The word ‘cooperative’ means working together and with others for a common purpose.

The cooperative society is a voluntary association of persons, who join together with the motive of welfare of the members.

They  join to protect themselves from the possible exploitation at by middlemen who desire to earn greater profits.

The cooperative society is compulsorily required to be registered under the Cooperative Societies Act 1912. For setting up a cooperative society the consent of at least ten adult persons to form a society is required. The capital of a society is raised from its members through issue of shares. The society acquires a distinct legal identity after its registration. 


  1. Voluntary membership: 

The membership of a cooperative society is voluntary. A person is free to join a cooperative society, and is free to leave anytime as per his desire. There cannot be any compulsion in this regard. But a member is required to serve a notice before leaving the society. Membership is open to all, irrespective of their religion, caste, and gender. 

  1. Legal status:

Registration of a cooperative society is compulsory. This gives a separate identity to the society which is distinct from its members. The society can enter into contracts and hold property in its name, sue and be sued by others. It is not affected by the entry or exit of its members.

  1. Limited liability:

The liability of the members of a cooperative society is limited to the extent of the amount contributed by them as capital. This defines the maximum risk that a member can be asked to bear. 

  1. Control:

In a cooperative society, the power to take decisions lies in the hands of an elected managing committee. The right to vote gives the members a chance to choose the members of managing committee that gives the cooperative society a democratic character. Every member has right to give one vote. 

  1. Service motive:

The cooperative society follows the values of mutual help and welfare. The motive of service dominates its working. Any surplus is distributed among the members as dividend according to the bye-laws of the society. 

Merits :

  1. Democratic principles: 

The principle of ‘one man one vote’ governs the cooperative society. Irrespective of the amount of capital contribution by a member, each member is entitled to equal voting rights.

  1. Limited liability:

The liability of members of a cooperative society is limited to the extent of their capital contribution. The personal assets of the members are, safe from being used to repay business debts.

  1. Stable existence:

Death, bankruptcy or insanity of the members do not affect continuity of a cooperative society. A society, is unaffected by any change in the membership.

  1. Economy in operations:

The members generally offer honorary services to the society. As there is elimination of middlemen, it results in reducing costs. The customers or producers themselves are members of the society, and hence the risk of bad debts is lower.

  1. Support from government:

The cooperative society follows democracy and hence finds support from the Government in the form of low taxes, subsidies, and low interest rates on loans.

  1. Ease of formation: 

The cooperative society can be started with a minimum of ten members and is governed by the provisions of Cooperative Societies Act 1912. The registration procedure is simple involving a few legal formalities . 


  1. Limited resources:

 Resources of a cooperative society consists of capital contributions of the members with limited means. The low rate of dividend offered on investment also acts as a deterrent in attracting membership or more capital from the members. 

  1. Inefficiency in management: 

Cooperative societies are unable to attract and employ expert managers because of their inability to pay them high salaries. The members who offer honorary services on a voluntary basis are generally not professionally sound to handle the management.

  1. Lack of secrecy:

As a result of open discussions in the meetings of members as well as disclosure obligations as per the Societies Act (7), it is difficult to maintain secrecy about the operations of a cooperative society.

  1. Government control: 

In return of the privileges offered by the government, cooperative societies have to follow the rules and regulations related to auditing of accounts, submission of accounts, etc. There is interference in the functioning of the  cooperative society by the state cooperative departments.

  1. Possibility of conflicts:

Internal quarrels arising as a result of contrary viewpoints may lead to difficulties in decision making. Personal interests may dominate the welfare motive .

Types of Cooperative Societies

(on the basis of nature of operations):

  1. Consumer’s cooperative societies: 

1.The consumer cooperative societies are formed to protect the interests of consumers.

2. The members are consumers who want to obtain good quality products at reasonable prices.

3. The society aims at eliminating middlemen to achieve economy in operations by  purchasing goods in bulk directly from the wholesalers and selling those goods to its members .

4. Profits, if any, are distributed on the basis of either their capital contributions to the society or purchases made by individual members.

  1. Producer’s cooperative societies:

1. These societies are set up to protect the interest of small producers.

2. The members are  producers who want to procure inputs for production of goods to meet the demands of consumers.

3. The society fights against the big capitalists and enhance the bargaining power of the small producers by supplying raw materials, equipment and other inputs to the members and buying their output for sale.

4. Profits among the members are generally distributed on the basis of their contributions to the total pool of goods produced or sold by the society.

  1. Marketing cooperative societies:

1. These societies are established to help small producers in selling their products.

2. The members consist of producers who want to obtain reasonable prices for their output.

3. This society aims to eliminate middlemen and improve competitive position of its members by securing a favourable market for the products. It pools the output of individual members and performs marketing functions like transportation, warehousing, packaging, etc., to sell the output at the best possible price.

4. Profits are distributed on the basis of  each member’s contribution to the pool of output.

  1. Farmer’s cooperative societies:

1. These societies are established to protect the interests of farmers by providing better inputs at a reasonable cost.

2. The members comprise of farmers who want to jointly take up farming activities.

3. The aim is to gain the benefits of large scale farming and increase the productivity. Such societies provide better quality seeds, fertilizers, machinery and other modern techniques for use in the cultivation of crops. This helps in improving the yield and returns to the farmers. It  also solves the problems of farming on fragmented land holdings.

  1. Credit cooperative societies:

1. Credit cooperative societies are established for providing easy credit on reasonable terms to the members. The members are the persons who want financial help in the form of loans.

2.The aim of such societies is to protect the members from the exploitation by money lenders who charge high rates of interest on loans.

3. Such societies provide loans to members out of the amounts collected as capital and deposits from the members and charge low rates of interest. 

  1. Cooperative housing societies:

1. Cooperative housing societies are established to help people with limited income to construct houses at reasonable costs.

2. The members of these societies consist of people who are desirous of procuring residential accommodation at lower costs.

3. The aim is to solve the housing problems of the members by constructing houses and giving the option of paying in instalments.

4. These societies construct flats or provide plots to members on which the members themselves can construct the houses as per their choice.

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