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                                                                                                BUSINESS FORMS


Co-operatives


Definition Co-operative refers to autonomous association of persons united voluntarily to meet their common economic and social needs and aspirations through a jointly owned and democratically controlled enterprise organised and operated on co-operative principles. 

Categories of Co-operatives:
  • A primary co-operative:co-operative formed by a minimum of five natural persons whose object is to provide employment or services to its members and to facilitate community development.
  • A secondary co-operative- co-operative formed by two or more primary (primaries) co-operatives to provide sectoral services to its members, and may include juristic persons.
  • A tertiary co-operative - co-operative whose members are secondary co-operatives and whose object is to advocate and engage organs of state, the private sector and stakeholders on behalf of its members, and may also be referred to as a co-operative apex. 

Type of Co-operatives:
  • Housing co-operative.
  • Worker co-operative.
  • Social co-operative.
  • Agricultural co-operative.
  • Co-operative burial society.
  • Financial services co-operative.
  • Consumer co-operative.
  • Transport co-operative   

Characteristics of Co-operatives:

  • A minimum of 5 natural persons in the case of a primary co-operative; 2 or more primary co-operatives in the case of a secondary co-operative; or a minimum of 2 or more secondary co-operatives in the case of a tertiary incorporate the Co-operative societies.
  • After registration a co-operative becomes a separate legal entity, with limited liability of its members. It can enter into agreements with others and can purchase or sell properties in its own name.
  • Co-operatives are owned and democratically controlled by their members (i.e., those that use the cooperative's services or buy its goods) and not by outside investors. Equalities are the essence of Co- operatives, governed by democratic principles. Every member has got equal right over the function management of that society.
  • The affairs of a co-operative must be managed by a board of directors appointed for such period which may not be more than four years and consisting of such number of persons as may be set out in the constitution of the co-operative. 
  • On registration, the co-operative's application, the constitution and the name must comply with the key principles of the co-operatives. 
  • Co-operatives return surplus income (revenue over expenses and investment) to members in proportion to their use or patronage of the cooperative, and not proportionate to their investment or ownership share.
  • Co-operatives are not formed to maximise profit like other forms of business organisation. The main purpose of a Co-operative Society is to provide service to its members.
  • Co-operatives pay taxes on income retained for investment and reserves and surplus revenues are returned, according to patronage, to individual members who pay taxes on that income.
  • A co-operative must have the words- "co-operative" or "co-op" as part of its name; and the word "limited" or the abbreviation "Ltd" as the last word of its name, unless the constitution of a co-operative does not limit the liability of its members. (A secondary co-operative must have the words "secondary co- operative" as part of its name and a tertiary co-operative must have the words "tertiary co-operative" as part of its name).
  • The constitution may provide for membership shares to be issued to members and transfer its assets, rights, liabilities and obligations by mutual agreement to any other co-operative. 
  • Members contribute capital in the form of entrance fee.
  • In the case of a primary co-operative, each member has only one vote; The constitution of a secondary or tertiary co-operative may provide that the members have more than one vote: Provided that in the case of a secondary co-operative no member shall have more than fifteen per cent of the vote of all the members of the co-operative.
  • Death, insolvency or lunacy of a member does not affect the existence and continuity of a co-operative.
  • Information of the co-operative is available to members.
  • The co-operatives prepare the financial statements and annual audit of the affairs of the co-operative is required. 

Advantages of Co-operatives:
  • Persons having common interest can form a co-operative society and co-operatives allow for more members to work as a team
  • A co-operative society is controlled in a democratic manner. The members cast their vote to elect their representatives to form a committee that looks after the day-to-day administration. This committee is accountable to all the members of the society.
  • The liability of a member of a co-operative is limited to an amount equal to the nominal value of the shares, for which the member has not paid, that the member holds in the co-operative. Unlike sole proprietors and partners, the personal properties of members of the co-operative societies are free from any kind of risk because of business liabilities.
  • Through co-operatives the members or consumers control their own supplies and thus, middlemen's profit is eliminated.
  • By pooling resources, each member pays less for inputs, marketing, distribution and selling of produce 
  • Formation of a co-operative society is very easy compared to the companies.
  • Any competent person can become a member at any time he/she likes and can leave the co-operative at will.
  • A co-operative must be incorporated as a legal person with effect from the date of registration, and it can enter into any contract using its name.
  • The government (Dti) may provide a co-operative with the necessary support, the co-operative is registered in terms of the Act; complies with the co-operative principles; and its members are previously disadvantaged persons.
  • An audit of the affairs of a co-operative is conducted annually to report generally as to whether the assets and facilities of a co-operative are being properly managed and the operations of a co-operative are being conducted in accordance with co-operative principles.  

Disadvantages of Co-operatives:
  • The co-operatives are formed with the idea of mutual co-operation. But it is often seen that there is a lot of friction between the members because of personality differences, ego clash, etc. The selfish attitude of members may sometimes bring an end to the society.
  • The amount of capital that a cooperative society can raise from its member is very limited because the membership is generally confined to a particular section of the co-operative. 
  • Due to low rate of return the members do not invest more capital, i.e. it is less incentive to invest additional capital.
  • Due to a limited capital the co-operative is not able to get the benefits of professional management. Generally it is seen that co-operative do not function efficiently due to lack of managerial talent. The members or their elected representatives are not experienced enough to manage the co-operative. 
  • Every co-operative is formed to render service to its members rather than to earn profit. This does not provide enough motivation to the members to put in their best effort and manage the co-operative efficiently. 
  • The co-operative is compelled by law to hold its first annual general meeting within 18 months of its registration.
  • Financial statements of a co-operative need to be audited and the co-operative need to appoint an auditor six months after the end of a financial year.
  • Co-operative shares are not freely transferable. 
  • After the death of a member the co-operative may defer the payment of the amounts owed to the diseased for a period not exceeding two years after the date of death if the co-operative feels that the payment would adversely affect its financial well-being.