Edited by Edogbanya P.R. Ocholi and Toluwalase Solanke
Cooperative society is one of the most common business organisations that cut across all walks of life.
It is used in both rural and urban areas. There are many reasons why people choose to engage in a cooperative, it could be for their personal business growth or for their family betterment.
Lesson Objectives
By the end of this lesson, students should be able to:
- State the advantages of cooperative societies.
- Highlight the disadvantages of cooperative societies.
- Explain the common problems faced by cooperative societies.
Table of Contents
Advantages of Cooperative Society
Easy to Form
A cooperative society is simple to establish compared to companies and other business organisations.
All that is required is a group of people with a common interest and the registration of the society under the cooperative law.
The cost of registration is usually low, and the legal procedures are not complicated, making it easy for even low-income earners or rural dwellers to form one.
Democratic Control
Management in a cooperative society is democratic. Each member has equal voting rights, regardless of the amount of money or capital they contribute.
This means that no single member can dominate or control the group. Decisions are made collectively, which promotes fairness and a sense of belonging among members.
Limited Liability
In most cooperative societies, the liability of members is limited to the value of their contributions.
This means that if the cooperative runs into debt, members cannot lose more than what they have invested.
This reduces the financial risk for individuals and encourages participation, since members know their personal property is safe.
Improvement of Members’ Welfare
The main aim of a cooperative society is not to make huge profits but to improve the welfare of its members.
For example, consumer cooperatives sell goods at lower prices, while credit cooperatives provide loans at cheaper rates than banks.
By doing this, cooperatives help to raise the standard of living of their members.
Encouragement of Savings
Cooperative societies encourage members to develop a habit of saving.
In thrift and credit cooperatives, members contribute money regularly, and these savings are later used to grant loans or provide financial assistance.
This makes it easier for members to raise funds for personal or business needs without depending too much on banks.
Reduction of Middlemen Exploitation
In marketing or producer cooperatives, members come together to sell their goods directly in bulk, thereby reducing the influence of middlemen who usually exploit small producers.
By eliminating middlemen, members get better prices for their goods, while buyers also enjoy fairer prices.
Sense of Belonging and Unity
Since cooperatives are based on mutual help, members develop a sense of unity, cooperation, and brotherhood.
Everyone feels part of the decision-making process, which strengthens trust and reduces exploitation. This spirit of togetherness helps the cooperative society to survive even in difficult times.
Problems of Cooperative Society
Poor Management
Cooperative societies are often managed by elected members who may not have the necessary training in business administration or financial management.
Because of this, decisions are sometimes poorly made, leading to wastage, inefficiency, and even losses. Unlike private businesses where professionals are hired to maximis https://www.vedantu.com/commerce/cooperative-society e profit, cooperatives may rely on inexperienced leaders, which affects their growth and survival.
Misuse of Funds
In many cases, the money contributed by members is not properly handled. Dishonest officials may misappropriate funds for personal use, and because members often trust each other, strict financial controls are not always in place.
When funds are misused, the cooperative may collapse, and members lose confidence in the society.
Low Capital Base
Cooperative societies usually rely on members’ contributions, which are often small. Because of this, they may not have enough money to invest in large projects or expand their activities.
This makes them less competitive compared to private businesses or big companies that have access to huge financial resources and bank loans.
Lack of Trust Among Members
Since cooperatives depend on honesty and cooperation, a lack of trust can be a major problem.
For example, in thrift and credit cooperatives, some members may borrow money and refuse to repay, creating losses for others. Once trust is broken, members withdraw their support, and the society weakens.
Government Interference
In some cases, cooperatives face too much interference from government officials.
This may come in the form of regulations, forced leadership changes, or political influence in decision-making. Such interference can reduce members’ control over their society and prevent it from running independently for the benefit of members.
Illiteracy of Members
Many members of cooperative societies, especially in rural areas, may not be educated enough to understand financial records, legal documents, or business strategies.
This lack of education makes them vulnerable to manipulation by dishonest leaders and also limits their ability to run the society effectively.
Internal Conflicts
Disagreements among members are common in cooperative societies.
These conflicts may be about leadership positions, distribution of surplus, or misuse of resources. If not properly managed, such disputes can divide members, reduce cooperation, and sometimes lead to the complete collapse of the society.
Summary
Advantages: promotes savings, loans, cooperation, and fair profit-sharing.
Disadvantages: limited capital, poor management, and lack of commitment.
Problems: corruption, illiteracy, lack of trust, and government interference.
Read more: Similarities And Differences Between Retail Cooperative Society And Public Limited Company
Tags
Capital, Management, Corruption, Mismanagement, Government interference, Trust, Record-keeping, Savings, Loans, Bargaining power
