10 Important Characteristics of a Co-operative Organization

The Important Characteristics (or Principles) of a Co-operative Organization are listed below!

1. Voluntary membership:

This is the first cardinal principle of co-operation. A person who has a common interest and is prepared to be abide by the rules of the society has the right to join the society as and when he wishes to do so, continue in it as long as he likes, and leave it at his will.


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On leaving the society, shares are not transferable to other persons, although they are automatically transmitted to heirs on the death of a member.

2. Open membership:

Apart from being voluntary in nature, the membership of a co­operative organisation is open to all irrespective of race, colour, creed, caste, or sex. Within that particular group, no distinction can be made on the basis of race, colour, creed, caste, or sex. For example, a housing society of teachers of a particular school or university may be formed and non-teachers may be denied membership in it. Also, unlike the practice of a company organisation, the subscription list of the society is not closed after a fixed period.

The right of membership, however, is not absolute. This can be denied if it is likely to be prejudicial to the interests or the existence of the society. The co-operative society’s managing committee may also expel any member for similar reasons, and this will not be considered a breach of the principle of open membership.

3. Finances:

The finances of a co-operative society are contributed by members through the purchase of shares. Since co-operatives are generally formed by the weaker and poorer sections of the society, their capital collections are meagre.

Also, there is limit to the maximum shares that a member can buy in a co-operative society. The government also lends financial support in the form of loans from the State and Central Co-operative Banks.

4. Liability of members:

Like company organisation, a co-operative society may be organised on the basis of either limited or unlimited liability. The limited liability societies, of course, are more popular. In the case of limited liability societies, the word ‘limited’ must be used as part of the society’s name.

5. Democratic control:

Co-operation is democracy in action. The business of co-operative society is generally managed by a committee elected by the members at annual general meeting. Since most of the co-operatives operate on a local scale, the meetings of the members are well attended, and this puts the managing committee under a lot of close supervision. ‘One man one vote’ is the basic element of co-operative democracy. But in a co­operative, one member may have 10,000 shares and the other only 1 share, but each would command one vote only and no proxies would be permitted.

It is man that counts and not the money. Further, maximum shareholding for an individual member may be prescribed so that none may be able to exercise undue influence by virtue of his holdings in a cooperative or may resort to blackmailing by threatening withdrawal of his substantial holdings.

Again, to strengthen democracy, some issues are not decided by a bare majority alone, but by two- thirds or three-fourths majority. Democracy is to be preserved through a regular system of membership education, frequent meetings of general membership, managing committee, and sub-committees with which maximum number of members are to be associated.

6. Limited interest on capital:

Co-operation recognises the capital is useful and necessary for running a business, but it should be relegated to the level of a servant, not a master. Co-operation uses the immense power of capital to carry on the working of the society in the interest of its members and community in general and for this service; capital is entitled to a limited return, known as ‘dividend’ in India.

In co-operative laws, a ceiling has been put to the rate of dividend which could be declared out of profit for the use of capital and it generally never exceeds 10%. Many foreign co-operative movements do not believe in paying anything for the use of capital.

7. Distribution of surplus:

Unlike profit-oriented enterprises, the surplus (i.e., profit after limited interest has been paid on capital) of a co-operative society is not distributed to the members in the ratio of their capital contribution or in an agreed ratio. Under the provisions of the law, at least 25 percent of the profit must be transferred to the general reserve. Likewise, a certain percentage (not exceeding 10) may also be utilized for the general welfare of the local community.

8. Service motive:

A co-operative society is formed with the basic objective of providing useful service — be it credit, consumption goods, or input resources — to its members and the society. In other words, the objective of a co-operative society should not be to maximise profits at the cost of others, as is usually the case with other types of business enterprises. Also, it does not mean that a co-operative society should sustain losses.

9. Registration and legal status:

Being voluntary in character, registration of a co­operative is optional. In India, co-operatives desiring to be registered may do so under the Co-operative Societies Act, 1912, or relevant State Co-operative Societies Acts, as the case may be.

The minimum essential conditions for getting a co-operative society registered are: (i) There must be at least 10 adult persons (i.e., persons above the age of 18 years) to form the’ society, (ii) The application should provide for essential information, e.g. name and address of the society, its aims and objects, details of share capital, etc. (iii) Along with the application must also be enclosed two copies of the byelaws, i.e., rules and regulations governing the internal functioning of the society.

There is a set of model byelaws available with the Registrar which the promoters of the co-operative society may adopt, (iv) The Registrar after the scrutiny of the application, which must be duly signed by at least 10 members, and satisfying himself about the correctness of the co-operative society may issue a certificate, under his seal and signature, and the society will now come into existence and acquire the legal status.

Once the society is registered, it can admit new members and also issue its shares. It may be pointed out that unlike a company, a co-operative society can issue shares without a prospectus. But, like a company, every co-operative society is subjected to a lot of government supervision — for instance, it has to get its accounts audited by an auditor from the co-operative department, regularly submit its accounts to the Registrar, and in some cases (like the co-operatives of Madhya Pradesh) it has to get the appointment of managerial personnel approved by the Registrar.

10. Education and training:

Apart from the characteristics, discussed above, a co-operative society also exhibits the feature of education and training to its members with the purpose of developing co-operation into a well-organized movement.

Co-operation is an idea which is simple in theory, but difficult in practice. All of us agree that co-operation is good, useful, and essential, but when we translate the concept into action, bottlenecks block our paths, views clash, and sentiments come in the way.

We have, therefore, to create an urge in people to co­operate with each other, to train them in the art and science of co-operation, and generally to mould their attitude in a way that they are able to take combined decisions and abide by them. Co-operative education, therefore, is considered to be a basic principle in the absence of which seeds of co-operative democracy fail to germinate.

Submitted by : Professor Nevaeh, Category : Business, Tag : Co-operative Firms