Describe the cooperatives form of business ownership

-A co-operative society is a form of business organization that is owned by and run for the
economic welfare of its members
-It is a body of persons who have joined together to do collectively what they were previously
doing individually for mutual benefit.
Example
In Kenya the co-operative movement was started by white settlers in 1908 to market their
agricultural produce. In this case, they knew that they could sell their produce better if they
were as a group and not alone
Principles of co-operatives
i) Open and voluntary membership
Membership is open and voluntary to any person who has attained the age of 18 years. No
one should be denied membership due to social, political, tribal or religious differences. A
member is also free to leave the society at will
ii) Democratic Administration
The principle is one man one vote. Each member of the co-operative has only one vote
irrespective of the number of shares held by him or how much he buys or sells to the
society
iii) Dividend or repayment
-Any profit/surplus made at the end of every financial year should be distributed to the
members in relations to their contribution.
-Part of the profit may be retained/reserved/put in to strengthen the financial position of
the society.
iv) Limited interest on share capital
-A little or no interest is paid on share capital contributed (co-operatives do not encourage
financial investment habits but to enhance production, to encourage savings and serve the
members)
v) Promotion of Education
Co-operative societies should endeavor to educate their members and staff on the ideas of
the society in order to enhance/improve quality of decisions made by the concerned
parties.
Education is conducted through seminars, study tours, open days
vi) Co-operation with other co-operatives
C-operatives must learn from each other’s experience since they have a lot in common.
-Their co-operation should be extended to local national and international.

Features of co-operatives
- Membership is open to all persons so long as they have a common interest. Members are
also free to discontinue their membership when they desire so
- Co-operative societies have a perpetual existence; death, bankruptcy or retirement of a
member does not affect its operations
- They are managed in a democratic manner. Every member has one vote when electing the
managerial committee irrespective of the number of shares held.
The main aim is to serve the interest of the members where profit is not the overriding
factor.
- Co-operative societies have limited liabilities
- There must be a minimum of 10 people with no maximum membership.
- Co-operatives have a separate legal entity from the members who formed it i.e they can
own property sue and be sued
- Any profit made by the society is distributed to the members on the basis of the services
rendered by each member but not according to the capital contributed.
Formation
-Co-operative societies can be formed by people who are over eighteen years regardless of
their economic, political or social background.
-There must be a minimum of 10 persons and no maximum no.
-The members draft rules and regulations to govern the operations of the proposed society i.e.
by-laws, which are then submitted to the commissioner of co-operatives for approval
-The registrar then approves the by-laws and issues a certificate of registration
-If the members are unable to draw up their own by-laws, the co-operative societies Act of
1966 can be adopted in part or whole

Management
-A co-operatives society is composed/run by a committee usually of nine members elected by
the members in a general meeting
-The management committee elects the chairman, secretary and treasurer as the executive
committee members, who act on behalf of all the members and can enter into contracts
borrow money institute and depend suits and other legal proceedings for the society
-The committee members can be voted out in an A.G.M if they don’t perform as expected.

TYPES OF CO-OPERATIVES SOCIETIES IN KENYA
May be grouped according to;
i) Nature of their activities
a) Producer co-operatives
b) Consumer co-operatives
c) Savings and credit co-operatives
ii) Level of operations
a) Primary co-operatives
b) Secondary co-operatives

a) Producer co-operatives
This is an association of producers who have come together to improve the production and
marketing of their products.

Functions
- Obtaining better prices for their members products
- Providing better storage facilities for their products
- Providing better and reliable transport means for moving the products from the sources
to the market and building feeder roads
- Providing loans to members
- Providing services of grading, packing and processing to the members
- Providing farm inputs e.g. fertilizers, seeds, insecticides e.t.c on credit to members
- Educating and advising members on better methods of farming through seminars, field
trips, films and demonstration
-In this type of co-operative members are paid according to the quantity of the produce a
member has delivered to the society.
Examples,
KCC-Kenya Co-operative Creameries
K.P.C.U-Kenya Planters Co-operatives Union
K.G.G.C.U-Kenya Grain Growers Co-operative Union
b) Consumer Co-operatives
-These are formed by a group of consumers to buy goods on wholesome and sell them to the
members at existing market prices.
-Their aim is to eliminate the wholesalers and retailers and hence obtain goods more cheaply
-The co-operatives allow their members to buy goods on credit or in cash
-Members of the public are also allowed to buy from the society at normal prices thereby
enabling the society to make more profits
-The profits realized is shared among the members in proportion to their purchases i.ethe more
a member buys, the buyer his/her share of profit
Examples;-Nairobi consumer co-operative union, Bee-hive consumer co-operative society and
City-chicken consumer co-operative society

Advantages
- Sell goods of high quality
- Sell goods to members at fair prices
- Sell goods to other people at normal prices thereby making more profit
- Buy goods directly from the producers thereby eliminating middlemen. They are
therefore able to make more profit
- Can give credit facilities to the members
- Can pay interest on capital to the members
- Sell a variety of goods to the members at a place where they can easily get them

Disadvantages
Consumer co-operatives are not popular in Kenya because of the following
i. They face stiff competition from large scale retailers such as supermarkets and multiple
shops who buy goods directly from the producers and sell-them to consumers at low prices
ii. Cannot offer to employ qualified staff
iii. Majority of their members have low income, so raising off capital is a problem
iv. Kenya, being an agricultural country, produces enough subsistence goods for itself. It
therefore does not require consumer co-operatives
v. Reluctance of non-members to buy from the shops lowers the turn-over
vi. Mismanagement of the shops is rampant
Savings and credit co-operatives societies (SACCO’S)
-They are usually formed by employed persons who save part of their monthly salary with their
co-operative society, through check-off system
-Their money earns goods interest and when one has a significant amount saved, he/she
become entitled to borrow money from the society for any personal project e.g. improving
their farms, constructing houses, paying school fees e.t.c
-The SACCOS charge lower interest on loans given to members than ordinary banks and other
financial institutions.
-The societies have few formalities or requirements to be completed before giving a loan. These
are:
i. Membership
ii. Members salary
iii. Members saving
iv. Guarantee from fellow members
-Profits earned by the SACCO’S maybe shared among the members inform of dividends.
-Most SACCO’S have insured their members savings and loans with co-operative insurance
services (CIS).This means if a member dies his/her beneficiaries are not called upon to repay the loan and the members savings/shares is given to the beneficiaries.
-They are the main institutions that provide loans to most people who do not qualify for loans
from commercial banks because they do not ask for securities such as title deeds required by
the bank.
d) Primary co-operative societies
-These are co-operative societies composed of individuals who are either actual producers,
consumers or people who join up together to save and obtain credit most conveniently
-Consumer co-operative societies and most SACCO’S are primary co-operative societies because
they are composed of individuals.
-Most primary co-operative societies operate at the village level, others at district levels and a few at national levels.
e) Secondary co-operative societies
-They are usually referred to as unions
-They are generally composed of primary co-operative societies as their members
-They are either found at district levels or at national levels.

Advantages of co-operative societies:
- Since the properties of co-operatives are owned collectively, they are able to serve the
interest of the members affectively
- They have limited liability
- Membership is free and voluntary
- Members share profits of a co-operative through dividend that are given
- They have improved the standards of living of their members through increased income
from their produce and through savings from incomes.
- Co-operatives benefit their members through giving them credit facilities and financial
loans which they could not have got from local banks
- They are run on a democratic basis i.e. all members have an equal chance of being elected
to the management committee.
- Many co-operatives are large scale organizations hence able to get the benefits of large
scale organizations e.g low production costs leading to low prices of products
- Co-operative enjoy a lot of support from the government and when they are in financial and
managerial problems, the government steps in to assist them
Disadvantages
- Majority of the co-operatives are small in size and therefore cannot benefit from economies
of scale.
- Members have a right to withdraw from the society and when they do, co-operatives
refunds the capital back which might create financial problems to the society.
- Corruption and embezzlement of funds is a problem for many co-operatives.
- Most co-operatives are not able to attract qualified managerial staff hence leading to
mismanagement.
- Many suffer from political interference. Sometimes; the election of the management
committee is interceded with by some people with personal interest in certain candidates
hence the best person may not be elected to run the affairs of the society. This leads to
poor management and inefficiency.
- Members may not take keen interest in the affairs of a co-operative society because their
capital contribution is small.

Dissolution of co-operative societies
-A co-operative society may be dissolved under any of the following circumstances.
i. Order from commissioner of co-operatives
ii. Voluntary dissolution by members
iii. Withdrawal of members from the society leaving less than ten members
iv. If the society is declared bankrupt

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Titany answered the question on November 10, 2021 at 08:17