Thus, cooperatives are voluntary associations, formed with a service motive; the primary source of income being the members’ shares, they get dividend on trading surplus, if any. The organization functions as a separate legal entity in a democratic way and is governed by the state regulation.
There are different types of cooperatives like consumers’ cooperatives, producers’ cooperatives, marketing cooperatives, housing cooperatives, credit cooperatives, farming cooperatives, etc. The structure of a cooperative organization ensures:
i. All members have an equal say (one vote per member, regardless of the number of shares held).
ii. Open and voluntary membership.
iii. Limited interest on share capital.
iv. Surplus is returned to the members according to amount of patronage.
Advantages of a Cooperative Organization:
1. A cooperative organization is owned and controlled by members.
2. It has a democratic control: one member, one vote.
3. This type of organization has a limited liability.
4. Profit distribution (surplus earnings) to members is carried on in proportion to the use of service; surplus may be allocated in shares or cash.
Disadvantages of a Cooperative Organization:
1. A cooperative organization entails longer decision-making process.
2. It requires members to participate for success.
3. Extensive record keeping is necessary in this form of organization.
4. It has less incentive, and there’s also a possibility of development of conflict between members.