Merits and Demerits of Co-operative Society?



Introduction: - A Co-operative society is a voluntary association of people who come together on the basis of unity and equality to protect and promote their common economic interest. The nature of co-operative organization is service oriented. Each for all and all for each is the principles of a co-operative society.

Definition: - “Co-operative society is a society which has its objectives for the promotion of economic interests of its members in accordance with co-operative principles.”    (Indian Co-operative Societies Act1912)

Merits of Co-operative Societies are as Follows:

1.       Easy Formation: -A co-operative society can be formed easily. Minimum ten members required for the registration of co-operative society. Then any adult member can join hands to start co-operative society. Though the registration of a co-operative society is compulsory, the procedure for registration is simple and the fees for registration are nominal.

2.       Democratic Management: -The management of cooperative organisation is democratic in nature. Each member enjoys an equal right to vote. The principle of voting is 'one member one vote'. Thus each member is involved in decision making. 

3.       Limited Liability: - The liability of the members of the co - operative society is limited to their shares or to the extent of the unpaid amount of the shares held by them. 

4.       Stability: - Since a co - operative society enjoys an independent legal status different from its members. It enjoys a stable and continuous life. 

5.       Open Membership: - The membership of a co - operative society is voluntary. It is open to all i.e. any person of any caste, creed, religion etc. can become a member by purchasing shares in the society. 

6.       Tax Concession: - Since co - operative societies plays an important role in the economic and social development of the country, the government gives many concessions to them which include exemption of payment of income tax upto a certain limit. This helps in increased profitability. 

7.       Less Operating Expenses: -The operating expenses of co-operative societies are very little because members offer administrative services without any remuneration. There are no advertisement expenses and no middlemen are involved.

8.       Supply of goods at cheaper Rate: - Co - operatives society makes bulk purchases directly from manufacturer or wholesale trader, so goods are available at cheaper rate. Co - operative, societies main aim is to provide service to members rather than earning profits. 

9.       Self financing and charity: - After paying maximum dividend of 15% p.a. on the shares of members and bonus as per their purchases, the surplus profit is utilized for financing growth and development of the organization and also for the charitable and social activities. 

Demerits of Co-operatives Society are as Follow: -

1.       Lack of Capital: -The members of co-operative society belong to lower and middle income group. Hence they can invest only a limited capital in the co-operative society. Buying more shares does not help members in dictating their terms in the management since the principle of voting is 'one member one vote' unlike a company where a company where it is 'one share one vote'. There is no capital appreciation. A maximum of 15% p.a. is paid on the shares.

2.       Rigid Government Rules and Regulations: -There is strict control and supervision by the state government on the working of co-operative organizations. Registration is compulsory as per the co-operative society act of the concerned state. The concentration of power is in the hands of Registrar. Various statements are required to be sent to the government from time to time. Due to excessive government interference, the spirit of co-operation is lost.

3.       Incompetent Management: -Members constitute Managing committee which is responsible for day to day administration of the society, members may not possess the required skills, abilities, time and experience for managing the affairs efficiently. Members work in an honorary capacity. Therefore they lack motivation.

4.       Lack of Public Confidence: -It is observed that only some particular members become members of the managing committee and they are politically motivated. Co-operative society does not enjoy public confidence as many co-operative societies have failed miserably (unhappily) in achieving their objectives. This is because unnecessary interference by politicians, corrupt government officials in the working of co-operatives.

5.       Lack of Motivation: -The managing committee members work in an honorary capacity. There is no incentive for them to work hard. There is direct effort reward relationship. This may reserve in lack of interest by management in affairs of the co-operative society.

6.       Mutual Disputes: -There are constant conflicts among members as they lack the maturity and experience in handling the affairs of the society. Some members purchases their requirement from other sources rather than from the co-operative society of which, they are members. Moreover, some members try to set concessions and privileges enjoyed by co-operatives for their personal gain. These may result in winding up of the co-operative society.


7.       Limited Scope for Expansion: - Due to limited financial and managerial resources, co-operatives society cannot expand the business beyond certain limit.

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