Advantages and Disadvantages of Cooperative Societies

Merits of Co-operative Societies

Being a body corporate, the co-operative society gets all the advantages and benefits, which are derived by companies. In addition, it enjoys the following advantages also.

1. Easy Formation

Its formation is very easy because

• The formalities involved in its formation are very simple in nature.
• There are no requirements as to the payment of registration fee, stamp duty etc.
• The Government itself encourages the forming of co-operative societies by providing various incentives, aids etc.

2. Service Motive

The co-operative societies are generally formed with the aim of serving the common man and liberate him from the oppression of economically strong men.

3. Democratic Management

The management of a co-operative society is carried on democratic principles. All the members have equal rights in the working of the society. Each member has only one vote irrespective of the number of shares held by him or her. Thus it prevents the domination by a small group in the management of the societies.

4. Avoidance of Exploitation

The co-operative society protects the economically weaker sections of the society from exploitation of the capitalists.

5. Suitability

Cooperative societies can function successfully under all economic conditions. They can flourish in socialistic as well as in capitalistic countries.

6. Minimum Overhead Cost

As cooperative societies are not aiming at capturing the market, they are not spending huge money on advertisement and marketing. With the result, overhead cost is minimized which enables them to supply goods to their members at fair prices.

7. Scope of Self-Government

Being the members of the societies, various categories of people such as workers, farmers, customers, small industrialists, salary earners and middle class people get training in different aspects of its business. Hence, it provides a scope for Self-Government.

Limitations of Co-operative Societies

1. Unsuitable for Large Business

Co-operative societies cannot mobilize adequate capital for running large scale business units since they are unable to get any support from the rich people. So it is not suitable to run a large-scale business unit.

2. Inefficient Management

Experts cannot be employed due to relatively low scale of pay. Thus, there is possibility that the management of the cooperative society may be inefficient, very poor and inexperienced.

3. Absence of Motivation

Generally the directors of the cooperative societies work on honorary basis. The remuneration of employees is very low when compared to the remuneration payable for similar jobs in other forms of organization. Hence, there is less motivation in cooperative societies.

4. Attitude of the Members

The success of the co-operative society depends largely on the loyalty of the members. It cannot always be assured. If they turn to other forms of organization to satisfy their economic needs, the cooperative society will collapse.

5. Weaknesses in its Lending System

The co-operative credit societies suffer from the burden of bad debts. They lend loans to their members without obtaining sufficient security, which in turn becomes bad.

6. Lack of Secrecy

Maintaining business secrets is an important factor for the success of any business. But the co-operatives are not in a position to maintain the secrets of its activities.

7. Red Tapism

The Government exercises rigid control over the affairs of the cooperative societies. All their activities are regulated. They are required to get sanction of Government even for performing their routing activities.