What is a Cooperative Society?
A cooperative societyThe term society is derived from the Latin word 'socius' meaning friendship or companionship. Society is a community, nation or group of people who share the same traditions, institutions, rules and other common standards of living. is a group of people with a common interest, who agree to pool their resources together, in order to achieve certain economic objectives.
The welfare of their members is paramount to them. It is not set up solely to make a profit, but to care for the needs of its members.
Their main goal is usually to distribute products or render services to members, at a very reasonable rate. They are usually found in unions.
Types of Cooperative Society:
There are five types of cooperative society namely:
1. Farmers’ Cooperative: This form of cooperative is established by farmers, who intend to take advantage of what is supplied by either private or government, such as tractors, fertilizers, palm oil, etc. They purchase in bulk and resell to their members, at a very cheap rate.
2. Consumers’ Cooperative: This is formed by a group of consumers, who contribute their money to buy goods in bulk, directly from the manufacturers, and sell to their members at reasonable prices. Examples of the goods are sugar, beverages, rice, crayfish etc.
3. Producers’ Cooperative: They are usually formed by farmers, and sometimes manufacturers, who contribute to purchasing expensive tractors, fertilizers, machinery, etc, so that each member will have access to the resources. They also help to market members’ products and produce agricultural products of homogenous types, for example, beans, rice, millet, oil, etc.
4. Thrift and Credit Cooperative: Members are encouraged to contribute money, on a regular basis, to the purse of society. It implores its members to save some money regularly so that they can borrow large amounts, with little or no interest. It is formed by people who contribute an agreed sum of money, on a regular basis. It encourages savings.
5. Multipurpose Cooperative: It is formed to take advantage of the benefits derived from bulk purchases. They use money contributed to buying commodities at a reduced rate, from the government or suppliers, and resell to their members at a lower rate. They can also give loans to their members in need, at a very low-interest rate.
Advantages of Cooperative Society:
- It encourages a saving habit.
- It gives loans to needy members.
- It buys goods on behalf of its members.
- It is democratically set up.
- Members are allowed to pay back debts in instalments.
- Profits are shared in proportion to the contribution of each member.
- It gives assistance to members who are needy.
- Profit made is not subject to company tax.
- Admission of a new member is easy.
Disadvantages of Cooperative Society:
- It has inadequate capital. Capital is limited to the ability of members to pay.
- Conflict among members may affect the operation of the business.
- There is a misappropriation of funds. If someone misappropriates money which does not belong to them, they take it without permission and use it for their own purposes.
- It reduces government revenue as profit is not taxed.
- Management is incompetent and inexperienced.
- Some members are illiterate.
- The process of decision-making is longer compared to sole proprietorship