According to Calvert, “Co-operation is a specialized form of economic organization in which people voluntarily associate together on a basis of equality for the promotion of their common economic interests”.
A Co-operative Society is an enterprise formed and directed by an association of users, applying within itself, the rules of democracy, and directly intended to serve both its own members and the community as a whole – Lambert.
Principles of Co-operation
A co-operative society is a special type of business organization different from other forms of organization. The characteristics / principles of co-operative society are:
i) Open Membership / Universality
The membership of a Co-operative Society is open to all those who have a common interest, those who are convinced of its benefits and those who are prepared to share the benefits and responsibilities involved in such a membership. A minimum of ten members are required to form a cooperative society. The Co–operative Societies Act does not specify the maximum number of members for any co-operative society. However, after the formation of the society, the member may specify the maximum number of members.
ii) Unity or Political and Religious Neutrality
Unity is the fundamental force behind all co-operative organizations. It is above all beliefs, faiths and convictions.
iii) Voluntary Association
Members join the co-operative society voluntarily, that is, by choice. A member can join the society as and when he likes, continue for as long as he likes, and leave the society at will.
To protect the interest of members, co-operative societies are placed under state control through registration. While getting registered, a society has to submit details about the members and the business it is to undertake. It has to maintain books of accounts, which are to be audited by government auditors.
v) Sources of Finance
In a co-operative society, capital is contributed by all the members. However, it can easily raise loans and secure grants from government after its registration.
vi) Democratic Management
Co-operative societies are managed on democratic lines. The society is managed by a group known as “Board of Directors”. The members of the board of directors are the elected representatives of the society. Each member has a single vote, irrespective of the number of shares held. For example, in a village credit society the small farmer having one share has equal voting right as that of a landlord having 20 shares.
vii) Service Motive / Limited Interest on Capital
The main aim of the society is not to earn abnormal profit but to enable the members to improve their economic conditions. If there is any excess income, it will be used to meet unforeseen loss or strengthening the funds of the society so that cheaper services may be made available to the members. Co-operatives are not formed to maximize profit like other forms of business organization. The main purpose of a Co-operative Society is to provide service to its members. For example, in a Consumer Co-operative Store, goods are sold to its members at a reasonable price by retaining a small margin of profit. It also provides better quality goods to its members and the general public.
viii) Separate Legal Entity
A Co-operative Society is registered under the Co-operative Societies Act. After registration a society becomes a separate legal entity, with limited liability of its members. Death, insolvency or lunacy of a member does not affect the existence of a society. It can enter into agreements with others and can purchase or sell properties in its own name.
ix) Distribution of Surplus
Every co-operative society in addition to providing services to its members, also generates some profit while conducting business. Profits are not earned at the cost of its members. Profit generated is distributed to its members not on the basis of the shares held by the members (like the company form of business), but on the basis of members’ participation in the business of the society.
For example, in a consumer co-operative store only a small part of the profit is distributed to members as dividend on their shares; a major part of the profit is paid as purchase bonus to members on the basis of goods purchased by each member from the society.
x) Self-help through Mutual Cooperation
Co-operative Societies thrive on the principle of mutual help. They are the organizations of financially weaker sections of society. Co-operative Societies convert the weakness of members into strength by adopting the principle of self-help through mutual co-operation. It is only by working jointly on the principle of “Each for all and all for each”. The members can fight exploitation and secure a place in society.
xi) Principles of Publicity
The co-operative organizations do not believe in maintaining secrecy about their working and progress.
Members should have the spirit of dedication and service with absolute honesty and unquestionable integrity. Hence, co-operation is the movement of the people, for the people and by the people.
History of Co-operative Movement
Robert Owen (1771–1858) is considered the father of the cooperative movement. Owen believed in putting his workers in a good environment with access to education for themselves and their children. He put his ideas into effect successfully in the cotton mills of New Lanark, Scotland. It was here that the first co-operative store was opened.
The Famine Commission of 1901 recommended the establishment of Agricultural Banks on the lines of Mutual Credit Association of Europe to provide credit to farmers in order to prevent further famine and also to improve agriculture. A Committee under the presidentship of Sir Edward Law drafted a model bill to establish co – operative credit societies. The bill was passed as Co-operative Credit Societies Act on 25th March, l904.
Provisions were made in this Act to establish credit societies both in rural and urban areas for providing credit facilities at cheap rates to needy people of the locality. Rural societies were organized on ‘Raiffeisen Model’ while the urban societies were established on ‘Schulze Delitzch Pattern’. In Raiffeisen Model, unlimited liability was an important feature while in Schulze Delitzch societies, limited liability principle was followed.
In the event of liquidation of limited liability societies, the liability of the members is limited to their share capital or it may be one to five times of the share capital as prescribed by the by-law of the society. The advantage is that members have confidence that their property is safe, even if the society is liquidated. In the event of liquidation of unlimited liability societies, the members lose not only their share capital but their other properties upto the extent of the loss of the society.
The main advantages of unlimited liability are the mutual trust and watchfulness it creates among the members.Realizing the defects noticed in the Co-operative Credit Society Act, 1904, that is, i) no provision for purposes other than credit, i.e., marketing and ii) unlimited liability, the Government passed Co-operative Societies Act, 1912.
According to this, a non – credit societies can also be formed and b) the liability of the central societies (collection of primary societies) shall be limited and the liability of rural (primary) societies shall be unlimited. After 1912, there was a rapid growth not only in the number of co-operative credit societies but also in non – agricultural credit societies. However, the development was not even. It made rapid progress only in Bombay, Madras and Punjab (where agriculturists had mortgage rights) than in the Zamindhari areas like Bengal.
In 1914, the Government of India appointed a committee under Sir Edward Maclagan to examine the progress of the co-operative movement and to suggest measures for improvement. The defects noticed by the committee were:
a) Misappropriation of funds by the members of the management committee,
b) Nepotism in advancing loans to friends and relatives,
c) Improper auditing and inspection of societies.
The major recommendations were:
i) Formation of three classes of societies namely:
a) primary meant for individuals and unions or federation of societies meant for supervision;
b) Central bank at district level for banking business; and
c) Provincial bank at the provincial 1evel to serve as apex banks.
ii) Restriction of area under primary society to a village, and
iii) Encouragement of non –credit societies through the financial support by central banks.