5.30 Forms of Business Organisation 5.7 COOPERATIVE SOCIETY. lowell any Meaning of Co-operative Society A co-operative society is moderate means, who unite toge' economic and social interests. It is ba’ effort, mutual self-help, equality, democra freedom. It represents an attempt by poor an themselves against the exploitation and oppress strong. A cooperative organisation is a voluntary association of individuals who associate together to promote their common interests. The objects of a cooperative organisation are economic in character. It is generally formed and registered under the Indian Cooperative Societies Act, 1912 by the individuals of moderate means to protect their economic interests. This form of organisation can be applied to every conceivable form of economic activity and thus the scope of cooperative form of organisation is as wide as the economic life of the members of a community. Today, there are a large number of credit societies, retail stores, building societies, marketing societies and producers’ societies which are formed and run on the basis of cooperation. a voluntary association of persons of ther to protect and promote their common sed on the principles of collective cy, distributive justice and d weaker persons to protect ion of the economically BOX 5 : Definitions of Cooperative Society “Co-operative organisation is a society which has its objectives for the promotion of economic interest of its members in accordance with cooperative principles.” —The Indian Cooperative Societies Act, 1912 “Cooperative is a form of organisation wherein persons voluntarily associate together as human beings on the basis of equality for the promotion of the economic interest of themselves.” —E.H. Calvert Features of a Cooperative. The essential characteristics of a co-op- erative society are as follows: 1, Voluntary Association. Co-operative organisation is basically a voluntary association of individuals seeking to improve their economic status through joint efforts. No one is forced to become a member or to continue as a member. Persons having common interest can join as members. The are also free to leave the organisation after giving due notice a 2. Legal Status. It is compulsory for a cos i i q | operative society to get itself registered under the Cooperative Societies Act. After oe the cooperative organisation gets a separate legal entity. It means the cooperative society is considered Separate from its members. It can buyForms of Business Organisation = and sell property in its own name and can enter into contract in its own name. The death, insolvency and incapacity of any member does not affect the existence of cooperative society i 3. 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. 4, Service Motive. The formation of co-operatives is based on service motive rather than a profit motive. Its object is to serve their members and not to maximise the profits. These societies provide different types of services to their members. 5. Equality of Voting Rights. The main principle of co-operative society is ‘one man one vote’. Irrespective management of a co-operative society is democratic. All important decisions are taken by majority. 6. Democratic Management. The management of a co-operative society is based on democratic lines. A body of members is elected to conduct and control the business. This body is elected through ‘one-man-one-vote system’. Members can give their suggestions, opinions and problems. 7. Disposal of Surplus (Profit). The surplus arising out of year’s working is not distributed among the members by way of dividend. A specified portion of the profits is transferred to Statutory Reserve Fund and then a fair rate of interest is paid on the capital subscribed by the members. The remaining profits are distributed equitably among the members according to the extent of the business transacted with it by each member. Types of Cooperative Societies Following are the main types of co-operative societies: 1. Consumers’ co-operative societies 2. Co-operative credit societies 3. Producers co-operative societies 4. Marketing co-operative societies 5. Co-operative farming societies 6. Co-operative housing societies. 1. Consumers’ Co-operative Societies. Such societies are organised by the consumers to avoid exploitation by the middlemen and to ensure steady supply of consumer goods and services at fair prices. A consumer's co-operative store purchase the consumers good either from the manufacturers or the wholesalers and then sells them to its members at teasonable prices. The profits made by the society during a year are utilised _ for strengthening the reserve fund of the society, for declaring a moderate tate of dividend and for declaring a bonus to members according to the made by them from the cooperative store.532 Forms of Business Organisation 2. Producers’ Co-operative Societies. The societies are by the small producers to fight against the big producers. It assists the member who need capital, materials and equipment to use their skills for the production of goods and services. The society supplies these things to the membe,. and takes over their purchases for sale. Thus, a producers’ society not only provides money and materials to the small artisans but also undertakes to sell their products. 3. Co-operative Marketing Societies. Co-operative marketing Societies are voluntary associations of small Producers, who find it difficult to individually sell their products at a profit. The main purpose of such a society is to ensure a steady and favourable market for the output of its members. The output is pooled together and sold at the best price. The sale proceeds are distributed in Proportion to the contribution of the members to the pool. Marketing co-operatives eliminate middlemen and ensure honest trading practices in weighing, measuring and accounting. 4. Credit Co-gperative Societies. Such societies are formed to provide financial help in the form of loans to members. The funds of these societies consist of share capital contributed by the members and the deposits made by them and outsiders. The funds are used in giving loans to needy members on easy terms. Thus, the members are Protected from the 5. Farmers’ Co-operative Societies. In Co-operative farming societies, small farmers join together and pool their resources for cultivating their land collectively. Their object is to achieve economies of large scale farming Production. 6. Cooperative Housing Societies Cooperative housin; ieties are i a ig Societies ar €stablished to help pele with limited income to construct houses or flats option of paying in instalments, These societies procure land from the le plots to members on which th? ict the houses as per their choice.§.33 Forms of Business Organisation \—Merits of Cooperatives. The co-operative form of organisation of- fers the following advantages: () Ease of Formation. A co-operative society is a voluntary association and may be formed with a minimum of ten adult members. Its registration is very simple and can be done without much legal formalities. (i) Open Membership. Membership in a co-operative organisation is open to all having.a common interest. A person can become a member at any time he likes and can leave the society by returning his shares without affecting its continuity. (ii) Democratic Management. A co-operative society is managed in a democratic manner. It is based on the principle of one-man-one-vote. All members have equal rights and can have a voice in its management. (iv) Limited Liability. The liability of the members of a co-operative society is limited to the extent of capital ibuted by them. They do not have to bear personal liability for the debts of the society. (v) Economical Operations. The operation of a co-operative society is quite economical due to elimination of middlemen and the voluntary services provided by its members. (vi) Stability. A co-operative society has-a-separate legal existence) It is not affected by the death, insolvency, lunacy or permanent incapacity of any of its members. It has a fairly stable life and continues to exist for a long period. (vii) Government Support. Government gives. s various kinds of help to_ co-operatives, such as loans at lower rates of interest and relief in taxes. (viii)Promotion of Social Values. The cooperative societies promote social Gites anal ate ea promote self help, moral value among the members. They also help to prevent concentration of economic power in few hands. imitations of Cooperatives. Cooperative societies suffer from the following limitations: (Limited Capital. The cooperative organisation is formed by the people who have limited resources and there is no compulsion to buy more than one share by each member. (i) Inefficiency in Management. Cooperative societies are unable to attract and employ expert managers because of their inability to pay we ies) Tie members wh Gites hanceaee eee en jasis are severally not not are to handle et management functions effective y Sappes5.34 Forms of Business Organisation (ii), Lack of Motivation. In cooperative organisation, there is no direct link between efforts and reward, Hence, members are not inclined to put their best efforts. There is no incentive for working efficiently. Gp) Conflicts among Members. The members are from different sections of society. They may have difference of opinion and if any member follows rigid attitude, it can lead to conflicts. Generally the selfish motiv e of members starts dominating and they forget the service motive. (v) Government Control. A cooperative society gets various concessions © and benefits from the government. In return there is excessive government regulation and control by the government. It is essential for cooperative society to get its accounts audited by the auditors of the cooperative department and to submit its accounts with the registrar. All these regulations restrict the flexibility and efficiency of the cooperative organisation. 58 CHOICE OF FORM OF ORGANISATION The choice of the form of business organisation at the time of launching a new enterprise depends upon the nature of business activity, volume and area of operations, degree of control desired, initial capital requirement, extent of liability, continuity of business, Government regulation and tax burden. It is important to point out that these factors are inter-related and inter-dependent. The relationship between the various factors must be clearly identified. The impact of various factors on the choice of a suitable form of organisation is discussed below: 1. Ease in Formation. A business organisation should be such which may be formed easily. An organisation which involves the least expenses in formation and minimum legal formalities, is the best. From this point of view, sole tradership and partnership are preferable, 2, Liability. Limited liability is an important feature of a good form of organisation. It means that in case of insolvency or winding up, the pumex(s) will be responsible only up to the amount of capital contributed by them. The company form of organisation restricts the liability of an entrepreneur to the minimum. 3. Nature of Business, Nature of business activities is an important factor affecting the decision about the choice of organisation. Business activity may be trading, manufacturing or renderin, puss generally Saines small capital and limit us, it can be easily managed by a sole-pro} rietorshi isation. Service activities are usually dee be Hs palin ee en ‘oprietorshi, manufacturing business, Partnership or isin Berbice Hemis, or a it st peo may be a better choice. ‘ock company organisation 4, Ease of Raising Finance. Cap: ital is the life bl i Without capital we cannot even thi ood of the business. of starting a business, Where aForms of Business Organisation 5.35 large amount of capital is needed, company may be the right form of organisation. But much would depend upon the facility with which finance can be raised. 5. Control. If an entrepreneur wants to have a direct control over his business, the preferable form would be sole proprietorship. If a partnership is created, the sole proprietor has to share control with other partners. In a private company, the promoters may be able to retain effective control over the business of company, but in case of a public company, the owners will have indirect control over the management of the company. 6. Business Secrecy. Ordinarily a firm of organisation which enables retention of business secrets is preferred to the one wherein business secrets are difficult to preserve. From this point of view, the sole proprietorship is the most ideal form of organisation. In case the partners have been chosen carefully, partnership form comes next to proprietory form of organisation in this respect. 7. Flexibility of Operation. An ideal form of business organisation is one which allows for maximum flexibility of operations. In other words, it should provide enough scope to the entrepreneur to adjust and adapt to changes. Any rigidity in regard to taking in of new members or raising of additional capital will not serve the interests of business. 8. Stability or Continuity. From the point of view of stability, company form is the ideal form of organisation because it remains unaffected by the continuance or discontinuance of its members, whereas sole-proprietorship and partnership get affected immediately if the partner or the sole proprietor ceases to exist. 9. Government regulations. If the entrepreneur wishes to avoid too much Government controls and regulations of business, he would prefer sole proprietorship or partnership. Business undertaken through company and cooperative forms of organisations are subjected to a lot of Government controls and regulations through the Companies Act and the Cooperative Societies Act. 10. Tax Burden. There is a single (or flat) rate of tax on corporate profits which is quite high. The rate of tax remains the same irrespective Of the volume of corporate profits. But sole traders and partnership firms are subjected to progressive rates of income tax, i., the rate of tax goes on increasing with the increase in the volume of profits. That means the income tax payable will be lower in cases of lower slabs of income of sole traders and partnership firms. Therefore, if low profits are expected from the business, it should be organised on a sole proprietorship or partnership basis. But if large profits are expected from the business, it should be ‘organised as a joint stock company because this form of organisation Ras | anedge over the other forms as regards amount of capital, limited, liability and continuity of business.