-operatives bring about a host of social advantages. The promote the habit of thrift and saving among members. A strong family spirit is developed among the members belonging to a particular area or profession. By distributing surplus to members, co-operatives ensure a more equitable distribution of wealth.


1.    Limitations of Capital

Co-operative are able to collect only limited capital as the members are people with limited resources.

2.    Inefficient management

A co-operative society generally suffers on account of inefficient management. It is not in a position to employ and retain competent professionals due to limited financial resources. Hence,  it has to depend on its own members who lack technical knowledge, skill or experience.

3.    Lack of unity and cohesion

The functioning of a co-operative society is generally marred by a lot of rivalry, functionalism and politicking among its members and this reflects on the efficiency and effectiveness of the society.

4.    Limitation of size

Since, a co-operative society is generally organized to cater to the requirements of limited membership, its size is small and therefore operations are also small consequently it may not be able to achieve the economies of large scale operation.

5.    Inadequate motivation

Low dividend to members and poor remuneration do not motivate people in the cooperative society.

6.    Delay in decision making

The conduct of business of a co-operative society is strictly according to the rules and regulations framed by the Government. Important matters can be decided only at the general meeting. Due to these there is delay in decision making and the implementation.

7.    Excessive state regulations

The society is subjected to a lot of supervision and regulation by the Government such as submission of accounts, its audit, approval of appointments etc. This affects the flexibility of its operation and the efficiency of its management.

8.    Lack of public confidence

A co-operative society generally does not enjoy much public confidence. It is due to both the excessive state regulation and the dishonest and political conduct of the office bears. From the foregoing evaluation, it emerges that co-operatives are suitable mainly for small and medium sized enterprises and where there is definite demand of goods and services, where sophisticated technology, advertising are not involved and where area of operation is small.