explain the merits and demerits of cooperative societies
Answers
Advantages:
1. Easy Formation:
Compared to the formation of a company, formation of a cooperative society is easy. Any ten adult persons can voluntarily form themselves into an association and get it registered with the Registrar of Co-operatives. Formation of a cooperative society also does not involve long and complicated legal formalities.
2. Limited Liability:
Like company form of ownership, the liability of members is limited to the extent of their capital in the cooperative societies.
3. Perpetual Existence:
A cooperative society has a separate legal entity. Hence, the death, insolvency, retirement, lunacy, etc., of the members do not affect the perpetual existence of a cooperative society.
4. Social Service:
The basic philosophy of cooperatives is self-help and mutual help. Thus, cooperatives foster fellow feeling among their members and inculcate moral values in them for a better living.
5. Open Membership:
The membership of cooperative societies is open to all irrespective of caste, colour, creed and economic status. There is no limit on maximum members.
6. Tax Advantage:
Unlike other three forms of business ownership, a cooperative society is exempted from income-tax and surcharge on its earnings up to a certain limit. Besides, it is also exempted from stamp duty and registration fee.
7. State Assistance:
Government has adopted cooperatives as an effective instrument of socio-economic change. Hence, the Government offers a number of grants, loans and financial assistance to the cooperative societies – to make their working more effective.
8. Democratic Management:
The management of cooperative society is entrusted to the managing committee duly elected by the members on the basis of ‘one-member one -vote’ irrespective of the number of shares held by them. The proxy is not allowed in cooperative societies. Thus, the management in cooperatives is democratic.
Disadvantages:
In spite of its numerous advantages, the cooperative also has some disadvantages which must be seriously considered before opting for this form of business ownership.
The important among the disadvantages are:
1. Lack of Secrecy:
A cooperative society has to submit its annual reports and accounts with the Registrar of Cooperative Societies. Hence, it becomes quite difficult for it to maintain secrecy of its business affairs.
2. Lack of Business Acumen:
The member of cooperative societies generally lack business acumen. When such members become the members of the Board of Directors, the affairs of the society are expectedly not conducted efficiently. These also cannot employ the professional managers because it is neither compatible with their avowed ends nor the limited resources allow for the same.
3. Lack of Interest:
The paid office-bearers of cooperative societies do not take interest in the functioning of societies due to the absence of profit motive. Business success requires sustained efforts over a period of time which, however, does not exist in many cooperatives. As a result, the cooperatives become inactive and come to a grinding halt.
4. Corruption:
In a way, lack of profit motive breeds fraud and corruption in management. This is reflected in misappropriations of funds by the officials for their personal gains.
5. Lack of Mutual Interest:
The success of a cooperative society depends upon its members’ utmost trust to each other. However, all members are not found imbued with a spirit of co-operation. Absence of such spirit breeds mutual rivalries among the members. Influential members tend to dominate in the society’s affair
Explanation:
A co-operative form of business organization is different from other forms of organizations. It is a voluntary association of people with collectively owned fund, organised on the democratic principle of equality, who join together to supply for their requirements through mutual action, and in which the objective is service rather than profit.
The primary objective of forming a co-operative is to protect the economically weaker sections of the society from the oppression of the economically organised strong segment of the society.
The principle underlying a co-operative organization is mutual help, i.e., “each for all and all for each”.
“It is an association of the weak who gather together for a common economic need and try to lift themselves from weakness into strength through business organisation.” -TALMAKI
Some of the advantages of a cooperative society are:-
1. Easy to Form
2. Open Membership
3. Democratic Management
4. Limited Liability
5. Stability
6. Economical Operations
7. Government Patronage
8. Low Management Cost
9. Mutual Co-Operation
10. No Speculation
11. Economic Advantages
12. Service Motive
13. Internal Financing
14. Income Tax Exemption
15. Durability
16. Cheaper Goods
17. State Patronage
18. Elimination of Middleman
19. Equality
20. Perpetual Existence
21. Scope for Self-Government.
Some of the disadvantages of a cooperative society are:-
1. Limited Capital
2. Inefficient Management
3. Absence of Motivation
4. Differences and Factionalism among Members
5. Rigid Rules and Regulations
6. Lack of Competition
7. Cash Trading
8. Lack of Secrecy
9. Weightage to Personal Gains
10. Lack of Incentive and Initiative
11. Corruption
12. Limited Consideration
13. High Interest Rate
14. Undue Government Intervention
15. Differences of Opinion
16. Lack of Expertise
17. State Control
18. Lack of Loyalty
19. Lack of Understanding of Principle of Cooperative Societies
20. Lack of Universal Applicability.