A cooperative business is owned, controlled, and operated by a group of people with common interests. The objective of a collaborative business is not strictly to earn profit but to achieve its members’ everyday economic, social, and cultural needs. Members have a contribution toward the business; they make democratic decisions, and they share their profits equally. This article will explore the meaning, importance, types, and how cooperative businesses work.
What is a Cooperative Business?
A cooperative business or cooperative society is a member-owned organization formed by those who unite to meet their daily needs. They are different from traditional companies that are mainly based on maximization of shareholder profits. They are focused more on the members’ benefits because of shared resources, profits, and decision-making. The basic principle of a cooperative is one member, one vote, where every member has an equal say, irrespective of his investment or contribution. The most famous example of cooperative business is Amul.
Importance of Cooperative Business
Cooperative business is vital because it empowers communities, promotes economic development, and makes business fair. Cooperatives have a big role in creating jobs, supporting local businesses, and reducing income inequality.
- Economic Empowerment: Cooperatives help small producers, farmers, and workers pool together to become more competitive in the marketplace. Example: Farmer cooperatives like Amul enable dairy farmers to receive fair product prices without middlemen.
- Social Development: They create social inclusion through equal opportunities extended to all members from any background. Cooperatives promote education, health care services, and the general welfare of the community.
- Job creation: Cooperative businesses create employment opportunities, especially in rural areas with few job opportunities. It is a stable workplace because the decisions are taken in the interest of the employees and members.
- Fair distribution of profits: Profits are distributed among the members based on participation rather than the investment size. This results in equity and minimizes income inequality within the community.
- Ethical Business Practices: Cooperatives emphasize transparency, accountability, and ethical decision-making. The members are directly involved in the operations, so honest and responsible management occurs.
Types of Cooperative Business
Cooperative businesses can be classified into various types based on their purpose, structure, and member’s needs. Here are the major types of cooperative enterprises:
Consumer Cooperatives
Consumer cooperatives provide their members with goods and services at a relatively cheap price. Individuals order products in bulk and then sell them at agreed reasonable prices, bypassing the middleman. For example, in India, there is a consumer cooperative known as Apna Bazaar, and its members are owners and customers. Such an arrangement gives the consumers lower prices, reasonable quality control, and profit-sharing between the members. However, it will still be affected by problems like low product variation and management because of the lack of professionalism.
Producer Cooperatives
Producer cooperatives allow producers, whether farmers, artisans, or manufacturers, to sell their produce with the proper means. The pooled resources enable a member to source raw materials for production, produce goods, and then sell those goods in an aggregated form. Some well-known examples are Amul, which supports dairy farmers, and Lijjat Papad, which empowers women in the food industry. They guarantee better prices, scales of economies, and wider market access. A drawback to cooperatives is their dependence on management and problems regarding quality control.
Worker Cooperatives
Worker cooperatives provide employment where workers are owners, managers, and business controllers. They invest in the cooperative and make decisions; hence, the profit is equally divided. The Uralungal Labour Contract Cooperative Society (ULCCS) of Kerala is totally managed by its workers. The cooperatives give job security, equal wages, and ownership; however, the cooperatives are often marred with inadequate funds and fight over management control.
Housing Cooperatives
The main objective of housing cooperatives is to offer affordable housing to its members. Members pool money to acquire land, build homes, and run the property together. Quite a few housing societies in large cities such as Mumbai and Delhi function as cooperatives. The benefits include affordability, better maintenance, and good community bonding. Still, they face issues with property management disputes and high maintenance costs in the big societies.
Credit Cooperatives (Cooperative Banks)
Credit cooperatives are also known as cooperative banks. Credit cooperatives offer loans and other credit facilities, deposits in savings accounts, etc., to the members. Here, the capital is contributed by the members and utilized to issue loans at low interest rates. Such models include Urban Cooperative Banks in India, offering low-interest loans, easy credit access to small businesses, and profit-sharing among members. However, there are risks of loan defaults and limited capital compared to commercial banks.
How Cooperative Business Works?
The cooperative differs from the conventional business enterprise, insisting on shared ownership and collective decision-making. A group of individuals with a common goal comes together to form a cooperative registered under the Cooperative Societies Act 1912 in India. Members contribute their initial capital to start operations, and anyone who meets the eligibility criteria can join by paying a membership fee or acquiring shares. Every member has equal voting rights, regardless of the amount invested, based on the principle of “one member, one vote.
Members of cooperatives participate in Annual General Meetings (AGMs), where significant decisions are collectively made. Members elect a Board of Directors tasked with daily management activities, including buying raw materials, marketing the products, or offering financial services. Profits are not divided according to how much money one has invested in the cooperative; instead, the distribution is proportionate to a member’s level of participation in the cooperative’s activities. In addition, a portion of profits is ploughed back to facilitate the growth and development of the cooperative.
Cooperatives must comply with government agencies’ legal and regulatory standards, including the Registrar of Cooperative Societies. Regular audits are conducted, and regular financial reports are brought in, plus inspections for transparency and accountability. The structure keeps cooperatives fair, democratic and focused on the benefits to be gained for all members.
Cooperative Business FAQs
What is a cooperative business?
It is an enterprise owned and managed by its owners, with democratic decision-making for the equalization of profit shares.
What types of cooperative business are there?
The types consist of consumer, producer, worker, housing cooperatives, as well as credit cooperatives.
Why is there a cooperative business?
These establishments help with equitable economic opportunities; job development creates a thriving society, affordable supplies, and various services.
How does a cooperative business operate?
Members contribute capital, take part in decision-making, and share profits according to their contribution rather than the investment size.
What is a cooperative business’s basic objective?
To fulfil the common needs of the members rather than making profits.
