Co-operative Society - Features, Merits and Demerits.


India is an agricultural country and has laid the foundation of the world’s biggest co-operative movement. The co-operative movement was started by the weaker sections of society for protecting its members and their rights. The country has a network of co-operatives at the local, regional, state and national levels.


Voluntary Association and Open Membership

Any person can become a member of a co-operative society. For membership, there is no discrimination on the basis of caste, religion, gender and many more.

Democratic Principle

The management of co-operative society is based on democracy. All the decisions are taken on a majority basis. They support the rule of ‘One Member One Vote’. According to the rules and regulations of the Co-operative Society Act, meetings are arranged by the society.


The management of co-operative society is in the hands of the Managing Committee of members. They are elected representatives of shareholders. All the important business decisions are taken by Managing Committee members. The committee members look after the day-to-day administration of society.


Registration of co-operative society is compulsory. Every co-operative society must follow rules and regulations of the Indian Co-operative Society’s Act 1912 and the respective State Co-operative Society’s Act. Minimum 10 members are required for registration of the co-operative society. There is a number of legal documents required for registration.

Separate Legal Status

After registration, every co-operative society is considered as a separate legal entity before the law. Therefore it can enter into the contract, purchase property, open a bank account in its name and many more.

Limited Liability

The shareholders of co-operative society have limited liability. It is limited up to the unpaid value of the share purchased by them. Therefore, their private property is not used for payment of society’s liability.

Number of Members

Minimum 10 members are required for the formation of a co-operative society. There is no limit for the maximum number of members as per the Co-operative Society’s Act.

Equal Voting Rights

Every member gets equal rights in co-operative society as a shareholder. In co-operative society, membership is open to all. All members have equal voting rights no matter how much shares they possess.

Service Motive

A Co-operative society provides various services to its members. Its main objective is to provide services to society. Goods are available at the lowest rates for their members. In a co-operative bank, loan and overdraft facility is available at the lowest interest rates for its shareholders only.


Demographic Management

Each member of the co-operative society enjoys equal voting rights. The principle of voting is ‘One Member, One Vote’. The number of shareholders is large. They are scattered over a long region. Managing Committee looks after the management of society on a daily basis.

Open Membership

The membership of the co-operative society is voluntary and open to all which means any person irrespective of its caste, creed, religion and such can purchase shares of a co-operative society and a member of it.

Less Operating Expenses

The cost of operation is low in a co-operative society. No middlemen are involved. There are no advertisement expenses. Managing committee members provide honorary services. Various concessions, reliefs, and privileges related to registration fees, stamp duty, income tax, etc. are given by the Government.

Limited Liability

The liability of the shareholders of co-operative society is limited. It is limited up to the extent of the unpaid amount on shares held by them. Thus, members’ private property cannot be used even if the assets of the society are insufficient to pay the debts of the third party.

Tax Concession

Co-operative society plays a significant role in the economic and social development of the country. The government gives many concessions to them, like exemption of payment of income-tax up to a certain limit which helps to increase the profit of the society.

Self-Financing and Charity

As per the latest amendment act of co-operative society, a society can pay a maximum of 15% dividend to its members. Therefore, the remaining surplus is used as self-financing. Some amount of profit is utilized for charity purposes, social activities and for the growth of co-operative society.


Limited Capital

The face value of the shares of co-operative society is very less. The shareholders belong to the weaker section of the society. Therefore, they cannot purchase more shares of the society, so capital is limited. Due to low rates of dividend people are not interested to invest in shares of a co-operative society.

Inefficient Management

The management is in the hands of the managing committee. They are the representative of shareholders. They may not possess the managerial skill. Due to a limited amount of capital capacity they are not able to appoint professional managers. The managing committee members are not professionals so, there is inefficient management.

Lack of Public Confidence

There is a huge political interference in co-operative society so, people do not invest their money in a co-operative society. Most of the Co-operative societies are lead by political leaders so there is a lack of public confidence.

Limited Scope for Expansion

There is limited capital in a co-operative society. They cannot take risky projects due to inefficient management. Therefore, there is less scope for expansion.

Lack of Motivation

Managing committee members work on an honorary basis. Therefore, they are not motivated to work hard.

Types of Co-operative Societies

Consumers Co-operative Societies

Consumer’s Co-operatives are formed by the consumers to obtain their daily requirements at reasonable prices. These societies protect lower and middle-class people from exploitation carried on them. The profits gained by the societies are distributed among the members in the ratio of purchases made by them during the year. Examples of such Consumer Co-operative Societies are Super Bazaar, Apana Bazaar and many such.

Producer’s Co-operatives

Producer’s Co-operatives are voluntary associations of small producers and artisans who join hands to face competition and increase production. There are two types of Producer’s Co-operatives and those are:

a) Industrial Service Co-operatives

In this type, the society undertakes to supply raw materials, tools and machinery to the members. The producers work independently and sell their industrial output to the co-operative society.

b) Manufacturing Co-operatives

In this type, producer members are treated as employees of the society and are paid wages for their work. The society provides raw material and equipment to every member. The members produce goods at a commonplace or in their house. Society sells the output in the market and equipment to every member.

Marketing Co-operatives

These are a voluntary association of independent producers who want to sell their output at remunerative prices. The output of different members in pooled and sold through a centralized agency to eliminate the middleman. The sale processed is distributed among the members in the ratio of their outputs.

Co-operatives Farming Societies

These are voluntary organizations of small farmers who join together to obtain the economics of large scale farming. In India, farmers are economically weak and their land-holdings are small. In their individual capacity, they are unable to use modern tools, seeds, fertilizers, etc. They pool their lands and do farming collectively with the help of modern technology to maximize agricultural output.

Housing Co-operatives

These societies are formed by a low and middle-income group of people in urban areas to have a house of their own. Housing Co-operatives are of different types. Some societies acquire land and give the plots to the members for constructing their own houses. Other societies themselves construct houses and allot them to the members who make payments in instalments.

Credit Co-operatives

These societies are formed by poor people to provide financial help and develop the habit of savings among members. They help to protect members from the exploitation of money lenders who charge exorbitant interest from borrowers. Credit Co-operatives are found in both urban as well as rural areas.


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