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EORUPA SCIENCE &COMMERCE ACADEMY

Q. No. 17: What is cooperative society? Give its merits and demerits? ANSWER:

COOPERATIVE SOCIETIES
INTRODUCTION: Cooperative is a special form of organization. It differs from other major forms of organization as it is setup not to earn profit but to render service to its members. DEFINITION: The International Labour Office (I. L. O) defines a cooperative as: An association of persons usually of limited means, who have voluntarily joined together to achieve a common economic end and through the formation of a democratically controlled business organization, making equitable contributions to the capital required and accepting a fair share of risks and benefits of the undertaking. In the words of Calvert: A cooperative society is a form of organization wherein person voluntarily associates together human being on basis of equality of the promotion of economic interest of themselves. Simply we can define it as: It is an association of individuals who voluntarily pool their resources for carrying on a certain business for the mutual welfare of the members themselves. Explanation: From the definitions of co-operative given above we find, that the foundation of cooperative organization is based on rendering service to the members of the organization and not earning of profit. There is a co-operating among the members and not competition. It is based on self help and not a profit seeking business. It aims a more solidarity of the members and not of undercutting one another. MERITS/ ADVANTAGES OF COOPERATIVES A cooperative society has the following advantages. 1) Capital: Persons and workers with small capital can start business under cooperative enterprise. 2) Training in Management: It imparts training in management because the workers themselves manage the business. 3) End of the Class Conflict: A co-operative enterprise abolishes the difference between the employers and the employees and there remains no chance of class conflict, because the workers themselves are the owners. 4) Habit of Thrift: It encourages thrifts among the members. They do not do superfluous expenditure and save more to invest in the business. 5) Less Scope for Manipulation: The auditors check the accounts of a cooperative enterprise, which decreases the chances of manipulation of the accounts.

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EORUPA SCIENCE &COMMERCE ACADEMY


6) Use of Modern Techniques: Adoption of the co-operative farming in cultivation facilitates the use of modern techniques and modern agricultural implements. It raises the productivity as well as income of the members of the society. 7) Democratic: A co-operative society is called as friend of democracy, because it is managed on democratic principles. 8) Less Expenditures: A cooperative enterprise involves less expenditures as the directors on honorary basis do its management. 9) Savings: It encourages saving among the members of the society, because they can make profit by investing their savings in the business. 10) Elimination of Middlemen: In cooperative societies, consumers themselves produce the goods and services without the involvement of middlemen, which results in decrease of cost. 11) Non Speculative A cooperative store knows the requirements of its members, so there is not risk of loss on speculative buying. 12) Minimum Inventories: Constant and regular demand of the members facilitates the maintenance of inventory at the minimum possible level. 13) Economy in expenditure: There is no need of specialist for production, distribution, and management. Therefore, economy in expenditures is the natural result. 14) Saving in selling and Distribution expenses: Regular customers require no such service, thus reduce or elimination in these costs in possible. 15) Complete integration: The producer whole seller and the retailer and completely integrated. 16) Equal Distribution of wealth: No profits are to be given to any special call of investors. All members have therefore, an equal share in profits. 17) Vast markets: Cheaper rates may attract a large number of customer. 18) Educative value: Principles of mutual cooperation, self help and self government is taught. 19) More employment: Thousands of people are engaged in different types of co-operative, small scale and cottage industries. Thus it removes the problems of jobless persons in the developing countries. 20) Better stands of living: The increase in the incomes of the members and providing them with goods of better quality raises their standard of living. 21) Moral and social benefits: A cooperative is most useful from the moral and social point of view. It encourages the spirit of co-operation among the members of the society. They have a boarder social outlook. The development of cooperation makes good citizens in the country. 22) Tax advantage: Cooperative societies enjoy tax advantage over other forms of business ownership. 23) Other social benefits: Spirit of sacrifice, tolerance and cooperation is created. 24) Reduction in inequality of income:

Prepared By: H.ABDUL REHMAN

0321-6485593

EORUPA SCIENCE &COMMERCE ACADEMY


A cooperative enterprise helps in reducing in inequality of income and wealth in the country. It avoids exploitation as the profit is distributed among the shareholders. 25) Incentive of hard work: When workers starts business on co-operative basis and get their due profits, they get an incentive of hard work. 26) Economic development: Cooperative society is one type of the business units. It also contributes towards the economic development by increasing output and providing employment etc. DEMERITS/ DISADVANTAGES OF COOPERATIVES A cooperative society has the following disadvantages. 1) Limited Scale: Due to various hindrances behind the growth of capital, it is not possible for the cooperative society to start its business at a large scale, it therefore keeps its business limited in the narrow field of cooperation. 2) Lack of Capital: Generally the members of co-operative societies are poor and they cant provide the capital on large scale. The external resources to the society are also limited so it faces the shortage of finance or capital. 3) Inefficient Management: Export and efficient management is important factor for running the business successfully but a society cant hire the service of superior abilities due to its limited resources. 4) Adoption of old technique: A cooperative firm carries on its activities in an old fashion. Ti tries its best to avoid the risk and does not adopt new techniques in ever changing business world. 5) Delay in decision: Control the decisions are made by the management authorities. The control, therefore passes to many persons and lead to delayed decisions. 6) Defective Services: The co-operative firms get defective and delayed services of outside agencies. For instance, fertilizers, seeds, machinery, credit etc. are not timely available creating dissatisfaction among the members. 7) Lack of true leadership: An interested group normally dominates a co-society. A member once elected holds the office till his death the business of the firm remains with one management. 8) Failure in running of Business: If a unit is successful, it induces other members to increase the volume of business. As most of the members lack co-operative spirit, so they fail to run the business. 9) Dependent on Government: It is dependent upon government for protection and financial support. 10) Absence of co-operative spirits: There is lack of spirit of mutual cooperation among the members. They dont know the principles of co-operation is positive cant be achieved. 11) Chances of loss: Generally the management remains in the hanks of selfish and dishonest members. They take undue advantages of their powers and block the mound to cooperative credit, which result in loss to the society. 12) Limited Scope:

Prepared By: H.ABDUL REHMAN

0321-6485593

EORUPA SCIENCE &COMMERCE ACADEMY


The working field of the cooperative is limited. Its principles can be applied in a particular society. In the followings industrial enterprises the cooperative principles cannot be successful and regular. (a) Those in which demand is not constant. (b) The business in which goods are usually supplied on credit basis. (c) Those industries in which highly skilled persons required. Uneducated members: The members of society are generally illiterate and therefore society suffers loss. Lack of regular demand: It has to face regular fluctuation in demand due to lack of permanent members. The constant change in demand adversely affects the business policy. Absence of personal interest: Generally the paid persons who do not share in the profit conduct the business. There is thus absence of interest and initiative, which hampers the progress. Lack of legal pressure: There are dishonest and selfish officers accept bribe and so ignore the genuine cases, which lead to mismanagement. Secondly contracts are not legally enforceably and thus cooperative act 1925 is not comprehensive. Lack of experience: There is a lack of business experience to the members of the society. A society cant hire the services of experts due to its limited resources. Absence of discipline: Every member of the society considers him the owner of the business so inefficient takes place and business suffers a loss. Lack of profit incentive: Basically cooperative society is not a profit earning institution. So the absence of thee profit incentive is an obstacle in the way of its progress. Lack of knowledge: Generally the member dont know the principles and rules of the society so they create problem for it.

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CONCLUSION: Cooperative extension work is the most urgent need of the developing countries. The cooperative organization can better serve the formers in the purchase of input like seeds, fertilizers, etc. It can also help in the marketing of products at a fair price both in cities and rural areas. Cooperatives can be operated successfully under an effective policy of state towards self help the sincerity and honestly ant the Top can regenerate cooperative movement in Pakistan.

Prepared By: H.ABDUL REHMAN

0321-6485593