Ques Exlain co-operative society is a democratic setup?

Ques How does a cooperative society exemplify democracy and secularism? Explain. 

Co-operative Society

A cooperative society is a voluntary association of persons who have come together and work together for the
welfare of its members. This society conducts its election in a democratic manner, i.e. it follows the principle of
'one man, one vote'. Every member of the society is entitled to one vote irrespective of the capital invested by
him/her or the number of shares he/she has. This prevents any kind of discrimination in the body. Also,
members have the right to join or leave the society anytime without any compulsion.
Moreover, the membership of the society is open to all without any kind of discrimination on the basis of
religion, caste or gender. This signifies the secular nature of a cooperative society.
Ques . Discuss the characteristics, merits and limitations of the cooperative form of organisation. Also,
describe briefly the different types of cooperative societies. 

FEATURES
1. Voluntary association: Every one having a common interest is free to join a co-operative society and can also
leave the society after giving proper notice. There is no compulsion to join or to quit.
2. Legal status: Its registration is compulsory and it gives it a separate legal identity.
3. Limited liability: The liability of the member is limited to the extent of their capital contribution in the
society.
4. Democratic control: Management & Control lies with the managing committee elected by the members by
giving vote. Every member has one vote irrespective of the number of shares held by him.
5. Service motive: The main aim is to serve its members and not to maximize the profit as its main emphasis
on mutual help and welfare.
MERITS
1. Ease of formation: It can be started with minimum of 10 members. Registration is also easy as it requires
very few legal formations.
2. Limited Liability: The liability of members is limited to the extent of their capital contribution. The
personal assets of the members are safe.
3. Stable existence: Due to registration it is a separate legal entity and is not affected by the death, luxury
or insolvency of any of its member.
4. Economy in operations: Due to elimination of middlemen and voluntary services provided by its members,
this helps in reducing cost.
5. Government Support: Govt. provides support by giving loans at lower interest rates, subsidies & by charging
less taxes.
6. Equality in voting status: ‘One man one vote’ governs the society. Each member is entitled with equal voting
rights.
LIMITATIONS
1. Shortage of capital – It suffers from shortage of capital as it is usually formed by people with limited
means. Low rate of dividend also a barrier of more members and funds.
2. Inefficient management – Co-operative society is managed by elected members who may not be competent
and experienced. Moreover, it can’t afford to employ expert and experienced people at high salaries.
3. Lack of motivation – Members are not inclined to put their best efforts as there is no direct link between
efforts and reward.
4. Lack of Secrecy – Its affairs are openly discussed in its meeting which makes it difficult to maintain
secrecy.
5. Excessive govt. control – it suffers from excessive rules and regulations of the govt. It has to get its
accounts audited by the auditor and has to submit a copy of its accounts to registrar.
6. Conflict among members – The members are from different sections of society with different viewpoints.
Sometimes when some members become rigid, the result is conflict.
TYPES OF CO-OPERATIVE SOCIETIES
1. Consumers co-operative Society – It formed to protect the interest of consumers. It seeks to eliminate
middleman by establishing a direct link with the producers. It purchases goods of daily consumption directly
from manufacturer or wholesalers and sells them to the members at reasonable prices.
2. Producer’s Co-operative Society – The main aim is to help small producers who cannot easily collect various
items of production and face some problem in marketing. These societies purchase raw materials, tools,
equipments and other items in large quantity and provide these things to their members at reasonable price.
3. Marketing Co-operative Society – It performs various marketing function such as transportation,
warehousing, packing, grading, marketing research etc. for the benefit of its members. The production of
different members is pooled together and sold by society at good price.
4. Farmer’s Co-operative Society – In such societies, small farmers join together and pool their resources for
cultivating their land collectively. Such societies provide better quality seeds, fertilizers, machinery and other
modern techniques for use in the cultivation of crops. It provides them opportunity of cultivation on large scale.
5. Credit co-operative Society – Such societies protect the members from exploitation by money lenders.
They provide loans to their members at easy terms and reasonably low rate of interest.
6. Co-operative Housing Society – The main aim is to provide houses to people with limited means/income at
reasonable price.
Ques . “Every day Amul collects milk from 2.12 million farmers (many illiterate) & converts the milk into
branded packaged products & delivers goods all over the country. The story of Amul started in Dec, 1946
with a group of farmers been to free themselves from intermediaries, gain access to the market & there
by ensure maximum returns for their efforts”
(a) From the above information, identify the form of business organization used by Amul.
Ans. Co-operative society/venture
(b) Also quote the line which suggest its features?
Ans. Economy in operations: Due to elimination of middlemen and voluntary services provided by its members,
this helps in reducing cost.
(c) According to you, Amul is part of which type of industry?
Ans. Primary and secondary both.

JOINT STOCK COMPANY

Meaning – Joint stock company is a voluntary association of persons for profit, having a capital  divided into
transferable shares, the ownership of which is the condition of membership. A company can be described as an
artificial person having separate legal entity, perpetual succession and a common seal.

(perpetual succession is the continuation of a company's or other association's presence in spite of the.
demise, liquidation, insanity, change in enrollment or a way out from the matter of any proprietor or. part, or
any exchange of stock.)

FEATURES
1. Incorporated association – The company must be incorporated or registered under the companies Act
1956. Without registration no company can come into existence.
2. Separate Legal Existence – It is created by law and it is a distinct legal entity independent of its members.
It can own property, enter into contracts, can file suits in its own name.
3. Perpetual Existence – Death, insolvency and insanity or change of members as no effect on the life of a
company. It can come to an end only through the prescribed legal procedure.
4. Limited Liability – The liability of every member is limited to the nominal value of the shares bought by him
or to the amt. guaranteed by him.
5.Transferability of shares – Shares of public Co. are easily transferable. But there are certain restrictions
on transfer of share of private Co.
6. Common Seal- It is the official signature of the company and it is affixed on all important documents of
company.
7. Separation of ownership and control – Management of company is in the hands of elected representatives
of shareholders known individually as director and collectively as board of directors.
MERITS
1. Limited Liability – Limited liability of shareholder reduces the degree of risk borne by him.
2. Transfer of Interest – Easy transferability of shares increases the attractiveness of shares for
investment.
3. Perpetual Existence – Existence of a company is not affected by the death, insanity,
Insolvency of member or change of membership. Company can be liquidated only as per the provisions of
companies Act.

4. Scope for expansion – A company can collect huge amount of capital from unlimited no. of members who are
ready to invest because of limited liability, easy transferability and chances of high return.
5. Professional management – A company can afford to employ highly qualified experts in different areas of
business management.
LIMITATIONS
1. Legal formalities – The procedure of formation of Co. is very long, time consuming, expensive and requires
lot of legal formalities to be fulfilled.
2. Lack of secrecy – It is very difficult to maintain secrecy in case of public company, as company is required
to publish and file its annual accounts and reports.
3. Lack of Motivation – Divorce between ownership and control and absence of a direct link between efforts
and reward lead to lack of personal interest and incentive.
4. Delay in decision making – Red papism and bureaucracy do not permit quick decisions and prompt actions.
There is little scope for personal initiative.
5. Oligarchic management – Co. is said to be democratically managed but actually managed by few people i.e.
board of directors. Sometimes they take decisions keeping in mind their personal interests and benefit,
ignoring the interests of shareholders and Co.
TYPES OF COMPANIES
On the basis of ownership, companies can be divided into two categories –
Private & Public.
Difference between Private Company & Public Co.

Private Co. Public Co.

It has minimum 2 and maximum 50 members. It has minimum 7 and maximum unlimited.

It cannot invite general public to buy its shares

It invites general public to buy its shares and debentures.
and debentures.

There are certain restrictions on transfer of

Its shares are freely transferable.
its shares.

It can commence business after obtaining certificate of

It can commence business after incorporation.
commencement of business.

It has to write Private Ltd. After its name It has to write only limited after its name
Ex- Tata Sons, Citi Bank, Hyundai Motor India. Ex- Reliance Industries Ltd., Wipro Ltd. , Raymond’s Ltd.

In its minimum capital required is one lakh. In its minimum capital required is five lakhs.

FORMATION OF A COMPANY
Formation of a company means bringing a company into existence and starting its business. The steps involved in
the formation of a company are:

(i) Promotion
(ii) Incorporation
(iii)Capital subscription
(iv) Commencement of business.
A private company has to undergo only first two steps but a public company has to undergo all the four stages.

Ques Rahul and Sanchali felt that there was an opportunity of business in providing a service of online
grocery stores for working people. They analyzed the idea in terms of technical, financial and economic
liability. Once they found all the aspects satisfactory they decided to start a company called ‘convenience
home’ private Ltd. They got the name registered with the registrar.
 (a) Which steps of formation of company are being referred to here?
(b) Also write the next 3 steps associated with it.
[Hint: steps in promotion of a company]
1. Promotion:
Promotion means conceiving a business opportunity and taking an initiative to form a company.

Step in Promotion:
1. Identification of Business Opportunity : The first and foremost function of a promoter is to identify a
business idea e.g. production of new product or service.
2. Feasibility Studies: After identifying a business opportunity the promoters undertake detailed studies of
technical, Financial, Economic feasibility of a business.
3. Name Approval: After selecting the name of company the promotors submit an application to the Registrar
of companies for its approval.
4. Fixing up signatories to the Memorandum of Association: Promotors have to decide about the director
who will be signing the memorandum of Association.
5. Appointment of professional: Promoters appoint merchant bankers, auditors etc.
6. Preparation of necessary documents: The promoters prepare certain legal documents such as memorandum
of Association, Articles of Association which have to be submitted to the Registrar of the companies.

2. Incorporation
Incorporation means registration of the company as body corporate under the companies Act 1956 and
receiving certificate of Incorporation.

Steps for Incorporation

1. Application for incorporation: Promoters make an application for the incorporation of the company to the
Registrar of companies.
2. Filing of necessary documents: Promoters files the following documents:
(i) Memorandum of Association.
(ii) Articles of Association.
(iii) Statement of Authorized Capital
(iv) Consent of proposed director.
(v) Agreement with proposed managing director.
(vi) Statutory declaration.

3. Payment of fees: Along with filing of above documents, registration fee has to be deposited which depends
on amount of the authorized capital.
4. Registration: The Registrar verifies all the document submitted. If he is satisfied then he enters the name
of the company in his Register.
5. Certificate of Incorporation: After entering the name of the company in the register. The Registrar issues
a Certificate of Incorporation. This is called the birth certificate of the company.

III. Capital Subscription:

A public company can raise funds from the public by issuing shares and Debentures. For this it has to issue
prospectus and undergo various other formalities:

Step required for raising funds from public:

1. SEBI Approval: SEBI regulates the capital market of India. A public company is required to take approval
from SEBI.
2. Filing of Prospectus: Prospectus means any documents which invites offers from the public to purchase
share and Debenture of the company.
3. Appointment of bankers, brokers, underwriters: Banker of the company receive the application money.
Brokers encourage the public to apply for the shares, underwriters are the person who undertake to buy the
shares if these are not subscribed by the public. They receive a commission for underwriting.
4. Minimum subscription: According to the SEBI guide lines minimum subscription is 90% of the issue amount.
If minimum subscription is not received then the allotment cannot be made and the application money must be
returned to the applicants within 30 days.
5. Application to Stock Exchange: It is necessary for a public company to list their shares in the stock
exchange therefore the promoters apply in stock exchange to list company shares.
6. Allotment of Shares: Allotment of shares means acceptance of share applied. Allotment letters are issued
to the shareholders. The name and address of the shareholders submitted to the Registrar.

IV. COMMENCEMENT OF BUSINESS:

To commence business a public company has to obtain a certificate of commencement of Business. For this the
following documents have to be filled with the registrar of companies.

1. A declaration that 90% of the issued amount has been subscribed.

2. A declaration that all directors have paid in cash in respect of allotment of shares made to them.
3. A statutory declaration that the above requirements have been completed and must be signed by the
director of company.

Important documents used in the formation of company:

1. Memorandum of Association – It is the principal document of a company. No company can be registered
without a memorandum of association and that is why it is sometimes called a life giving document.
Contents of Memorandum of Association:
1. Name clauses – This clause contains the name of the company. The proposed name should not be identicator
similar to the name of another exiting company.
2. Situation clauses – This clause contains the name of the state in which the registered office of the
company is to be situated.
3. Object clause – This clause defines the objective with which the company is formed. A company is not
legally entitled to do any business other than that specified in the object clause.
4. Liability Clauses – This clause limits the liability of the members to the amount unpaid on the shares held
by them.
5. Capital clause – This clause specifies the maximum capital which the company will be authorized to raise
tough the issue of shares called authorized capital.
2. Articles of Association:
The articles of Association are the rules for the internal management of the affairs of a company the articles
defines the duties, rights and powers of the officers and the board of directors.

Contents of the Article:

1. The amount of share capital and different classes of shares.
2. Rights of each class of shareholders.
3. Procedure for making allotment of shares.
4. Procedure for issuing share certificates.
5. Procedure for forfeiture and reissue of forfeited shares.
6. Rules regarding casting of votes and proxy voting
7. Procedure for selection and removal of directors
8. Dividend declaration and payment related rules
9. Procedure for capital readjustment
10. Procedure regarding winding up of the company.

2. Prospectus:
Prospectus means any document which invites deposits from the public to purchase share or debentures of a
company.

Main contents of the Prospectus:

1. Company’s name and the address of its registered office.
2. The main object of the company
3. The number and classes of shares.
4. Qualification shares of the directors
5. The name and addresses of the directors, managing director or manager.
6. The minimum subscription which is 90% of the size of the issue.
7. The time of opening and closing of the subscription list.
8. The amt. payable on the application and allotment of each class of share.
9. Underwriters to the issue.
10. Merchant bankers to the issue.

2. Statement is Lieu of Prospectus:

A public company having a share capital may sometimes decide not to raise funds from the public because it may
be confident of obtaining the required capital privately. In such case it will have to tile a statement in lieu of
prospectus with the Registrar of companies. It Contains information much similar to that of a prospectus.

CHOICE OF FORM OF BUSINESS ORGANISATION

The following factors are important for taking decision about form of organization:

1. Cost and ease in setting up the organization: Sole proprietorship is least expensive and can be formed
without any legal formalities to be fulfilled. Company is also expensive with lot of legal formalities.
2. Capital consideration: Business requiring less amount of finance prefer sole proprietorship & partnership
form, where as business activities requiring huge financial resonances prefer company form.
3. Nature of business: If the work requires personal attention such as tailoring unit, cutting saloon, it is
generally setup as a sole proprietorship. Unit engaged in large scale manufacturing are more likely to be
organized in company form.
4. Degree of control desired: A person who desires full and exclusive control over business prefers
proprietorship rather than partnership or company because control has to be shared in these cases.
5. Liability or Degree of Risk: Projects which are not very risky can be organized in the form of sole
proprietorship partnership whereas the risky ventures should be done in company form of organization because
the liability of shareholders is limited.