What are the Advantages and Disadvantages of Co-operative Society?

Advantages of Co-operative Society

1. Easy to form:



The formation of a cooperative society is very simple as compared to the formation of any other form of business organisations. Any ten adults can join together and form a co-operative society. The procedure involves in the registration of a cooperative society is very simple and easy. Check-out my earlier post on registration procedure.

2. No obstruction for membership:

Unless and otherwise specifically debarred, the membership of cooperative society is open to everybody. Nobody is obstructed to join on the basis of religion, caste, creed, sex, colour etc. A person can become a member of a society at any time he likes and can leave the society if he does not like to continue as member. Based on one of the principles of co-operatives of voluntary and open membership.

3. Limited liability:

In most cases, the liabilities of the members of the society is limited to the extent of capital contributed by them. Hence, they are relieved from the fear of attachment of their private property, in case of the society suffers financial losses or goes bankrupt.

4. Service motive:

In Co-operative societies members are provided with better good and services at reasonable prices. The society also provides financial help to its members at concessional rates unlike mainstream banks. It assists in setting up production units and marketing of produce of small scale farmers.

5. Democratic management:

The co-operative society is managed by the elected members from and among themselves. Every member has equal rights through its single vote but can take active part in’ the formulation of the policies of the society. Thus all member are equally important for the society. Derived from the principle of democratic member control.

6. Stability and continuity/Perpetual succession.:

A co-operative society cannot be dissolved by the death, insolvency, lunacy, permanent incapability of its members.  It has got separate legal existence from its members. New members may join and old members may quit the society but the society continues to function unless all members unanimously decided to dissolve the society.

7. Economic operations:

The operations carried on by co-operatives societies are economical due to the eliminations of middlemen. The services of middlemen maybe provided by the members of the society at minimum cost or eliminated completely. The recurring and non-recurring expenses are minimized. Further, the economies of scale of production or procurement, automatically reduces the price of goods, thereby minimizes the selling price.

8. Surplus shared by the members:

The society sells goods and services to its members on a nominal profit. In some cases, the society sells goods and or services to outsiders. The profits are utilized in meeting the day-to-day administration and other costs of the society. The procedure for distribution of profit/surplus is stated in the Co-operatives Societies Act Cap 490. Some portion of the surplus is distributed as dividends or interest on deposit and some kept as reserve (i.e. 20%).

9. State patronage:

Government provides special assistance to co-operative societies to enable them achieve their objectives though currently through Finance Bill 2013, the government is introducing excise duty of 10%. Government also extends, or used to, many type of subsidies to co-operative societies strengthening their financial stability and sustainable growth in future.

Disadvantages of Cooperative Society:

Despite the many advantages, co-operative societies suffer from certain limitations or drawbacks. Some of these limitations are:

1. Limited resources:



Co-operative societies financial strength depend on the capital contributed by its members. The membership fee is limited so is the monthly contributions in case of Saccos as their members belong to the lower and middle class. Thus co-operatives initially are not suitable for the large scale businesses which require huge capital. Though this can be overcome by increasing membership with the downside of minimal returns to its members.

2. Inefficient management:

A co-operative society is managed by the members only. They may not possess any managerial and special skills. This is considered as major drawback of this sector.

3. Lack of secrecy:

Co-operative societies do not maintain secrecy in their businesses because the affairs of the societies are openly discussed in meetings. But secrecy is very important for the success of a business organisation. This paved the way for competitors to compete in more effective ways.

4. Excessive Government interference:

Government may influence the decision of the Board which may or may not be favorable for the interest of the society and its members. Excessive state regulation, interference with the flexibility of its operations and therefore affecting adversely the efficiency of the management of the society. Rare occurrence in Kenya

5. Absence of motivation:

The members may not feel enthusiastic because the law governing the co-operatives puts some restriction on when to invest or decision making process which can be lethargic and bureaucratic.

6. Disputes and differences:

The management of the society constitutes the various types of personnel from different social, economical and academic background. Many a times they strongly differs with one another on many important issues. This becomes detrimental to the interest of the society as it may lead to delayed decisions. The different opinions and disputes may paralyses the effectiveness of the management.

This article originally appeared on http://www.preservearticles.com/201101193579/advantages-and-disadvantages-of-cooperative-society.html and was adapted for this blog and Kenya audience.


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