Table of Content
o What is Cooperative?
o What is a Co-operative Manager?
The Cooperative Values
Basic Requirements for promotion of cooperatives
o Advantages of Cooperative
Chapter 1: Principles of Cooperatives
Seven Principles of Cooperative
The Principles of Cooperation – Standard of Measurement
Cooperative Legislation and Principles of cooperation
Chapter 2: Types of Cooperatives
Business and Employment Co-operative
o Definition of a Cooperative Bank
o Credit Unions
o Cooperative Bank
Chapter 3: Cooperative Society
Rights and Duties
Power and Functions of General Body
Characteristics of Cooperative Society
Cooperative Society Act
o Cooperative Economics
o Cooperative and Rural Development
Management has greatly improved as cooperatives have become larger,
more diversified, and integrated to match similar advances in the marketplace
and on the farm.
In the early years, local cooperative managers not only supervised
operations but also maintained accounting records, waited on customers, and
swept floors. Boards of directors knew little about off-farm businesses. Many
cooperatives failed because of inept operating management and poor monitoring
by the board.
Specific examples included overextension of credit and unsound collection
practices, poor technique in grain marketing, inadequate attention to keeping
products in condition, overexpansion of facilities, under financing, over advances
to growers in pooling operations, dominance of the hired manager, and board
interference in management of operations.
Both surviving and new cooperatives learned important lessons from
As regional cooperatives developed and became stronger, they began
providing more assistance to local boards and managers through general field
representatives. This included helping recruit and train managers and assistants.
Later, several provided financing and direct management service to the weaker
locals, and auditing and analysis service to all member locals.
With the advent of The National Cooperative Bank (CoBank) and other
Banks for cooperatives, valuable management and financial counsel became
available to cooperative borrowers. In many cases, this perhaps is more
valuable than the funds loaned to them. In the past, local cooperatives often
viewed their bookkeepers or office managers as potential replacements for
general managers. Now, many employ assistant managers and department
heads who have had prior business and sales experience.
Regional cooperatives employ university graduates with training in
business administration, agribusiness, or sales management and place them in
management trainee programs before moving them to managerial positions.
Some regional cooperatives provide management training for local
managers, using their own staffs or management consulting firms as trainers.
Most regional send key employees to management schools or seminars.
Some State cooperative councils and cooperative centers offer basic
director, management, and employee training to local cooperatives. In their
training, they often use case studies and role plays based on local problems.
Personnel from regional sometimes assist in conducting the program.
Cooperatives have increased in size and diversity of products and
services, and have departmentalized their operations. Larger regional have
numerous subsidiaries. This stimulates more training for secondary level
managers. Training is provided by personnel or formal training departments of
regional cooperatives, who often contract with outside providers or universities.
Most farmer-directors have become more business-minded as their own
farm operations grew. They give more attention to their cooperative‘s
management. They employ managers with more training and expect them to
improve their knowledge and skills. Also, a growing number of directors seek to
become more proficient in directing the affairs of their cooperatives. Public
concern about food safety, pollution control, health and the environment,
monopoly, and related issues focuses attention on the competence, integrity, and
behavior of cooperative directors. As a result, cooperatives are becoming more
aware of the need to indemnify directors who are subject to increased legal
The growing impact of world markets, even on the individual family
operation, is changing the management perspective from the local cooperative
level. The local is being viewed less and less as an independent entity and more
and more as part of a system.
Therefore, planning and strategy are evaluated in terms of the local‘s
relationship to neighboring cooperatives, other areas, agribusinesses, the
regional cooperatives in which it has ownership, to the markets into which
members‘ products flow, and to the ultimate use of those products.
A Cooperative group can be defined as an autonomous association of persons
united voluntarily to meet their common economic, social and cultural needs and
aspirations through a jointly owned and democratically controlled enterprise.
There are some definite and distinct attributes to it.
Firstly - It is generally made of two or more persons sharing some common
identities like same economic background or same cultural background same
social identities etc.
Secondly - It is entirely autonomous in nature. Apart from these two essential
ingredients there are some other aspects e.g. it should be democratic for better
functioning, should be a believer in ethics etc.
Cooperatives are found in every field; only the size depends upon the numbers of
members. In every profession or business the formation of cooperatives ensures
better returns professionally. Since, most of the co- owners of the cooperative
are busy with their individual business, here comes the cooperative manager. As
Cooperatives become more professional in approach, the line of demarcation
between ownership and management will become quite sharp. The study of
cooperative management has not only become a distinct but also a lucrative
career choice for young masses. Now, as the multinational Companies are
waking up to the huge potentials of rural and semi rural sectors in India, a
Degree in Cooperative management can prove beneficial.
The history of the cooperative movement concerns the origins and history of
cooperatives. Although cooperative arrangements, such as mutual insurance,
and principles of cooperation existed long before, the cooperative movement
began with the application of cooperative principles to business organization.
The cooperative movement began in Europe in the 19th century, primarily in
Britain and France, although The Shore Porters Society claims to be one of the
world's first cooperatives, being established in Aberdeen in 1498. The industrial
revolution and the increasing mechanization of the economy transformed society
and threatened the livelihoods of many workers. The concurrent labor and social
movements and the issues they attempted to address describe the climate at the
The first consumer cooperative may have been founded on March 14, 1761, in a
barely-furnished cottage in Fenwick, East Ayrshire, when local weavers
manhandled a sack of oatmeal into John Walker's whitewashed front room and
began selling the contents at a discount, forming the Fenwick Weavers' Society.
In the decades that followed, several cooperatives or cooperative societies
formed including Lennoxtown Friendly Victualling Society, founded in 1812 . By
1830, there were several hundred co-operatives. Some were initially successful,
but most cooperatives founded in the early 19th century had failed by 1840.
However, Lockhurst Lane Industrial Co-operative Society (founded in 1832 and
now Heart of England Co-operative Society), and Galashiels and Hawick Co-
operative Societies (1839 or earlier, now Lothian, Borders & Angus Co-operative
Society) still trade today.
It was not until 1844 when the Rochdale Society of Equitable Pioneers
established the ‗Rochdale Principles‘ on which they ran their cooperative, that the
basis for development and growth of the modern cooperative movement was
Social Economy: In the final decade of the 20th century, cooperatives banded
together to establish a number of social enterprise agencies which have moved
to adopt the multi-stakeholder cooperative model. In the last 15 years (1994 -
2009) the EU, and member nations, have gradually revised national accounting
systems to "make visible" the increasing contribution of social economy
Ideology: The roots of the co-operative movement can be traced to multiple
influences. Gates found forms of co-operation between workers and owners as
far back as 1795 that are expressed today as "profit-sharing" and "surplus
sharing" arrangements. The key ideological influence on the movement,
however, was a rejection of the charity principles that underpinned welfare
reforms when the UK government radically revised its Poor Laws in 1834. As
both state and church institutions began to routinely distinguish between the
'deserving' and 'undeserving' poor, a movement of Friendly Societies grew
throughout the British Empire based on the principle of mutuality, committed to
self-help in the welfare of working people. Friendly Societies established forums
through which one-member; one-vote was practiced in organisation decision-
making. The principles challenged the idea that a person should be an owner of
property before being granted a political voice. Throughout the second half of
the nineteenth century (and then repeatedly every 20 years or so) there has been
a surge in the number of cooperative organisations, both in commercial practice
and civil society, operating to advance democracy and universal suffrage as a
political principle. Friendly Societies and consumer cooperatives became the
dominant form of organization amongst working people in industrial societies
prior the rise of trade unions and industrial factories. Weinbren reports that by
the end of the 19th century, over 80% of British working age men and 90% of
Australian working age men were members of one or more Friendly Society.
From the mid-nineteenth century, mutual organisations embraced these
ideas in economic enterprises, firstly amongst trade people, and later in co-
operative stores, educational institutes, financial institutions and industrial
enterprises. The common thread (enacted in different ways, and subject to the
constraints of various systems of national law) is the principle that an enterprise
or association should be owned and controlled by the people it serves, and share
any surpluses on the basis of each members' cooperative contribution (as a
producer, laborer or consumer) rather than their capacity to invest financial
The rise of Marxism at the end of the 19th century accelerated the political
split between different forms of socialism: anarchists were committed to
libertarian socialism and advocated locally managed cooperatives, linked through
confederations of unions, cooperatives and communities; Marxists were
committed to state socialism, and the goal of political hegemony through the
state, either through democratic socialism, or through what came to be know as
Leninism. Both Marxism and anarchism sprang from utopian socialism, which is
based on voluntary cooperation, without the emphasis on bitter class struggle.
With the collapse of state socialism in the USSR, other forms of socialism have
reasserted their importance and influence.
Co-operative communities are now widespread, with one of the largest
and most successful examples being the Mondragón Cooperative Corporation in
the Basque country of Spain. Co-operatives were also successful in Yugoslavia
under Tito where Workers' Councils gained a significant role in management
In many European countries, cooperative institutions have a predominant
market share in the retail banking and insurance businesses.
In the UK, co-operatives formed the Co-operative Party in the early 20th
century to represent members of co-ops in Parliament. The Co-operative Party
now has a permanent electoral pact with the Labour Party, and some Labour
MPs are Co-operative Party members. UK co-operatives retain a significant
market share in food retail, insurance, banking, funeral services, and the travel
industry in many parts of the country.
What is Cooperative?
A co-operative is an autonomous association of persons united voluntarily to
meet their common economic, social and cultural needs and aspirations through
a jointly-owned and democratically-controlled enterprise.
This definition is intended as a minimal statement; it is not intended as a
description of the ‗perfect‘ cooperative. It is intentionally broad in scope,
recognizing that members of the various kinds of cooperatives will be involved
differently and that members must have some freedom in how they organize their
affairs. This definition will be useful in drafting legislation, educating members,
and preparing textbooks.
The definition emphasizes the following characteristics of a cooperative:
The cooperative is autonomous – it is as independent of government and
private firms as possible;
It is an association of persons. Cooperatives are free to define ‗persons‘ in
any legal way they choose – individual and or legal persons;
The persons are united ‗voluntarily‘. Membership should not be
compulsory. Members should be free to join or to leave;
Members of a cooperative ‗meet their common economic, social and
cultural needs‘. Indeed in the future helping to provide a better way of life
– cultural, intellectual and spiritual – may become one of the most
important ways in which the cooperatives ca benefit their members and
contribute to their communities;
The cooperative is a ‗jointly-owned and democratically-controlled
enterprise‘. Within the cooperative control is distributed among members
on a democratic basis. The dual characteristics of ownership and
democratic control are particularly important in differentiating cooperatives
from other kinds of organisations.
A cooperative (also co-operative or co-operative; often referred to as a co-op
or coop) is defined by the International Co-operative Alliance's Statement on the
Co-operative Identity as an autonomous association of persons united voluntarily
to meet their common economic, social, and cultural needs and aspirations
through a jointly-owned and democratically-controlled enterprise. It is a
business organization owned and operated by a group of individuals for their
mutual benefit. A cooperative may also be defined as a business owned and
controlled equally by the people who use its services or who work at it.
Cooperative enterprises are the focus of study in the field of cooperative
Cooperatives as Legal Entities: Although the term may be used loosely to
describe a way of working, a cooperative properly so-called is a legal entity
owned and democratically controlled equally by its members. A defining point of
a cooperative is that the members have a close association with the enterprise
as producers or consumers of its products or services, or as its employees.
In some countries, e.g. Finland and Sweden, there are specific forms of
incorporation for co-operatives. Cooperatives may take the form of companies
limited by shares or by guarantee, partnerships or unincorporated associations.
In the USA, cooperatives are often organized as non-capital stock corporations
under state-specific cooperative laws. However, they may also be
unincorporated associations or business corporations such as limited liability
companies or partnerships; such forms are useful when the members want to
1. Some members to have a greater share of the control, or
2. Some investors to have a return on their capital that exceeds fixed
Neither of which may be allowed under local laws for cooperatives. Cooperatives
often share their earnings with the membership as dividends, which are divided
among the members according to their participation in the enterprise, such as
patronage, instead of according to the value of their capital shareholdings (as is
done by a joint stock company).
Identity: Cooperatives are based on the values of self-help, self-responsibility,
democracy and equality. In the tradition of their founders, cooperative members
believe in the ethical values of honesty, openness, social responsibility and
caring for others. Such legal entities have a range of unique social
characteristics. Membership is open, meaning that anyone who satisfies certain
non-discriminatory conditions may join. Economic benefits are distributed
proportionally according to each member's level of participation in the
cooperative, for instance by a dividend on sales or purchases, rather than divided
according to capital invested. Cooperatives may be generally classified as
either consumer cooperatives or producer cooperatives. Cooperatives are
closely related to collectives, which differ only in that profit-making or economic
stability is placed secondary to adherence to social-justice principles.
What is a Co-operative Manager?
The obvious answer is - the manager of a co-operative. But, the question
goes beyond the literal - it is a critical question for all co-operatives because
managers of co-operatives require co-operative specific commitments and skills.
In appointing managers who do not have the necessary co-operative
commitment and skills, co-operatives are introducing a risk that could eventuate
in co-operative failure - as a co-operative if not as a business.
The boards of co-operatives are accountable to members for the
managers they appoint. Boards have to recruit managers who have the
competencies required to manage the co-operative but also to reflect and
reinforce co-operative values and principles.
A board must have a capacity to judge the required competencies of a
manager for the co-operative- including how and when a co-operative manager
reflects and reinforces co-operative values and principles. There are general
competencies required of all managers and these include:
Understanding and setting goals and targets
Making effective and efficient decisions
Distinguishing between data and information
Understanding the differences between causes and consequences
Using technology effectively and efficiently
Selecting and using advisers
The management of conflict.
In addition, there are the specific competencies required for a co-operative
that depend on the nature of the business, its developmental stage, its size and
its technological complexity.
Reflect and Reinforce
But, this is only the beginning of a manager selection process. While
business competencies are essential, the board must also be able to judge
whether or not a manager will reflect and reinforce co-operative values and
principles i.e. the business decisions and practices will be based on a co-
operative management practice:
Co-operative education and training
Members as owners, users and beneficiaries
Co-operative values and principles
The challenge for the board is to recognise that co-operative management
is unique and, therefore, the role of the co-operative manager is unique, that
there are co-operative-specific management skills and this is critical to the role,
recruitment and accountability of the manager. This, of course, also depends on
the values and principles of the co-operative being explicit and recognized and
accepted by the co-operative's members and directors - that business decision-
making and practices must reflect and reinforce co-operative values and
The reality is that management is not value-free.
All business enterprises have a philosophical underpinning - the values
and principles that inform the operations of a business and the decision-making
process. The philosophy may be implicit or explicit. Managers also are not
value-free - conditioned by their experience and training. Managers, therefore,
can either implicitly or explicitly strengthen or undermine co-operative values and
De Facto Co-operation
Without the co-operative difference being recognized by boards and
managers, the threat is that a manager will, and be allowed to, make decisions
and take action in the belief that these are in the best interests of a co-operative
as a business as interpreted and determined by the manager yet these may be
explicitly or implicitly inconsistent with co-operative values and principles.
In this default situation, the co-operative will be increasingly dependent on
the manager and the manager will de facto determine the co-operative's ethos -
and future. Managers will be able to use their power to internally privatize the
values of the co-operative and ultimately enrich themselves. Unfortunately, the
process could proceed without members and directors being aware of the
erosion of co-operative values and principles. It could be argued, for instance,
that once a co-operative has external shareholders that demutualization is
inevitable. Yet, the decision to allow external shareholders were critical in
demutualization because it undermined the essence of co-operatives being user
owned and created a conflict of interest between internal member shareholders
and external investor shareholders.
The key issue, then, is that the board must determine the co-operative's
policy based on co-operative values and principles and ensure that management
objectives and strategies are consistent with this policy - and co-operative values
and principles. The board cannot assume that management objectives and
strategies are consistent. The board must be able to judge this consistency. The
board's own decisions must, of course, be based on the integrity of co-operative
ownership and control.
A co-operative may, for instance, have a need for further capital and have
difficulty in convincing and raising this capital from its members. A manager
whose focus is on the capital raising requirements may suggest, therefore, that
the co-operative has no option but to restructure the co-operative to raise the
necessary capital through external investors.
A manager who is committed to raising the capital but within the structure
of a co-operative has a more complex challenge - to work with the board to
educate members about the capitalization requirements and work through the
options of how to raise the necessary capital and remain a co-operative. This
would include the problem of external shareholders, the possibility of increased
member equity and addressing the relationship between member equity and co-
Indifferent or Neglectful
While there is a clear differentiation between the roles of managers and
boards, the board does have a responsibility to the co-operative and its members
to ensure managers are accountable to the co-operative and that management
practices reflect and reinforce co-operative values and principles.
The onus is on the board to enforce this accountability. Managers who ignore
co-operative values and principles only do so because boards are indifferent or
The demutualization of many co-operatives throughout the world has been
capital-driven and explicitly and/or implicitly encouraged by managers, boards
and advisers who have focused on business growth independent of co-operative
growth. Consultants employed by co-operatives have reinforced the need for
demutualization - particularly when the managers and boards have demonstrated
their lack of commitment to co-operative ownership.
Healthy Co-operative Management
What, then, are the attributes of a healthy co-operative management practice?
These can be summarized as including:
Reports and recommendations to the board specifying any relevant
consequences for co-operative ownership and control.
Co-operative education programs for managers, staff and members and
information about these programs.
Ongoing training for co-operative directors and provision for this in the
Rules of the co-operative.
Board receiving periodic reports on co-operative education and training.
Regular reviews of membership activity policies and practices e.g.
numbers of new members and numbers of members participating in
Member focus groups.
A co-operative newsletter for members.
Social audit reports.
Special mailings to members.
Without these co-operative management practices, it will be difficult for a co-
operative to remain and justify itself as a business that reflects and reinforces co-
operative values and principles. A co-operative manager, therefore, is a
manager who has the necessary competencies to manage the co-operative as a
business and as a co-operative.
The Cooperative Values
One who cooperates receives cooperation. To make others happy is the
true realm of beauty and is key to make one‘s own life beautiful. We are on a
journey to climb to the top of the mountain of human achievement. To be
successful and happy in this climb, you have to have the most indispensable
piece of equipment: the safety rope of cooperation. It is through cooperation,
rather than conflict, that you can turn stumbling blocks into stepping stones.
We need to use the energy of mind, heart, and mouth to create vibrations
of noble thoughts, good wishes, and kind actions to easily create the feeling of
cooperation within the mind of others. This engagement of the trio is necessary
as the mind looks for data and the heart looks for the meaning behind that data;
the mind looks for reasons and the heart looks for the passion behind those
reasons; the mind makes the decision and the heart makes the commitment.
Finally, the mouth, which is halfway between the mind and the heart
Cooperation starts with the premise that each individual is unique. We are
all blessed with two eyes but what we see is colored with our state of mind. We
must change our state of mind to have faith and confidence in others as
everyone has a very special value. We must have a merciful vision that is full of
understanding, forgiveness, tolerance, patience, and empathy. The first step in
that process is to know what we don‘t know and to also know what we do know.
The power to discern at the time a person needs cooperation and the application
of the correct method using our thoughts, words, and actions is vital to success in
human interactions and relations. The method can be as simple as providing an
explanation, giving love or support, or listening.
The basic cooperative values as enshrined in the Statement are stated as
‘Cooperatives are based on the values of self-help, self-responsibility,
democracy, equality, equity and solidarity. In the tradition of their founders,
cooperative members believe in the ethical values of honesty, openness, social
responsibility and caring for others.‘
The Cooperative Movement has a deep and distinguished intellectual
history. During each of the last ten generations of human history, many theorists
in many parts of the world have made major contributions to cooperative thought,
and most of that thought has been concerned with cooperative values.
‘Self-Help’ is based on the belief that all people can and should strive to
control their own destiny. Cooperators believe that full individual
development can take place only in association with others. Individuals
also develop through cooperative action by the skills they learn in
facilitating the growth of their cooperative. Cooperatives are institutions
that foster the continuing education and development of all those involved
‗Self-Responsibility’ means that members assume responsibility for their
cooperative – for its establishment and its continuing vitality. Members
have the responsibility of promoting their cooperative among their families,
friends and acquaintances. Members also ensure that their cooperative
Equality: Cooperatives are based on ‘equality‘. Members, whether an
individual or a group, are all equal. It does not depend on the social and
economic status of the member;
Equity: Achieving ‗equity‘ within a cooperative is continuing, never-
ending challenge. It also refers to how members are treated within a
cooperative. They should be treated equitably in how they are rewarded
for their participation in a cooperative, normally through patronage
dividends, allocation to capital reserves in their name, or reduction in
‘Solidarity’ ensures that cooperative action is not just a disguised form of
limited self-interest. A cooperative is more than in association of
members; it is also a collectivity. All members including the employees
and the nonmembers who are closely associated with the cooperative
should be treated fairly.
This also means that the cooperative has a responsibility for the
collective interest of its members. It has historical roots. Cooperators and
cooperatives stand together. Solidarity is the very cause and consequence
of self-help and mutual help – two of the fundamental concepts at the heart
of cooperative philosophy. It is this philosophy which distinguishes
cooperatives from other forms of economic organisations;
Founders of the Cooperative Movement have, through their foresight and
deep involvement has been able to refine the concept. They are found
everywhere. Their contributions were practical, ethical and moral. Many
of the early cooperatives of the 19th century, most obviously the Rochdale
Pioneers, had a special commitment to honesty – fair dealings in the
market place, honest measurements, high quality and fair prices. Over
the decades agricultural cooperatives have prospered because of their
commitment to high quality, honestly-labeled produce.
Honesty, openness, social responsibility and care for others are values
which may be found in all kinds of organisations, but they are particularly cogent
and undeniable within cooperative enterprise.
Basic requirements for Promotion of Cooperatives
Marketing: Members should be able to market their products to their
cooperative and the cooperative should be able to purchase the product;
Supply: The members should be able to obtain their household and
professional requirements from the cooperative, and the cooperative should be
able to provide this service. The cooperative can undertake a joint indenting on
behalf of the members and negotiate favorable prices with the supplies;
Credit: Members should be able to obtain the required credit from their
cooperative, and the cooperative should be able to deliver the required credit and
accept deposits from its members in order to build some capital for itself;
Guidance [which includes education, training and extension services]: The
members should be able to receive spontaneous guidance and advice from their
cooperative, and the cooperative should be able to deliver expert advice to the
When these four services are in place, the business operations of the
cooperative run smoothly. Cooperatives are not social institutions. They are
economic institutions, and there is, therefore, the need for the members to
remain tied up with their cooperative in business. If any of the above four
services is missing, the business operations will be hindered.
Critique of Cooperative Management:
can improve biological knowledge
can improve enforcement
uses local knowledge in decision making
can reduce enforcement costs
can improve education
empowers local communities
works best in small-scale communities
works best for homogeneous communities
territorial boundaries must be clear
usually focuses on a preferred species
requires devolving power from center to local groups
requires faith that local cultures practice conservation
requires trust between center and local groups
requires placing property rights with the local community
The Cooperative Advantage
Values, principles, ethics and business competence constitute the cooperative
advantage for members and for the communities in which they operate.
Cooperatives put people first – they are member-owned; they are controlled
under democratic principles; and they are competitive enterprises which are at
least as efficient in their business operations and use of capital as others in the
market place. Yet, they are not driven by profit, but rather by needs. These
important differences from traditional enterprises will enable them to compete
and prosper in the new Millennium.
Flexibility is one of the greatest advantages of the cooperative form of enterprise.
Despite tougher market conditions, cooperatives continue to be strong players in
national and, indeed increasingly, people are starting new cooperative
enterprises in such areas as social care and informational technology.
Members are not only the winners. The cooperative advantage extends to the
users of the cooperatives and indeed to the communities in they operate.
Cooperatives set industry standards by putting into practice their values and
ethics. Cooperative advantage is improving the lives of people everywhere.
A Co-operative form of business organisation has the following advantages:
Easy Formation: Formation of a co-operative society is very easy compared to
a joint stock company. Any ten adults can voluntarily form an association and
get it registered with the Registrar of Co-operative Societies.
Open Membership: Persons having common interest can form a co-operative
society. Any competent person can become a member at any time he/she likes
and can leave the society at will.
Democratic Control: 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.
Limited Liability: The liability of members of a co-operative society is limited to
the extent of capital contributed by them. 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.
Elimination of Middlemen’s Profit: Through co-operatives the members or
consumers control their own supplies and thus, middlemen‘s profit is eliminated.
State Assistance: Both Central and State governments provide all kinds of
help to the societies. Such help may be provided in the form of capital
contribution, loans at low rates of interest, exemption in tax, subsidies in
repayment of loans, etc.
Stable Life: A co-operative society has a fairly stable life and it continues to
exist for a long period of time. Its existence is not affected by the death,
insolvency, lunacy or resignation of any of its members.
Principles of Cooperatives
Seven Principles of Cooperatives
Several cooperatives list on their respective websites the Seven Cooperative
Principles listed below, which are a general statement of how a cooperative
operates (as opposed to traditional investor owned utilities):
Voluntary and Open Membership -- Cooperatives are voluntary
organizations, open to all persons able to use their services and willing to
accept the responsibilities of membership, without gender, social, racial,
political or religious discrimination.
Democratic Member Control -- Cooperatives are democratic
organizations controlled by their members, who actively participate in
setting policies and making decisions. The elected representatives are
accountable to the membership. In primary cooperatives, members have
equal voting rights (one member, one vote) and cooperatives at other
levels are organized in a democratic manner.
Members’ Economic Participation -- Members contribute equitably to,
and democratically control, the capital of their cooperative. At least part
of that capital is usually the common property of the cooperative.
Members usually receive limited compensation, if any, on capital
subscribed as a condition of membership. Members allocate surpluses
for any or all of the following purposes: developing the cooperative,
possibly by setting up reserves, part of which at least would be indivisible;
benefiting members in proportion to their transactions with the
cooperative; and supporting other activities approved by the membership.
Autonomy and Independence -- Cooperatives are autonomous, self-help
organizations controlled by their members. If they enter into agreements
with other organizations, including governments, or raise capital from
external sources, they do so on terms that ensure democratic control by
their members and maintain their cooperative autonomy.
Education, Training, and Information -- Cooperatives provide education
and training for their members, elected representatives, managers and
employees so they can contribute effectively to the development of their
cooperatives. They inform the general public, particularly young people
and opinion leaders, about the nature and benefits of cooperation.
Cooperation Among Cooperatives -- Cooperatives serve their members
most effectively and strengthen the cooperative movement by working
together through local, national, regional and international structures.
Concern for Community -- While focusing on member needs,
cooperatives work for the sustainable development of their communities
through policies accepted by their members.
The Principles of Cooperation- Standards of Measurement
Many people understand principles as ironclad commandments that must
be followed literally. In one sense that is true in that Principles should provide
standards of measurement. In another sense, they should restrict, even prohibit,
certain actions while encouraging others.
The Principles that form the heart of cooperatives are not independent of
each other. They are subtly linked; when one is ignored, all are diminished.
Cooperatives should not be judged exclusively on the basis of any one principle;
rather they should be evaluated on how well they adhere to the principles as an
entirety. The first three principles essentially address the internal dynamics
typical of any cooperative; the last four affect both the internal operations and the
external relationships of cooperatives.
Cooperatives function in four main spheres. These are:
Members: There is special emphasis on members. They are the owners,
managers and controllers of their cooperative, and they are the ones who have
formed the cooperative serve them;
Structure: There are two clear structures – the cooperative organisational
structure and the government structure which provide a legal identity to the
cooperative. Although cooperatives are autonomous organisations it does not
mean that they do not need government structure. Both of them are needed and
Community: It deals with the social structure of the society which sponsors
cooperative members and cooperative leaders and which also has certain social
and economic needs which need to be satisfied; and
Management: There are two dimensions of management – one is which strives
to make the organisation efficient and effective, and the other is relating to the
management of cooperative by board members and the employees of the
Cooperative Legislation vis-à-vis Principles of Cooperation
The Principles are the philosophical attributes on which a Movement is
built. Principles are based on certain ethical values and such values reflect the
aspirations and behaviour of the community. Legal norms are the rules set by
people for the behaviour of people among themselves. They set out what to do
and what not to do.
Such norms are based on general ideas in which people believe, which
influence their way of thinking and acting. One precondition for the effectiveness
of legal norms, especially of those based on new concepts, is that these rules
must be understood, accepted and applied by people. A better approach to
using legal norms as instruments for development is to empower the citizens, to
inform them of their new rights and to encourage them to claim and defend such
rights. It requires that people unite to fight for their right, that they form
associations, federations, pressure groups and cooperatives to exercise
The purpose of a cooperative law is, among other things to distinguish
cooperatives from other forms of organisation. This can be done best by
stressing particular features of cooperatives which give them a strong profile e.g.,
that cooperatives pursue the goal of promoting the interests of their members, do
business only or mainly with their members, distribute surplus in proportion to
business done by the members with the cooperative enterprise.
The new Cooperative Principle of autonomy and independence defines
cooperatives as possible development partners. However, it is now stressed
that such collaboration, for instance between government and cooperatives has
to be on mutually agreed terms and without effect on the independence of the
The lawmakers should keep in mind that cooperative law is made for
cooperators and not for lawyers and accordingly should be written in simple
language that ordinary people can understand. If the laws governing
cooperatives are too complicated and too rigid, they will remain ‗laws on the
books‘, and people will find their ways around them.
Cooperative law will only serve its purpose if it becomes a ‗law in action‘.
To achieve this goal, the cooperators must be associated with the development
of the legal norms governing their cooperatives. They must understand the
norms of the law and must accept them as reasonable, just, equitable and fair.
The crisis in the economy in the South-East Asian Region in the recent
past had only marginal impact in India so far. However, due to liberalization and
globalization of the economy it is hard to insulate the economy completely from
upheavals in the region. Competition in the economy is growing and efficiency
is the key word for cooperatives to be competitive. Those cooperatives which
are financially weak and operationally non-viable will have no future as
government patronage and government support will be out of tune as a matter of
government‘s new economic policy and reforms packages. This could lead to
certain structural adjustments even in cooperatives with emphasis on self-
reliance, financial viability and operational efficiency. Cooperatives – as
economic enterprises have to be more business-like and less as agencies
promoted and supported by the government for implementing the government-
sponsored programmes for realizing the socio-economic objectives.
This calls for drastic changes in the government policies towards
cooperatives and comprehensive amendments in the laws governing operations
of cooperatives. Cooperatives need to be free and independent of government
official controls and influence.
Types of Cooperatives
A housing cooperative is a legal mechanism for ownership of housing
where residents either own shares (share capital co-op) reflecting their equity in
the co-operative's real estate, or have membership and occupancy rights in a
not-for-profit co-operative (non-share capital co-op), and they underwrite their
housing through paying subscriptions or rent.
Housing cooperatives come in two basic equity structures:
In Market-rate housing cooperatives, members may sell their shares in the
cooperative whenever they like for whatever price the market will bear,
much like any other residential property. Market-rate co-ops are very
common in New York City.
Limited equity housing cooperatives, which are often used by affordable
housing developers, allow members to own some equity in their home, but
limit the sale price of their membership share to that which they paid.
A housing cooperative is a legal entity—usually a corporation—that owns real
estate, consisting of one or more residential buildings. Each shareholder in the
legal entity is granted the right to occupy one housing unit, sometimes subject to
an occupancy agreement, which is similar to a lease. The occupancy agreement
specifies the co-op's rules. Cooperative is also used to describe a non-share
capital co-op model in which fee-paying members obtain the right to occupy a
bedroom and share the communal resources of a house that is owned by a
cooperative organization. Such is the case with student cooperatives in some
college neighborhoods in the United States.
As a legal entity, a co-op can contract with other companies or hire
individuals to provide it with services, such as a maintenance contractor or a
building manager. It can also hire employees, such as a manager or a caretaker,
to deal with specific things that volunteers may prefer not to do or may not be
good at doing, such as electrical maintenance. However, as many housing
cooperatives strive to run self-sufficiently, as much work as possible is completed
by its members.
A shareholder in a co-op does not own real estate, but a share of the legal
entity that does own real estate. Co-operative ownership is quite distinct from
condominiums where people "own" individual units and have little say in who
moves into the other units. Because of this, most jurisdictions have developed
separate legislation, similar to laws that regulate companies, to regulate how co-
ops are operated and the rights and obligations of shareholders.
Each resident or resident household has membership in the co-operative
association. Members have occupancy rights to a specific suite within the
housing co-operative as outlined in their "occupancy agreement", or "proprietary
lease" which is essentially a lease.
In some cases, the co-op follows Rochdale Principles where each
shareholder has only one vote. Most cooperatives are incorporated as limited
stock companies where the number of votes an owner has is tied to the number
of shares owned by the person. Whichever form of voting is employed it is
necessary to conduct an election among shareholders to determine who will
represent them on the board of directors (if one exists), the governing body of the
co-operative. The board of directors is generally responsible for the business
decisions including the financial requirements and sustainability of the co-
operative. Although politics vary from co-op to co-op and depend largely on the
wishes of its members, it is a general rule that a majority vote of the board is
necessary to make business decisions.
In larger co-ops, members of a co-op typically elect a board of directors
from amongst the shareholders at a general meeting, usually the annual general
meeting. In smaller co-ops, all members sit on the board.
The board typically elects its own officers, such as a president, vice-
president and so on. Usually, the directors are volunteers, or are paid an
honorarium. The board may then establish standing committees from among the
shareholders, who usually also volunteer their time, to either handle the business
affairs of the co-op or make recommendations to the full board on such issues as
its finance, membership and maintenance of its housing units.
A housing cooperative is normally de facto non-profit, since usually most
of its income comes from the rents paid by its residents, who are invariably its
members. There is no point in creating a deliberate surplus—except for
operational requirements such as setting aside funds for replacement of assets—
since that simply means that the rents paid by members are set higher than the
expenses. (Note, however, that it's quite possible for a housing co-op to own
other revenue-generating assets, such as a subsidiary business which could
produce surplus income to offset the cost of the housing, but in those cases the
housing rents are usually reduced to compensate for the additional revenue.)
It is relatively difficult to start a housing co-op because if the idea is, for
instance, to build a building or group of buildings to house the members, this
usually takes a significant mortgage loan for which a financial institution will want
assurances of responsibility. It may also take a year or more for the members to
organize the design and construction, as well as time and foresight to establish
even basic organizational policies. It is rare that these kinds of skills of
organization are available in a random group of people who often have pressures
on their existing housing. It may be somewhat easier to organize a group of
closely related housing units. This opportunity may arise, for example, if an
existing apartment building's owner is thinking about selling it.
There are housing co-ops of the rich and famous: John Lennon, for
instance, lived in The Dakota, a housing co-operative, and most apartments in
New York City that are owned rather than rented are held through a co-operative
rather than via a condominium arrangement.
There are two main types of housing co-operative financing methods,
market rate and limited equity. With market rate, the share price is allowed to
rise on the open market and shareholders may sell at whatever price the market
will bear when they want to move out. In many ways market rate is thus similar
financially to owning a condominium, with the difference being that often the co-
op carries a mortgage, resulting in a much higher monthly fee paid to the co-op
than would be so in a condominium. The purchase price of a comparable unit in
the co-op is typically much lower, however.
With limited equity, the co-op has rules regarding pricing of shares when
sold. The idea behind limited equity is to maintain affordable housing. A sub-set
of the limited equity model is the no-equity model, which looks very much like
renting, with a very low purchase price (comparable to a rental security deposit)
and a monthly fee in lieu of rent. When selling, all that is re-couped is that very
low purchase price.
ICA Housing is a sectoral organization of the International Co-operative
Alliance. It was established to promote the development of co-operative housing
in all countries, and in particular developing countries, as an economic and social
contribution to the problem of providing shelter.
ICA Housing is one of the nine sectors of the International Co-operative
Alliance. They are the apex body of the worldwide co-operative housing
movement. Their mission is to 'unite, represent and serve the international
movement for co-operative and mutual self-help housing'. Their website details
profiles of different countries housing cooperative frameworks and also
distributes resources to promote best practices amongst housing cooperatives
throughout the world.
Members of a building cooperative (in Britain known as a self-build
housing co-operative) pool resources to build housing, normally using a high
proportion of their own labour. When the building is finished, each member is
the sole owner of a homestead, and the cooperative may be dissolved.
This collective effort was at the origin of many of Britain's building
societies, which however developed into "permanent" mutual savings and loan
organisations, a term which persisted in some of their names (such as the former
Leeds Permanent). Nowadays such self-building may be financed using a step-
by-step mortgage which is released in stages as the building is completed.
The term may also refer to worker co-operatives in the building trade.
Building co-operatives are co-operative housing corporations where individuals
or families work together to directly construct their own homes in a cooperative
Members of this type of co-operative purchase building materials in bulk
and co-operate with other members of the co-op during the construction phase of
the co-operative. Once the housing has been completed the members usually
own their homes directly. In some cases, roads, parkland and community
facilities continue to be owned by the co-operative.
Building co-ops were extremely popular in many parts of Canada from the
1930s to the 1960s. Father James (Jimmy) Tompkins and Dr. Moses Coady
were key organizers in Nova Scotia of the first building co-operatives. Through
active local study groups they began research on co-operatives and developed a
concept of how a building co-op could work.
In 1936, Father Tompkins helped found the first self-help building co-
operative in North America near Glace Bay (Reserve Mines), Nova Scotia,
Canada. A group of coal miners formed a housing cooperative with a loan of
CAN $22,000. The housing loan was used to pay for building materials. Each
miner's personal contribution consisted of his labor or "sweat equity". The miners
worked together to build eleven homes which they moved into in 1938. These
homes continue to be occupied today at Tompkinsville.
A retailers' cooperative (known as a secondary or marketing co-operative in
some countries) is an organization which employs economies of scale on behalf
of its members to get discounts from manufacturers and to pool marketing. It is
common for locally-owned grocery stores, hardware stores and pharmacies. In
this case the members of the cooperative are businesses rather than individuals.
The Best Western international hotel chain is actually a retailers'
cooperative, whose members are hotel operators, although it now prefers to call
itself a "nonprofit membership association." It gave up on the "cooperative" label
after some courts insisted on enforcing regulatory requirements for franchisors
despite its member-controlled status.
A retailers' cooperative is a type of cooperative which employs economies
of scale on behalf of its retailer members. Retailers' cooperatives use their
purchasing power to acquire discounts from manufacturers and often share
marketing expenses. It is common for locally owned grocery stores, hardware
stores and pharmacies to participate in retailers' cooperatives. Consumers'
cooperatives, sometimes referred to as retail cooperatives, should be
distinguished from retailers' cooperatives.
A utility cooperative is a public utility that is owned by its customers. It is a
type of consumers' cooperative. In the US, many such cooperatives were formed
to provide rural electrical and telephone service as part of the New Deal.
A utility cooperative is a type of cooperative that is tasked with the delivery
of a public utility such as electricity, water or telecommunications to its members.
Profits are either reinvested for infrastructure or distributed to members in the
form of "capital credits", which essentially dividends paid on a member's
investment into the cooperative.
Each customer is a member and owner of the business with an equal say
as every other member of the cooperative, unlike investor-owned utilities where
the amount of say is governed by the number of shares held.
Many such cooperatives exist in the rural United States, and were created
by the New Deal to bring electric power and telephone service to rural areas,
when the nearest investor-owned utility would not provide service, believing there
would be insufficient revenue to justify the capital expenditures required. These
include electric membership corporations (EMCs) - also called rural electric
cooperatives (RECs). Many electric cooperatives have banded together to form
their own wholesale power cooperatives, often called G & Ts, for generation and
transmission, to supply their member-owners with electricity.
Many utility cooperatives strive to bring the best service at the lowest
possible cost, but often the high cost of maintaining the infrastructure needed to
cover large, rural areas without the support of large cities as a rich customer
base causes prices to be high. However, a few such co-ops have managed to
tap into urban markets (due to growth into previously rural territory served by the
co-ops) and have proven to be very cost-effective.
In Finland the telephone network was largely built by telephone
cooperatives. The largest cooperative, known originally as the Helsinki
Telephone Association (now Elisa Oyj) was founded in 1882.
A worker cooperative or producer cooperative is a cooperative that is
owned and democratically controlled by its "worker-owners". There are no
outside owners in a "pure" workers' cooperative, only the workers own shares of
the business, though hybrid forms in which consumers, community members or
capitalist investors also own some shares are not uncommon. In practice, control
by worker-owners may be exercised through individual, collective or majority
ownership by the workforce, or the retention of individual, collective or majority
voting rights (exercised on a one-member one-vote basis). A worker
cooperative, therefore, has the characteristic that the majority of its workforce
own shares, and the majority of shares are owned by the workforce.
Membership is not always compulsory for employees, but generally only
employees can become members either directly (as shareholders) or indirectly
through membership of a trust that owns the company.
There are many definitions as to what qualifies as a workers' cooperative.
For example, CICOPA, the International Organisation of Industrial, Artisanal and
Service Producers‘ Cooperatives, gives an 8-page definition in their World
Declaration on Workers' Cooperatives, which was approved by the International
Co-operative Alliance General Assembly in September 2005. Below is the
section on the basic characteristics of workers' cooperatives:
1. They have the objective of creating and maintaining sustainable jobs and
generating wealth, in order to improve the quality of life of the worker-
members, dignify human work, allow workers‘ democratic self-
management and promote community and local development.
2. The free and voluntary membership of their members, in order to
contribute with their personal work and economic resources, is
conditioned by the existence of workplaces.
3. As a general rule, work shall be carried out by the members. This implies
that the majority of the workers in a given worker cooperative enterprise
are members and vice versa.
4. The worker-members‘ relation with their cooperative shall be considered
as different to that of conventional wage-based labour and to that of
autonomous individual work.
5. Their internal regulation is formally defined by regimes that are
democratically agreed upon and accepted by the worker-members.
6. They shall be autonomous and independent, before the State and third
parties, in their labour relations and management, and in the usage and
management of the means of production.
Many workers' cooperatives also follow the Rochdale Principles and values,
which are a set of core principles for the operation of cooperatives. They were
first set out by the Rochdale Society of Equitable Pioneers in Rochdale, England,
in 1844 and have formed the basis for the principles on which co-operatives
around the world operate to this day.
Even though there is no universally accepted definition of a workers'
cooperative, they can be considered to be businesses that make a product, or
offer a service, to sell for profit where the workers are members or worker-
owners. Worker-owners work in the business, govern it and manage it. Unlike
with conventional firms, ownership and decision-making power of a worker
cooperative should be vested solely with the worker-owners and ultimate
authority rests with the worker-owners as a whole. Worker-owners control the
resources of the cooperative and the work process, such as wages or hours of
As mentioned above, the majority – if not all - of the workers in a given worker
cooperative enterprise should be worker-owners, although some casual or wage
workers may be employed with whom profits and decision making are not
necessarily shared equally. Workers also often undergo a trial or screening
period (such as three or six months) before being allowed to have full voting
Ideally, participation is based on one vote per worker-owner, regardless of the
amount of shares or equity owned by each worker-owner. Voting rights are not
tied to investment or patronage in the workers' co-operative, and only worker-
owners can vote on decisions that affect them. In practice, worker co-operatives
have to accommodate a range of interests to survive and have experimented
with different voice and voting arrangements to accommodate the interests of
trade unions, local authorities, those who have invested proportionately more
labour, or through attempts to mix individual and collective forms of worker
ownership and control.
As noted by theorists and practitioners alike, the importance of capital should
be subordinated to labour in workers' cooperatives. Indeed, Adams et al. see
workers' cooperatives as "labor-ist" rather than "capital-ist":
"Labor is the hiring factor, therefore the voting and property rights are
assigned to the people who do the work and not to capital, even though the
worker-members supply capital through membership fees and retained earnings.
Any profit or loss after normal operating expenses is assigned to members on the
basis of their labor contribution."
Nevertheless, recent developments in the co-operative movement have
started to shift thinking more clearly towards multi-stakeholder perspectives.
This has resulted in repeated attempts to develop model rules that differentiate
control rights from investment and profit-sharing rights. Workers' co-operatives
have often been seen as an alternative or "third way" to the domination of labour
by either capital or the state.
In short, workers' co-operatives are organized to serve the needs of worker-
owners by generating benefits (which may or may not be profits) for the worker
owners rather than external investors. This worker-driven orientation makes
them fundamentally different from other corporations. Additional cooperative
structural characteristics and guiding principles further distinguish them from
other business models. For example, worker-owners may not believe that profit
maximization is the best, or only, goal for their co-operative or they may follow
the Rochdale Principles.
Profits (or losses) earned by the worker's cooperative are shared by worker
owners. Salaries generally have a low ratio difference which ideally should be
"guided by principles of proportionality, external solidarity and internal solidarity"
(such as a two to one ratio between lowest and highest earner), and often are
equal for all workers. Salaries can be calculated according to skill, seniority or
time worked and can be raised or lowered in good times or bad to ensure job
Worker cooperatives have a wide variety of internal structures. Worker
control can be exercised directly or indirectly by worker-owners. If exercised
indirectly, members of representative decision-making bodies (e.g. a Board of
Directors) must be elected by the worker-owners (who in turn hire the
management) and be subject to removal by the worker-owners. This is a
hierarchical structure similar to that of a conventional business, with a board of
directors and various grades of manager, with the difference being that the board
of directors is elected.
If exercised directly, all members meet regularly to make - and vote on -
decisions on how the co-operative is run. Direct workers' cooperatives
sometimes use consensus decision-making to make decisions. Direct worker
control ensures a formally flat management structure instead of a hierarchical
one. This structure is influenced by activist collectives and civic organizations,
with all members allowed and expected to play a managerial role. Such
structures may be associated with more radical political aims such as anarchism,
libertarian socialism and participatory economics.
Some workers' cooperatives also practice job rotation or balanced job
complexes to overcome inequalities of power as well as to give workers a wider
range of experiences and exposure to the different jobs in a work place so that
they are better able to make decisions about the whole workplace. The
Mondragon Bookstore & Coffeehouse is a good example of a workplace that
History of Worker Cooperatives
Historically, worker cooperatives rose to prominence during the industrial
revolution as part of the labour movement. As employment moved to industrial
areas and job sectors declined, workers began organizing and controlling
businesses for themselves. Workers cooperative were originally sparked by
"critical reaction to industrial capitalism and the excesses of the industrial
revolution." The formation of some workers co-operatives, such as those by the
Knights of Labour in 19th century America, was designed to "cope with the evils
of unbridled capitalism and the insecurities of wage labor".
Most early worker co-ops did not adhere to clear cooperative structures or
ideologies. Starting in the 1830s, worker cooperatives were formed by hat
makers, bakers, and garment workers.
In the United States there is no coherent legislation regarding worker
cooperatives nationally, much less Federal laws, so most worker cooperatives
make use of traditional consumer cooperative law and try to fine-tune it for their
purposes. In some cases the members (workers) of the cooperative in fact
"own" the enterprise by buying a share that represents a fraction of the market
value of the cooperative.
When the current cooperative movement resurfaced in the 1960s it
developed mostly on a new system of "collective ownership" where par value
shares were issued as symbolic of egalitarian voting rights. Typically, a member
may only own one share to maintain the egalitarian ethos. Once brought in as a
member, after a period of time on probation usually so the new candidate can be
evaluated, he or she was given power to manage the coop, without "ownership"
in the traditional sense. In the UK this system is known as common ownership.
Some of these early cooperatives still exist and most new worker
cooperatives follow their lead and develop a relationship to capital that is more
radical than the previous system of equity share ownership.
In Britain this type of cooperative was traditionally known as a producer
cooperative, and, while it was overshadowed by the consumer and agricultural
types, made up a small section of its own within the national apex body, the
Cooperative Union. The 'new wave' of worker cooperatives that took off in Britain
in the mid-1970s joined the Industrial Common Ownership Movement (ICOM) as
a separate federation. Buoyed up by the alternative and ecological movements
and by the political drive to create jobs, the sector peaked at around 2,000
enterprises. However the growth rate slowed, the sector contracted, and in
2001 ICOM merged with the Co-operative Union (which was the federal body for
consumer cooperatives) to create Co-operatives UK, thus reunifying the
In 2008 Co-operatives UK launched The Worker Co-operative Code of
Governance. An attempt to implement the ICA approved World Declaration.
Political Philosophy of Workers' Cooperatives
The advocacy of workplace democracy, especially with the fullest
expression of worker self-management, such as within workers' cooperatives, is
rooted within several intellectual or political traditions:
The alleviation of alienation in the workplace, especially in regard to
The encouragement of Participatory or Direct Democracy
Radical but popular-democratic strategies for the overthrow of capitalism,
for example, several strains of anarchist thought.
Autonomy and self control, especially within anarchist thought.
Workers' cooperatives are also central to ideas of Autonomism,
Mutualism, Syndicalism, Participatory economics, Guild socialism, Libertarian
socialism as well as others.
Unions are often unnecessary in worker cooperatives as the workers have
direct control over the management and ownership of the business - they are
negotiating with themselves. Some worker cooperatives still choose to become
members of local unions to demonstrate their support for the labor movement
and to working conditions that have resulted from years of struggle. While an
unusual situation, there is no contradiction in doing so. Worker cooperatives that
join unions often benefit from the trade that comes their way from the community
of union members and those who support unions for political reasons. The labor
contract negotiated becomes the baseline of benefits due to the membership and
guarantees to the community that the working conditions are not unfavorable.
Union membership also guarantees that the worker cooperative will not operate
on the basis of typical small business sacrifice, where owner(s) sometimes work
overtime to keep their business afloat and expect similar sacrifices of their
workers. Union membership for worker cooperatives gives the enterprise a
legitimate standard of operations.
Firms converting to worker ownership may benefit from union membership
because a union provides an experienced structure for integrating the needs of
business with democratic influence from workers on management decisions.
Business and Employment Co-operative
Business and employment co-operatives (BECs) are a subset of worker
co-operatives that represent a new approach to providing support to the creation
of new businesses.
Like other business creation support schemes, BECs enable budding
entrepreneurs to experiment with their business idea while benefiting from a
secure income. The innovation BECs introduce is that once the business is
established the entrepreneur is not forced to leave and set up independently, but
can stay and become a full member of the co-operative. The micro-enterprises
then combine to form one multi-activity enterprise whose members provide a
mutually supportive environment for each other.
BECs thus provide budding business people with an easy transition from
inactivity to self-employment, but in a collective framework. They open up new
horizons for people who have ambition but who lack the skills or confidence
needed to set off entirely on their own – or who simply want to carry on an
independent economic activity but within a supportive group context.
Business and employment co-operatives (BECs) represent a new
approach to providing support to the creation of new businesses. The first BEC
was started in France in 1996, since when a further 55 such enterprises
operating in 100 locations across the country has sprung up. The idea has also
been adopted in Belgium, Sweden, Quebec, Morocco and Madagascar.
Like other business creation support schemes, BECs enable budding
entrepreneurs to experiment with their business idea while benefiting from a
secure income. The innovation BECs introduce is that once the business is
established the entrepreneur is not forced to leave and set up independently, but
can stay and become a full member of the co-operative. The micro-enterprises
thus combine to form one multi-activity enterprise whose members provide a
mutually supportive environment for each other.
A BEC thus provides budding business people with an easy transition
from inactivity to self-employment, but in a collective framework. Intending
entrepreneurs pass through three stages:
First, they remain technically unemployed but develop their business idea
under the wing of the BEC;
Next, if it looks like being a success, they become a ‗salaried
entrepreneur‘ with the security of a part-time employment contract;
Finally they become a self-sufficient business, sharing in the ownership
and management of the co-operative.
BECs allow a small business person to achieve control over their working
life, but with the support of a group of people who are facing the same problems
and want to pool their enthusiasm and expertise. They help to overcome one of
the most discouraging features of becoming self-employed – isolation. They thus
lower the bar for becoming an entrepreneur, and open up new horizons for
people who have ambition but who lack the skills or confidence needed to set off
entirely on their own – or who simply want to carry on an in dependent economic
activity but within a supportive group context.
BEC clients are in all sorts of activities from cookery, industrial cleaning,
furniture restoration and organic horticulture to violin making, jewellery,
translation and web design. At the end of 2005, the 90 sites in the BEC network
numbered 2,618 supported entrepreneurs plus 1,138 salaried entrepreneurs
(including 60 member entrepreneurs), with a combined turnover of €16.5 million
in 2005. Two-thirds of entrepreneurs start off as unemployed, two-thirds are aged
between 30 and 50 and 53% are women.
Business and Employment Co-operatives – a three-phase career
Stage 1 – Supported entrepreneur
Initially, the 'candidate business' works up his idea while remaining unemployed
in legal terms. He or she continues to receive unemployment benefit while
developing a marketable product or service, testing the market and establishing a
client base. The BEC handles the business administration and accounting.
Stage 2 - Salaried entrepreneur
The entrepreneur agrees a part-time employment contract with the BEC, and in
return pays over 10% of sales. He or she continues to build up the business, as
well as receiving training and administrative support. Meanwhile he or she
benefits from social insurance cover. The salary grows as the business grows.
Stage 3 - Member entrepreneur
When the business is self-supporting, the entrepreneur can choose to join the
BEC as a full voting member, and take part in its management, continuing to pay
an administration charge of 10% of sales. Optionally, the business can spin off
as a totally independent entity.
Business and employment co-operatives have aroused interest in various areas
One of these is economic development in rural areas, as BECs are a good
way to support the so-called SOHO-SOLOs, professionals who migrate to
the countryside to carry on their business at a distance – and in so doing
bring valuable skills, economic activity and social life back to depopulated
Another is the regularization of informal work.
A third is demography, and concern about how to raise the activity rate to
counter the effect of an ageing population. BECs can help excluded
groups such as ex-offenders to restart their working careers, and allow
older people to work part-time.
An Italian social cooperative is a particularly successful form of multi-
stakeholder cooperative, of which some 7,000 exist. A "type A" social
cooperative brings together providers and beneficiaries of a social service as
members. A "type B" social cooperative brings together permanent workers and
previously unemployed people who wish to integrate into the labour market.
Social co-operatives are legally defined as follows:
The objective is the general benefit of the community and the social
integration of citizens
Type A co-operatives provide health, social or educational services
Those of type B integrate disadvantaged people into the labour
market. The categories of disadvantage they target may include
physical and mental disability, drug and alcohol addiction,
developmental disorders and problems with the law. They do not
include other factors of disadvantage such as race, sexual
orientation or abuse
Various categories of stakeholder may become members, including
paid employees, beneficiaries, volunteers (up to 50% of members),
financial investors and public institutions. In type B co-operatives at
least 30% of the members must be from the disadvantaged target
The co-operative has legal personality and limited liability
Voting is one person, one vote
No more than 80% of profits may be distributed, interest is limited to
the bond rate and dissolution is altruistic (assets may not be
A good estimate of the current size of the social co-operative sector
in Italy is given by updating the official ISTAT figures from the end of
2001 by an annual growth rate of 10% (assumed by the Direzione
Generale per gli Ente Cooperativi). This gives totals of 7,100 social
co-operatives, with 267,000 members, 223,000 paid employees,
31,000 volunteers and 24,000 disadvantaged people undergoing
integration. Combined turnover is around 5 billion euro. The co-
operatives break into three types: 59% type A (social and health
services), 33% type B (work integration) and 8% mixed. The
average size is 30 workers.
A consumers' cooperative is a cooperative business owned by its
customers for their mutual benefit. It is a form of free enterprise that is oriented
toward service rather than pecuniary profit. It is a retail outlet owned and
operated by consumer. The customers or consumers of the goods and/or
services the business provides are often also the individuals who have provided
the capital required to launch or purchase that enterprise.
In some countries, they are also known as cooperative retail societies or
retail co-ops, though they are not to be confused with retailers' cooperatives,
whose members are retailers rather than consumers.
There are many types of consumers' cooperative. There are health care,
insurance, and housing cooperatives as well as credit unions, agricultural and
utility cooperatives. The major difference between consumers' cooperatives and
other forms of business is that the purpose of a consumers' cooperative
association is to provide quality goods and services at the lowest cost to the
consumer/owners rather than to sell goods and services at the highest price
above cost that the consumer is willing to pay. In practice consumers'
cooperatives price goods and services at competitive market rates. The
difference is that where a for-profit enterprise will treat the difference between
cost (including labor etc.) and selling price as financial gain for investors, the
consumer owned enterprise may retain this to accumulate capital in common
ownership, distribute it to meet the consumer's social objectives, or refund this
sum to the consumer/owner as an over-payment. (Accumulated capital may be
held as reserves, or invested in growth as working capital or the purchase of
capital assets such as plant and buildings.)
Large consumers' co-ops are run much like any other business and
require workers, managers, clerks, products, and customers to keep the doors
open and the business running. In smaller businesses the consumer/owners are
often workers as well. Consumers' cooperatives can differ greatly in start up and
also in how the co-op is run but to be true to the consumers' cooperative form of
business the enterprise should follow the Rochdale Principles.
Consumers' cooperatives may, in turn, form cooperative federations.
These may come in the form of cooperative wholesale societies, through which
consumers' cooperatives collectively purchase goods at wholesale prices and, in
some cases, own factories. Alternatively, they may be members of cooperative
The Neo-Capitalist economic doctrine seeks to transfer the provision of
almost all government provided public goods and the conversion of any large
privately owned monopolies into consumer cooperatives.
Consumers' cooperatives utilize the cooperative principle of Democratic
member control, or one member/one vote. Most consumers' cooperatives have a
board of directors elected by and from the membership. The board is usually
responsible for hiring management and ensuring that the cooperative meets its
goals, both financial and otherwise. Democratic functions, such as petitioning or
recall of board members, may be codified in the bylaws or organizing document
of the cooperative. Most consumers' cooperatives hold regular membership
meetings (often once a year). As mutually-owned businesses, each member of
a society has a shareholding equal to the sum they paid in when they joined.
An agricultural cooperative, also known as a farmers' co-op, is a
cooperative where farmers pool their resources in certain areas of activity.
A broad typology of agricultural cooperatives distinguishes between agricultural
service cooperatives, which provide various services to their individually farming
members, and agricultural production cooperatives, where production resources
(land, machinery) are pooled and members farm jointly. Agricultural production
cooperatives are relatively rare in the world, and known examples are limited to
collective farms in former socialist countries and the kibbutzim in Israel. Worker
cooperatives provide an example of production cooperatives outside agriculture.
The default meaning of agricultural cooperative in English is usually an
agricultural service cooperative, which is the numerically dominant form in the
world. There are two primary types of agricultural service cooperatives, supply
cooperative and marketing cooperative. Supply cooperatives supply their
members with inputs for agricultural production, including seeds, fertilizers, fuel,
and machinery services. Marketing cooperatives are established by farmers to
undertake transformation, packaging, distribution, and marketing of farm
products (both crop and livestock). Farmers also widely rely on credit
cooperatives as a source of financing for both working capital and investments.
Why farmers form cooperatives
Cooperatives as a form of business organization are distinct from the
more common investor-owned firms (IOFs). Both are organized as corporations,
but IOFs pursue profit maximization objectives, whereas cooperatives strive to
maximize the benefits they generate for their members (which usually involves
zero-profit operation). Agricultural cooperatives are therefore created in
situations where farmers cannot obtain essential services from IOFs (because
the provision of these services is judged to be unprofitable by the IOFs), or when
IOFs provide the services at disadvantageous terms to the farmers (i.e., the
services are available, but the profit-motivated prices are too high for the
farmers). The former situations are characterized in economic theory as market
failure or missing services motive. The latter drive the creation of cooperatives
as a competitive yardstick or as a means of allowing farmers to build
countervailing market power to oppose the IOFs The concept of competitive
yardstick implies that farmers, faced with unsatisfactory performance by IOFs,
may form a cooperative firm whose purpose is to force the IOFs, through
competition, to improve their service to farmers.
A practical motivation for the creation of agricultural cooperatives is
sometimes described as "overcoming the curse of smallness". A cooperative,
being an association of a large number of small farmers, acts as a large business
entity in the market, reaping the significant advantages of economies of scale
that are not available to its members individually. Three typical examples are a
machinery pool, a marketing cooperative, and a credit union. A family farm may
be too small to justify the purchase of a tractor or another piece of farm
machinery for its own use; a machinery pool is a cooperative that purchases the
necessary equipment for the joint use of all its members as needed. A small
farm does not always have the means of transportation necessary for delivering
its produce to the market, or else the small volume of its production may put it in
an unfavorable negotiating position with respect to intermediaries and
wholesalers; a cooperative will act as an integrator, collecting the output of its
small members and delivering it in large aggregated quantities downstream
through the marketing channels. A small farmer may be charged relatively high
interest rates by commercial banks, which are mindful of high transaction costs
on small loans, or may be refused credit altogether due to lack of collateral; a
farmers' credit union will be able to raise loan funds at advantageous rates from
commercial banks because of its large associative size and will then distribute
loans to its members on the strength of mutual or peer-pressure guarantees for
Agricultural supply cooperatives aggregate purchases, storage, and
distribution of farm inputs for their members. By taking advantage of volume
discounts and utilizing other economies of scale, supply cooperatives bring down
the cost of the inputs that the members purchase from the cooperative compared
with direct purchases from commercial suppliers. Supply cooperatives provide
inputs required for agricultural production including seeds, fertilizers, chemicals,
fuel, and farm machinery. Some supply cooperatives operate machinery pools
that provide mechanical field services (e.g., plowing, harvesting) to their
Cooperative Banking (Credit Unions and Cooperative Savings
Cooperative banking is retail and commercial banking organized on a
cooperative basis. Cooperative banking institutions take deposits and lend
money in most parts of the world.
Cooperative banking (for the purposes of this article), includes retail
banking, as carried out by credit unions, mutual savings and loan associations,
building societies and cooperatives, as well as commercial banking services
provided by mutual organizations (such as cooperative federations) to
Definition of a Cooperative Bank
A co-operative bank is a financial entity which belongs to its members,
who are at the same time the owners and the customers of their bank. Co-
operative banks are often created by persons belonging to the same local or
professional community or sharing a common interest. Co-operative banks
generally provide their members with a wide range of banking and financial
services (loans, deposits, banking accounts…). Co-operative banks differ from
stockholder banks by their organization, their goals, their values and their
governance. In most countries, they are supervised and controlled by banking
authorities and have to respect prudential banking regulations, which put them at
a level playing field with stockholder banks. Depending on countries, this control
and supervision can be implemented directly by state entities or delegated to a
co-operative federation or central body. Even if their organizational rules can
vary according to their respective national legislations, co-operative banks share
Customer-owned entities: In a co-operative bank, the needs of the customers
meet the needs of the owners, as co-operative bank members are both. As a
consequence, the first aim of a co-operative bank is not to maximize profit but to
provide the best possible products and services to its members. Some co-
operative banks only operate with their members but most of them also admit
non-member clients to benefit from their banking and financial services.
Democratic member control: Co-operative banks are owned and controlled by
their members, who democratically elect the board of directors. Members usually
have equal voting rights, according to the co-operative principle of ―one person,
Profit allocation: In a co-operative bank, a significant part of the yearly profit,
benefits or surplus is usually allocated to constitute reserves. A part of this profit
can also be distributed to the co-operative members, with legal or statutory
limitations in most cases. Profit is usually allocated to members either through a
patronage dividend, which is related to the use of the co-operative‘s products and
services by each member, or through an interest or a dividend, which is related
to the number of shares subscribed by each member.
Co-operative banks are deeply rooted inside local areas and communities.
They are involved in local development and contribute to the sustainable
development of their communities, as their members and management board
usually belong to the communities in which they exercise their activities. By
increasing banking access in areas or markets where other banks are less
present – SMEs, farmers in rural areas, middle or low income households in
urban areas - co-operative banks reduce banking exclusion and foster the
economic ability of millions of people. They play an influential role on the
economic growth in the countries in which they work in and increase the
efficiency of the international financial system. Their specific form of enterprise,
relying on the above-mentioned principles of organization, has proven successful
both in developed and developing countries.
A credit union is a cooperative financial institution that is owned and
controlled by its members, and operated for the purpose of promoting thrift,
providing credit at reasonable rates, and providing other financial services to its
members. Many credit unions exist to further community development or
sustainable international development on a local level. Worldwide, credit union
systems vary significantly in terms of total system assets and average institution
asset size since credit unions exist in a wide range of sizes, ranging from
volunteer operations with a handful of members to institutions with several billion
dollars in assets and hundreds of thousands of members. Yet credit unions are
typically smaller than banks; for example, the average U.S. credit union has $93
million in assets, while the average U.S. bank has $1.53 billion, as of 2007.
The World Council of Credit Unions (WOCCU) defines credit unions as
"not-for-profit cooperative institutions." In practice however, legal arrangements
vary by jurisdiction. For example in Canada credit unions are regulated as for-
profit institutions, and view their mandate as earning a reasonable profit to
enhance services to members and ensure stable growth. This difference in
viewpoints reflects credit unions' unusual organizational structure, which attempts
to solve the principal-agent problem by ensuring that the owners and the users of
the institution are the same people. In any case, credit unions generally cannot
accept donations and must be able to prosper in a competitive market economy
Credit unions have the purpose of promoting thrift, providing credit at reasonable
rates, and providing other financial services to its members. Credit union
members are usually required to share a common bond, such as locality,
employer, religion or profession. Credit unions are usually funded entirely by
member deposits, and avoid outside borrowing. They are typically (though not
exclusively) the smaller form of cooperative banking institution. In some
countries they are restricted to providing only unsecured personal loans, whereas
in others, they can provide business loans to farmers, and mortgages.
Larger institutions are often called cooperative banks. Some of these
banks are tightly integrated federations of credit unions, though those member
credit unions may not subscribe to all nine of the strict principles of the World
Council of Credit Unions (WOCCU).
Like credit unions, cooperative banks are owned by their customers and
follow the cooperative principle of one person, one vote. Unlike credit unions,
however, cooperative banks are often regulated under both banking and
cooperative legislation. They provide services such as savings and loans to non-
members as well as to members, and some participate in the wholesale markets
for bonds, money and even equities. Many cooperative banks are traded on
public stock markets, with the result that they are partly owned by non-members.
Member control is diluted by these outside stakes, so they may be regarded as
Cooperative banking systems are also usually more integrated than credit
union systems. Local branches of cooperative banks elect their own boards of
directors and manage their own operations, but most strategic decisions require
approval from a central office. Credit unions usually retain strategic decision-
making at a local level, though they share back-office functions, such as access
to the global payments system, by federating.
Some cooperative banks are criticized for dilution of cooperative
principles. Principles 2-4 of the Statement on the Co-operative Identity can be
interpreted to require that members must control both the governance systems
and capital of their cooperatives. A cooperative bank that raises capital on public
stock markets creates a second class of shareholders who compete with the
members for control. In some circumstances, the members may lose control.
This effectively means that the bank ceases to be a cooperative. Accepting
deposits from non-members may also lead to a dilution of member control.
Building societies exist in Ireland and several Commonwealth countries.
They are similar to credit unions in organization, though few enforce a common
bond. However, rather than promoting thrift and offering unsecured and business
loans, their purpose is to provide home mortgages for members. Borrowers and
depositors are society members, setting policy and appointing directors on a one
member one vote basis. Building societies often provide other retail banking
services, such as current accounts, credit cards and personal loans. In the
United Kingdom, regulations permit up to half of their lending to be funded by
debt to non-members, allowing societies to access wholesale bond and money
markets to fund mortgages. The world's largest is Nationwide Building Society.
A co-operative federation or secondary co-operative is a co-operative in
which all members are, in turn, co-operatives. Historically, these have
predominantly come in the form of co-operative wholesale societies, and co-
operative unions. Co-operative federations are a means through which co-
operatives can fulfill the sixth Rochdale Principle, co-operation among co-
operatives, with the ICA noting that ―Co-operatives serve their members most
effectively and strengthen the co-operative movement by working together
through local, national, regional and international structures.‖
According to co-operative economist Charles Gide, the aim of a co-
operative wholesale society, which is owned by retail consumer co-operatives, is
to arrange ―bulk purchases, and, if possible, organize production.‖ The best
historical examples of this were the English CWS and the Scottish CWS, which
were the forerunners to the modern Co-operative Group.
A second common form of co-operative federation is a co-operative union,
whose objective (according to Gide) is ―to develop the spirit of solidarity among
societies and... in a word, to exercise the functions of a government whose
authority, it is needless to say, is purely moral.‖ Co-operatives UK and the
International Co-operative Alliance are examples of such arrangements.
Co-operative Wholesale Society.
A Co-operative Wholesale Society, or CWS, is a form of Co-operative
Federation (that is, a Co-operative in which all the members are Co-operatives),
in this case, the members are usually Consumers' Co-operatives. According to
Co-operative economist Charles Gide, the aim of a Co-operative Wholesale
Society is to arrange ―bulk purchases, and, if possible, organize production.‖ In
other words, a Co-operative Wholesale Society is a form of Federal Co-operative
through which Consumers' Co-operatives can collectively purchase goods at
wholesale prices, and in some cases collectively own factories or farms.
The best historical examples of this are the English CWS and the Scottish CWS,
which are the predecessors of the 21st century Co-operative Group. Indeed, in
Britain, the terms Co-operative Wholesale Society or CWS are used to refer to
this specific organisation rather than the organisational form. However, it is
worth noting that the English CWS has inspired many imitations around the world
(including, for example, the New South Wales Co-operative Wholesale Society
who have also described themselves as Co-operative Wholesale Societies or
Co-operative Wholesale Societies have been advocated by Co-operative
Federalism, which is the school of thought in Co-operative economics favouring
Consumer Co-operative societies. The Co-operative Federalists have argued
that Consumers' Co-operatives should form Co-operative Wholesale Societies
and that, through such arrangements, they should undertake purchasing farms or
factories. They argued that profits (or surpluses) from these CWSes should be
paid as dividends to the member Co-operatives, rather than to their workers.
In some countries with a strong cooperative sector, such as the UK,
cooperatives may find it advantageous to form a parliamentary political party to
represent their interests. The British Co-operative Party and the Canadian Co-
operative Commonwealth Federation are prime examples of such arrangements.
The British cooperative movement formed the Co-operative Party in the early
20th century to represent members of consumers' cooperatives in Parliament.
The Co-operative Party now has a permanent electoral pact with the Labour
Party, and has 29 members of parliament who were elected at the 2005 general
election as Labour Co-operative MPs. UK cooperatives retain a significant
market share in food retail, insurance, banking, funeral services, and the travel
industry in many parts of the country.
The term co-operation is derived from the Latin word co-operari, where the
word co means ‗with‘ and operari means ‗to work‘. Thus, co-operation means
working together. So those who want to work together with some common
economic objective can form a society which is termed as ―co-operative society‖.
It is a voluntary association of persons who work together to promote their
economic interest. It works on the principle of self-help as well as mutual help.
The main objective is to provide support to the members. Nobody joins a
cooperative society to earn profit. People come forward as a group, pool their
individual resources, utilise them in the best possible manner, and derive some
common benefit out of it.
The Rights and Duties of Member in Cooperative Society
Every member has one vote in the affairs of the Society irrespective of
number of shares held.
All the members have right to contest election for the post of Director.
The members have right to get dividend on their shares if there is surplus.
Members have the right to propose any resolution and to participate in the
affairs of the society.
A member in combination with other member has right to request for calling
the special general body meeting of the society if the situation so demand.
The member has and also right to approach the Registrar to know about
his rights and also bring to the knowledge of Registrar any irregularities
noticed by him.
A member should remain loyal to the society.
He should adhere to the constitution of the society and faithfully assist the
management in carrying on their duties.
He should follow a code conduct in his behavior with the other members of
He should also repay loan/dues from him in time to the society.
He should not shy away from actively participating in the General Body
He should carefully go through the Audit Report and Annual Report
submitted before the General Body and offer his suggestions and point out
remedial measures to rectify the irregularities.
Power and Functions of General Body in Cooperative Society
The powers and functions of a General Body of a Cooperative Society in
To approve the programme of the activations of the society prepared by
the Managing Committee for the en-suing year.
To conduct election if any, of the members of the committee other than
To approve the Audit Report and the Annual Report.
To decide the manner of disposal of the net profit.
To deliberate and approve the Annual Budget.
To decide about the expulsion of members if found indulged in anti-society
activities as per provision of byelaws.
To write off bad debts subject to approval of the Registrar of Cooperative
Amendment in Bye-Laws subject to the Registrar of Coop. Societies approval.
The General meeting of the society should be held once Annually. At least 15
days clear notice, specifying the date, place, time and agenda for the meeting of
General Body shall be given to all members of the society. The quorum at a
General meeting or a special general meeting shall be one forth of the total
number of members or 50 whichever is less. However, upper limit has been
prescribed in the Byelaws of certain Cooperative Societies with a view of
participation of more members in a meeting. In case there is no quorum it shall
be adjourned and a fresh General Meeting shall be reconvened. If there is no
quorum in the reconvened Meeting within one hour of time than at the end of 1
hour members present shall form the quorum.
Characteristics of Co-operative Society
A co-operative society is a special type of business organisation different
from other forms of organisation you have learnt earlier. Let us discuss its
Open membership: The membership of a Co-operative Society is open to
all those who have a common interest. A minimum of ten members are required
to form a cooperative society. The Co–operative societies Act does not specify
the maximum number of members for any co-operative society. However, after
the formation of the society, the member may specify the maximum number of
Voluntary Association: Members join the co-operative society
voluntarily, that is, by choice. A member can join the society as and when he
likes, continue for as long as he likes, and leave the society at will.
State control: To protect the interest of members, co-operative societies
are placed under state control through registration. While getting registered, a
society has to submit details about the members and the business it is to
undertake. It has to maintain books of accounts, which are to be audited by
Sources of Finance: In a co-operative society capital is contributed by
all the members. However, it can easily raise loans and secure grants from
government after its registration.
Democratic Management: Co-operative societies are managed on
democratic lines. The society is managed by a group known as ―Board of
Directors‖. The members of the board of directors are the elected
representatives of the society. Each member has a single vote, irrespective of
the number of shares held. For example, in a village credit society the small
farmer having one share has equal voting right as that of a landlord having 20
Service motive: Co-operatives are not formed to maximize profit like
other forms of business organisation. The main purpose of a Co-operative
Society is to provide service to its members. For example, in a Consumer Co-
operative Store, goods are sold to its members at a reasonable price by retaining
a small margin of profit. It also provides better quality goods to its members and
the general public.
Separate Legal Entity: A Co-operative Society is registered under the
Co-operative Societies Act. After registration a society becomes a separate legal
entity, with limited liability of its members. Death, insolvency or lunacy of a
member does not affect the existence of a society. It can enter into agreements
with others and can purchase or sell properties in its own name.
Distribution of Surplus: Every co-operative society in addition to
providing services to its members also generates some profit while conducting
business. Profits are not earned at the cost of its members. Profit generated is
distributed to its members not on the basis of the shares held by the members
(like the company form of business), but on the basis of members‘ participation in
the business of the society. For example, in a consumer co-operative store only
a small part of the profit is distributed to members as dividend on their shares; a
major part of the profit is paid as purchase bonus to members on the basis of
goods purchased by each member from the society.
Self-help through mutual cooperation: Co-operative Societies thrive
on the principle of mutual help. They are the organisations of financially weaker
sections of society. Co-operative Societies convert the weakness of members
into strength by adopting the principle of self-help through mutual co-operation.
It is only by working jointly on the principle of ―Each for all and all for each‖, the
members can fight exploitation and secure a place in society.
Cooperative Society Act
Cooperative Societies Act is a Central Act. However, ‗Cooperative
Societies‘ is a State Subject (Entry 32 of List II of Seventh Schedule to
Constitution, i.e. State List). Though the Act is still in force, it has been
specifically repealed in almost all the States and those States have their own
Cooperative Societies Act. Thus, practically, the Central Act is mainly of
academic interest. As per preamble to the Act, the Act is to facilitate formation
of cooperative societies for the promotion of thrift and self-help among
agriculturists, artisans and persons of limited means.
The Statement of Objects and reasons states as follows – (a)
Cooperative Society can be established for purpose of credit, production or
distribution. (b) Agricultural credit societies must be with unlimited liability. (c)
Unlimited society is not best form of cooperation for agricultural commodities.
However, the provision is continued as in several provinces (now States) such
societies do exist and are working. It is not intended to give them undue
encouragement, but to legalize their existence. (d) Unlimited society can
distribute profits with permission of State Government.
Registration of Society - State Government will appoint Registrar of
Cooperative Societies. State Government can appoint persons to assist
Registrar and confer on such persons all or any of powers of Registrar. Function
of Registrar starts with registration of a society. He has powers of general
supervision over society. Returns of Society are to be filed with Registrar. He
can order inquiry or inspection against society. He can order dissolution of
Societies which may be registered – A society which has as its object the
promotion of economic interests of its members in accordance with cooperative
principles can be registered as a Society. Similarly, a society established with
the object of facilitating operation of such a society can also be registered under
the Act. The society can be registered with limited or unlimited liability. However,
unless State Government otherwise directs, (1) Liability of a society of which a
member is a registered society shall be limited. (2) Liability of a society of which
object is to creation of funds to be lent to members, and of which majority of
members are agriculturists and of which no member is a registered society shall
be unlimited. Thus, a registered society can be member of another society, but
liability of such other society must be limited, unless State Government otherwise
Who can form a society – A society can be formed with at least 10
members of age above 18 years. If object of society is creation of funds to be
lent to its members, all the members must be residing in same town, village or
group of villages or all members should be of same tribe, class, caste or
occupation, unless Registrar otherwise directs. The provision of minimum 10
members or residing in same town/village etc. is not applicable if a registered
society is member of another society. The last word in name of society should
be ‗Limited‘. If the Society is registered with limited liability, registrar is
empowered to decide whether a person is agriculturist or non-agriculturist or
whether he is resident of same town/village or whether the members belong to
same caste/tribe etc. and his decision will be final.
Restrictions on society with limited liability – If a society has limited
liability, any individual member of such society cannot have share capital more
than one-fifth of total capital. An individual member cannot have interest in
shares exceeding Rs 1,000. This restriction of 20% shares or Rs 1,000 shares
value is not applicable to a registered society which is member of another
society. Thus, if a registered society is member of another society, it can hold
shares exceeding 20% or exceeding Rs 1,000 in value.
Amendment of bye-laws – Any Amendment to bye-laws shall be
registered with Registrar. If Registrar is satisfied that the amendment is not
contrary to Act or rules, he will register the amendment. He will issue a
certificate of registration along with copy of amendment certified by him, which is
conclusive evidence that the amendment has been duly registered
Rights and liabilities of members – If liability of members is not limited by shares,
each member shall have one vote irrespective of amount of his interest in the
capital. If liability of members of a registered society is limited by shares, each
member will have as many votes as may be prescribed in bye-laws. If a
registered society has invested in shares of other registered society, it can vote
by appointing a proxy. A member of registered society shall not exercise his
rights as member, unless he has made payment to society in respect of
membership or has acquired interest in society, as may be prescribed by rules or
bye-laws. Thus, if there is any default in payment to society, the member cannot
exercise his rights.
Management of society - Each society will be managed by Committee.
Committee means the governing body of a registered society to whom the
management of its affairs is entrusted. Officer of society includes a Chairman,
Secretary, treasurer, member of Committee or other person empowered under
rules or bye-laws to give directions in regard to business of society.
Registered Society is body corporate – A registered cooperative society is a
body corporate with perpetual succession and common sea. It can hold
property, enter into contracts, institute and defend suit and other legal
proceedings and to do all things necessary for the purposes of its constitution.
Priority claim of society dues from member – A registered society is entitled
to priority to other creditors and enforces outstanding demand due to society
from any member. However, the priority is subject to prior claims of (a)
Government dues in respect of land revenue or (b) Dues of landlord in respect of
rent receivable by the landlord. The priority of society is in respect of following –
(a) Supply of seed or manure or loan for purchase of seed or manure. The
priority is upon the crops or other agricultural produce upto 18 months from date
of supply of seed/manure or loan. (b) Supply of cattle or fodder of cattle,
agricultural implements or machinery or raw materials or loan for these. The
priority is upon the cattle/fodder/ machinery / raw materials supplied or any
articles manufactured from raw materials supplied or purchased form loan given
Liability of past member – Liability of past members towards society as
on the date he ceased to be member will continue for two years.
Restrictions on loans – A registered society can give loans only to its
members. However, it can give loan to another registered society with permission
of Registrar. A society with unlimited liability cannot lend money on security of
movable property without sanction of registrar. State Government, by issuing a
general or special order, can prohibit or restrict lending of money on mortgage of
immovable property by any registered society or class of registered society.
Inspection of affairs of society – Registrar can hold an enquiry or direct some
person authorized by him to hold enquiry in following circumstances – (a) Of his
own motion (b) Request of Collector (c) Application by majority of committee
members of society or (d) At least one-third of members of society. All officers
and members of society shall furnish necessary information to registrar or person
authorized by him.
Dissolution of society – Registrar, after inspection or inquiry, or on application
received from 75% of members of society, may cancel the registration of society,
if in his opinion, the Society should be dissolved. Any member can appeal
against the order of Registrar within two months to State Government or other
Revenue Authority authorized by State Government. If no appeal is filed within
two months, the order of dissolution shall become effective. If appeal is filed, the
order will become effective only after it is confirmed by appellate authority.
Companies Act not applicable – Provisions of Companies Act are not
applicable to registered cooperative society.
Co-operative economics is a field of economics, socialist economics, Co-
operative studies, and political economy, which is concerned with co-operatives.
Notable theoreticians who have contributed to the field include Charles Gide,
Robert Owen, Beatrice and Sydney Webb, J.T.W. Mitchell, Paul Lambart, Race
Mathews, David Griffiths, and G.D.H. Cole. Historical co-operative movements,
such as the Rochdale Pioneers, have also contributed to the field.
Co-operative federalism versus co-operative individualism:
A major historical debate in co-operative economics has been between
co-operative federalism and co-operative individualism. In an Owenite village of
co-operation or a commune, the residents would be both the producers and
consumers of its products. However, for a Co-operative, the producers and
consumers of its products become two different groups of people, and thus, there
are two different sets of people who could be defined as its 'users'. As a result,
we can define two different modes of co-operative organisation: consumers'
cooperative, in which the consumers of a co-operative's goods and services are
defined as its users (including food co-operatives, credit unions, etc.), and
producer co-operatives, in which the producers of a co-operatives goods and
services are defined as its users (which includes worker co-operative, agricultural
producer co-operatives, etc.).
This in turn led to a debate between those who support Consumers' Co-
operatives (known as the Co-operative Federalists) and those who favor
Producers Co-operatives (pejoratively labelled ‗Individualist' Co-operativists by
Co-operative Federalism is the school of thought favoring consumer co-
operative societies. Historically, its proponents have included JTW Mitchell and
Charles Gide, as well as Paul Lambart and Beatrice Webb. The co-operative
federalists argue that consumers should form co-operative wholesale societies
(Co-operative Federations in which all members are co-operators, the best
historical example of which being the English CWS), and that these co-operative
wholesale societies should undertake purchasing farms or factories. They argue
that profits (or surpluses) from these co-operative wholesale societies should be
paid as dividends to the member co-operators, rather than to their workers.
Co-operative Individualism is the school of thought favouring workers' co-
operative societies. The most notable proponents of this latter being, in Britain,
the Christian Socialists, and later writers like Joseph Reeves, putting this forth as
a path to State Socialism Where the Co-operative Federalists argue for
federations in which consumer co-operators federate, and receive the monetary
dividends, rather, in co-operative wholesale societies the profits (or surpluses)
would be paid as dividends to their workers. The Mondragón Co-operatives are
an economic model commonly cited by Co-operative Individualists, and a lot of
the Co-operative Individualist literature deals with these societies.
Co-operative and Rural Development
A number of field studies conducted by independent
researchers emphatically confirm the role played by milk cooperatives the
progress of the dairy industry. Millions of small farmers isolated in various parts
of the country have gained the strength to sustain their livelihood. The
cooperatives have provided gainful employment and brought them close to the
market. When cooperative dairying started in Gujarat, the dairy industry was in
the doldrums. Production had stagnated and per capita consumption was falling.
Farmers were at the mercy of the middlemen. Today, with about 100 lakh farmer
producers, Indian dairy farmers have been shown the way to prosperity and
health. The ideal conditions for long term growth in procurement have been
Modern technologies in animal breeding and feeding have been adopted
by a significant number of farmers.
Modern consumer processing and marketing facilities have been created
all over the country.
Technical input services including animal insemination, balanced cattle
feed / bypass proteins feed, better fodder varieties and emergency veterinary
health services - have not only helped in raising and sustaining milk production
but have also ensured a better quality of life in the villages.
Besides creating urban employment in dairy plants, marketing, transport
and distribution, these dairy cooperatives have helped to provide farmers with a
sustainable rural employment program. A majority of the cooperative members
are landless, marginal or small farmers who contribute their produce of milk at
the cooperatives. For these contributors, the income derived from milk provides
their only regular cash flow, transforming dairying into an economic activity.
The village cooperative is a clean well lit and orderly place. The villages
have gone through a similar transformation ever since the cooperatives began to
operate. When the people of a village see cleanliness, sanitation, hard work and
discipline in the cooperative. When they know that the cooperative serves them
well. It probably inspires them to bring more of these qualities into their own lives.
When out villages people see a veterinarian cure an animal that would have
otherwise died, they learn about the efficacy of the modern medicine. When they
see their income from milk increase as their animals improve, an the farmer
produces better feeds as they ensure better housing and care, they learn hope.
And they learn that it is not fate that determines their future, but they can take
control of their own destinies. In a nation like ours, democracy whether it be in
Delhi or in State capitals rests on a fragile foundation. We must underpin that
democracy with a plurality of rural institutions that involves direct control of
individuals over matters that have immediate effect on their own lives. They dairy
cooperatives of India are such institutions.
Dairy cooperatives are giving a fresh lease of life to farmers in drought-
prone areas. Milk production and unexploitative marketing through the
cooperatives is providing an assured source of income to farmers helping them
sustain themselves against recurring drought. The migrating population is settling
down. About Rs 2,000 crores is being paid to the farmers in their villages daily --
morning and evening -- which constitutes a large portion of their income.
Operation Flood has, therefore, emerged in India as the largest rural employment
scheme. It has been able to modernize the dairy sector to a level from where it
can take off to meet not only the country's demand for milk and milk products in
the next century but can also exploit global market opportunities. Thereby
capitalizing on the inherent production advantages that India has, provided that
the right policy options are exercised to overcome some already visible signs of
market disorder in the post-liberalization period. Among them are:
Over-capitalization in the private dairy sector
Ineffective enforcement of standards of processing, hygiene and quality
A near absence of any monitoring mechanism to enforce market discipline.
These threats need to be countered to protect the long-term interests of milk
producers, their organizations, as well as of the consumer.
When producers have such structures at their command, they have the means to
ensure that the fruits of science and technology reach all those who benefit. It is
only when such structures exist that farmers develop confidence in getting an
assured remunerative price for their produce. This, in turn stimulates investment
in productivity. Further, farmers also demand the delivery of services and inputs
they need to realize returns on their investments. Such structures can perhaps
educate farmers to the fragile nature of the environment and the need to
One big lesson learnt is that farmers must be respected and trusted. They
may not be educated, or even literate, but they possess common sense and
even wisdom. Frequently, they have shown the ability to rise above narrow self-
interest to act together in pursuit of long-term goals and the common good.