Cooperative Enterprise | Meaning | Origin | Features | Principles

What are Cooperative enterprises? How are they different from other business enterprises?

Co-operative enterprises are distinct from the other forms of business enterprises. While all the other forms of business enterprises have profit as the motive, cooperative enterprises are service oriented. They are basically formed to render services to their members and protect them from being exploited by producers, sellers and middlemen.

Cooperatives are voluntary associations of persons formed for protecting and promoting the interests of members. They are run in a democratic manner with service motive. Co-operative societies have played an important role in India in protecting and promoting the welfare of agriculturists, small businesses, and weaker sections of the society.

Origin / History of Cooperative Societies

The founder of co-operative movement was Robert Owen of England. The first Co-operative retail store was established in the year 1844 in Rochdale, England. At that time, the textile workers in England were paid very low wages. Prices of essential items were very high due to high profit margins enjoyed by the traders.

Unable to buy essential items out of their meager wages, 28 textile workers joined together to organize their own grocery store in 1844. They called themselves as the, ‘Rochdale Society of Equitable Pioneers’ and pioneered the co-operative movement. Due to its inherent advantages and benefits offered, the movement has spread all over the world. Today it has spread to a number of areas such as farming, fisheries, transport, general insurance, housing, labor etc.

In India, the cooperative movement started with the enactment of the Cooperative Credit Societies Act, 1904. The important objectives according to the Cooperative Credit Societies Act 1904 were to promote thrift, self-help, cooperation among agriculturists, artisans and persons of limited means. The co-operative movement has played a significant role in ensuring the welfare of farmers, weavers, artisans, rural entrepreneurs and consumers.

Features of Cooperative Societies

1. Separate legal entity

A co-operative society has separate legal entity. It is distinct from the members who constitute it. It can enter into contracts in its own name. It can sue and be sued in its own name

2. Voluntary association

It is a voluntary association of persons. Members out of their own free will come together to promote their interests. Membership is not denied to any person who wants to become the member of the society. A member can leave the society any time he likes. Nobody can compel a member to continue in the society. At the time of leaving he can withdraw his capital from the society.

3. Democratic set-up

Cooperatives are managed in a democratic manner. Members elect a managing committee in the annual general meeting and formulate the policies to be followed. The managing committee manages the affairs of the co-operatives based on the policies laid down.

4. Welfare motive

The primary objective of a cooperative society is not to earn profits but to serve the members and promote their interests. Cooperative societies can earn profits by providing services to nonmembers at a higher price. A portion of the profits earned are spent for the welfare of the community.

5. Self Help

Co-operatives are basically formed to protect its members against exploitation by private business. Self-help is the guiding spirit behind the co-operative movement. The motto of co-operatives is, ‘All for one and one for all.’

6. Common economic objectives

Members of co-operative societies have common economic objectives. The objectives may be to buy quality goods at cheap prices, marketing their produce or availing of credit facilities.

7. Compulsory registration

Every co-operative society has to be registered under the Co-operative Societies Act, 1912 or the relevant State Cooperatives Act, as the case may be.

8. Membership

Membership of the cooperative society is open to all. Any person who desires to become the member of the society can become a member.

9. Low membership fees

The membership fee is kept low so that it is affordable and is within everyone’s reach. Even those with meager financial resources should be able to become members and benefit from them.

10. Democracy

A co-operative society functions based on the principles of democracy. The members are elected in a democratic way. Any member can contest to get elected to the executive committee.

11. One member one vote

Irrespective of the number of shares held, one member is entitled to only one vote. This ensures that all members have an equal say in the management affairs. Members cannot vote by proxy.

12. Finances

A co-operative society sells shares to its members. The money raised through sale of shares is an important source of finance. It can also raise money by way of loans from the government and apex cooperative institutions.

13. Non transferability of shares

Shares held in a co-operative society are non-transferable. A person who quits from the membership of a cooperative society cannot transfer his shares to any other person.

14. Equitable distribution of surplus

The surplus generated by cooperative societies is distributed in the form of dividend and bonus. The surplus has to be distributed among the members in an equitable manner.

Legal regulations stipulate that a cooperative society should transfer at-least one-fourth of its profits to its general reserve. A part of the profits, not exceeding ten percent can be used for promoting the welfare of the locality in which the cooperative society is located.

Principles of Cooperatives

The following are the principles of co-operatives:

1. One member – One vote

Every member is entitled to one vote, irrespective of the number of shares held. The objective is to prevent a small group gaining control by acquiring majority shares.

2. Open membership

Membership is open to all. To become a member, an individual must purchase a share or pay the prescribed membership fees.

3. Cash transactions

All transactions are carried out in terms of cash.

4. Equitable profit distribution

Profits are distributed to members on the basis of their patronage.