BUSINESS ORGANISATION MANAGEMENT UNIT-1 NOTES [DIBRUGARH UNIVERSITY B.COM 1ST SEM NEP 2023]

 [Dibrugarh University B.Com 1st Sem]

Business Organisation Management

UNIT-1 

Forms of Business Organisation 

Complete Notes Based on NEP 2023

1. What is Sole Proprietorship ? What are the Features, Merits, Demerits and Limitations of Sole Proprietorship.

Ans:- A sole proprietorship is a common form of business organization where a single individual owns and operates a business. It is the simplest and most straightforward type of business structure, and it's often chosen by small businesses and solo entrepreneurs due to its ease of formation and operation. Here are the key features and merits of a sole proprietorship:

Features of a Sole Proprietorship:

1. Single Ownership: A sole proprietorship is owned and operated by one person, who is solely responsible for all aspects of the business.

2. Easy Formation: Setting up a sole proprietorship is straightforward and requires minimal formalities. In most jurisdictions, there is no need for complex legal documentation or registration, although you may need to obtain the necessary licenses and permits for your specific business.

3. Unlimited Liability: The owner of a sole proprietorship has unlimited personal liability for the business's debts and obligations. This means their personal assets, such as their home or savings, may be at risk to cover business debts.

4. Complete Control: The owner has full control over all business decisions, including financial management, operations, and strategic planning.

5. Sole Profits: All profits generated by the business belong exclusively to the owner, after covering business expenses and taxes.

Merits of a Sole Proprietorship:

1. Simplicity: One of the main advantages of a sole proprietorship is its simplicity in terms of formation and operation. There are minimal bureaucratic requirements and paperwork, which reduces administrative burdens.

2. Direct Decision-Making: The owner has complete control over the business and can make decisions quickly without the need for consensus or approval from other stakeholders.

3. Tax Benefits: In many jurisdictions, sole proprietors may benefit from certain tax advantages, including the ability to report business income and expenses on their personal tax return. This can simplify tax reporting and potentially lead to tax deductions.

4. Flexibility: Sole proprietors have the flexibility to adapt their business quickly to changing market conditions and customer preferences without the constraints of a formal organizational structure.

5. Retention of Profits: All profits generated by the business belong to the owner, which can lead to a higher potential for personal income. There are no requirements to share profits with partners or shareholders.

6. Privacy: Sole proprietorships often provide a level of privacy since there is no legal requirement to disclose financial or operational information to the public.

disadvantages, or demerits, 

1. Unlimited Personal Liability: The most significant drawback of a sole proprietorship is that the owner has unlimited personal liability for the business's debts and obligations. If the business incurs debts it cannot pay, creditors can go after the owner's personal assets, including their home, savings, and other personal property, to satisfy those debts. This puts the owner's personal financial security at risk.

2. Limited Capital and Resources: Sole proprietors may face challenges in raising capital for their businesses. Since they are solely responsible for funding the business, their ability to access significant financial resources may be limited compared to larger, multi-owner entities like corporations.

3. Limited Expertise: A sole proprietor may lack expertise in certain areas of business operations, such as marketing, finance, or management. Without partners or a diverse team, it can be challenging to cover all aspects of the business effectively.

4. Limited Growth Potential: Sole proprietorships can be limited in terms of growth potential. With only one person handling all aspects of the business, there may be a limit to how much work one individual can handle, and expansion may require significant personal effort and resources.

5. Business Continuity Issues: A sole proprietorship's continuity is often tied to the owner's well-being. If the owner becomes incapacitated or passes away, it can create disruptions or even lead to the closure of the business unless there is a clear succession plan in place.

6. Limited Opportunities for Employee Benefits: Sole proprietors may have fewer opportunities to offer employee benefits like retirement plans, health insurance, and other perks that larger businesses can provide. This can make it challenging to attract and retain high-quality employees.

7. Difficulty in Raising Funds: Sole proprietors may find it challenging to secure loans or attract investors since lenders and investors often prefer to work with business entities that offer limited liability and a more formal organizational structure.

2. What is Partnership? What are the Characteristics of Partnership form of business organisation.

Ans:- A partnership is a form of business organization in which two or more individuals or entities come together to manage and operate a business with the goal of making a profit. Partnerships are a common and flexible way to structure a business, and they are often chosen when multiple individuals want to collaborate on a business venture. Here are some key characteristics of a partnership:

Formation: Partnerships are typically formed through an agreement between two or more parties. This agreement can be oral or written, but it is highly recommended to have a written partnership agreement that outlines the terms and conditions of the partnership, including the roles and responsibilities of each partner, capital contributions, profit-sharing ratios, and other important details.

Number of Partners: A partnership can have two or more partners, and there is no maximum limit to the number of partners in most jurisdictions. However, some countries may have specific regulations governing the maximum number of partners in certain types of partnerships.

Ownership and Management: Partnerships are usually owned and managed by the partners themselves. Each partner typically has a say in the decision-making process and is responsible for the day-to-day operations of the business.

Liability: In a general partnership, partners have unlimited personal liability for the debts and obligations of the business. This means that if the business cannot meet its financial obligations, the personal assets of the partners can be used to cover the debts. In a limited partnership or limited liability partnership (LLP), some partners may have limited liability, which means their personal assets are protected to some extent.

Profit Sharing: Partnerships distribute profits among the partners based on the terms specified in the partnership agreement. Profit-sharing ratios can vary, and partners may agree on different percentages based on their contributions and roles in the business.

Taxation: Partnerships are typically not subject to income tax at the business level. Instead, the profits and losses "pass through" to the individual partners, who report their share of the income on their personal tax returns. This is known as "pass-through taxation."

Continuity: The continuity of a partnership can be affected by the departure or death of a partner. In most cases, the partnership dissolves or undergoes changes when a partner leaves, unless the partnership agreement specifies otherwise.

Flexibility: Partnerships offer a high degree of flexibility in terms of management structure, profit distribution, and decision-making processes. This flexibility allows partners to tailor the partnership to their specific needs and preferences.

3. Discuss the Merits and Limitations of Partnership Form of Business Organisation.

Ans:- The partnership form of business organization has its merits and limitations. Here are some of the key advantages and disadvantages:

Merits of Partnership:

1. Ease of Formation: Partnerships are relatively easy to form compared to other forms of business entities like corporations. They typically require minimal formalities and paperwork.

2. Shared Decision-Making: In a partnership, decisions are typically made collectively by the partners. This can lead to a diversity of ideas and shared responsibilities, which can be advantageous.

3. Capital and Resources: Partnerships can benefit from the combined financial resources, skills, and expertise of the partners. Each partner can contribute capital, assets, or specialized knowledge to the business.

4. Taxation: Partnerships often have a favorable tax treatment where profits are not taxed at the business level but are passed through to the individual partners. This can result in potential tax savings for partners.

5. Flexibility: Partnerships offer flexibility in terms of management, capital contributions, and profit-sharing arrangements. This adaptability allows partners to tailor the partnership to suit their specific needs.

6. Ease of Dissolution: If necessary, partnerships can be dissolved with relative ease, especially compared to corporations. This provides an exit strategy for partners.

Limitations of Partnership:

1. Unlimited Liability: In a general partnership, partners have unlimited personal liability for the debts and obligations of the business. This means their personal assets can be at risk to satisfy business debts.

2. Limited Capital: The ability to raise capital may be limited in a partnership compared to a corporation. Partners can only invest their own funds or seek additional partners.

3. Conflict among Partners: Differences in opinion, management styles, or goals among partners can lead to conflicts within the partnership, potentially affecting the business's operations.

4. Limited Life: A partnership is often tied to the lifespan of its partners. If a partner leaves or passes away, the partnership may need to be dissolved or restructured.

5. Sharing of Profits: Partnerships require the sharing of profits among partners, which can be a limitation if one partner feels they are contributing more than others.

6. Lack of Capital Market Access: Partnerships cannot easily access capital markets to raise funds through the sale of stocks or bonds, limiting their ability to finance growth and expansion.

7. Lack of Continuity: Unlike corporations, partnerships lack continuity because they rely on the presence and willingness of individual partners. The death or withdrawal of a partner can disrupt the business.

4. Discuss the Different Types of Partners and Partnership.

Ans:- Partnership is a form of business organization in which two or more individuals or entities come together to manage and operate a business with the goal of earning a profit. Partnerships are a popular choice for small and medium-sized businesses due to their flexibility and relatively simple structure. There are several types of partnerships, each with its own characteristics and legal implications. Here are the most common types of partnership forms:

1. General Partnership (GP):

   - In a general partnership, all partners share equally in the management, profits, and losses of the business.

   - Each partner is personally liable for the partnership's debts and obligations, which means their personal assets can be used to satisfy business debts.

   - Decisions and responsibilities are typically divided equally among the partners, but this can be outlined in a partnership agreement.

2. Limited Partnership (LP):

   - A limited partnership has both general partners and limited partners.

   - General partners are responsible for managing the business and have unlimited personal liability for the partnership's debts.

   - Limited partners, on the other hand, contribute capital to the business but have limited liability. They are not involved in day-to-day management and are only liable up to the amount they invested.

3. Limited Liability Partnership (LLP):

   - An LLP combines elements of a general partnership and a corporation.

   - In an LLP, all partners have limited personal liability for the debts and actions of the partnership, similar to shareholders in a corporation.

   - However, partners in an LLP can actively participate in management without risking personal liability for the partnership's debts or the actions of other partners.

4. Joint Venture:

   - A joint venture is a type of partnership formed for a specific project or business endeavor.

   - Partners in a joint venture come together to collaborate on a particular project or venture while retaining their separate identities and businesses.

   - Joint ventures can be temporary or long-term, and the level of partnership involvement can vary depending on the agreement.

5. Limited Liability Limited Partnership (LLLP):

   - An LLLP is a relatively new form of partnership that combines aspects of an LLP and an LP.

   - In an LLLP, both general and limited partners have limited liability, and all partners can participate in management without incurring unlimited personal liability.

6. Family Limited Partnership (FLP) or Family Limited Liability Partnership (FLLP):

   - These forms of partnerships are used primarily for estate planning and wealth transfer within a family.

   - Family members become partners, and assets are transferred into the partnership. The family retains control over these assets while potentially reducing estate taxes.

5. What is LLP ? What are the Features , Advantages and Limitations of Limited Liability Partnership.

Ans:- A Limited Liability Partnership (LLP) is a type of business structure that combines the limited liability protection of a corporation with the flexibility and tax benefits of a partnership. LLPs are typically used by professionals and small to medium-sized businesses in various industries. Here are some key features and advantages of Limited Liability Partnerships:

Features of LLP:

1. Limited Liability: One of the primary features of an LLP is that it offers limited liability protection to its partners. This means that the personal assets of the partners are generally protected from the business's debts and liabilities. Partners are only liable to the extent of their capital contribution to the LLP.

2. Separate Legal Entity: An LLP is a separate legal entity from its partners. It can own property, enter into contracts, and sue or be sued in its own name. This legal separation provides added protection to the partners.

3. Flexibility: LLPs offer flexibility in management and ownership. Partners can define the terms of their partnership in an LLP agreement, allowing them to customize the structure and rules governing the partnership to suit their needs.

4. Pass-through Taxation: Like a traditional partnership, an LLP typically does not pay taxes at the entity level. Instead, the profits and losses of the LLP pass through to the individual partners, who report them on their personal income tax returns. This can lead to potential tax advantages, especially when compared to corporations.

5. Limited Compliance Requirements: LLPs often have fewer regulatory and compliance requirements compared to corporations. This can reduce administrative burdens and costs for the partners.

Advantages of LLP:

1. Limited Liability: The primary advantage of an LLP is the limited liability protection it offers. Partners' personal assets are shielded from the business's debts and legal obligations, reducing their financial risk.

2. Flexibility in Management: Partners have the freedom to structure the LLP as they see fit, which can be particularly advantageous in professional service industries where specific management structures are required.

3. Tax Benefits: Pass-through taxation can lead to tax benefits because profits are only taxed at the individual partner's level, potentially resulting in lower overall tax liability.

4. Credibility: Having "LLP" in the business name often conveys credibility and professionalism to clients, investors, and other stakeholders.

5. Easy Transfer of Ownership: LLPs can often facilitate the transfer of ownership interests among partners, making it easier to admit new partners or transfer ownership to heirs.

6. Limited Compliance: LLPs usually have fewer regulatory requirements compared to corporations, which can reduce administrative burdens and costs.

Limitations of LLPs:

1. Limited Liability Not Absolute: While LLPs provide limited liability protection, this protection is not absolute. Partners can still be personally liable if they engage in wrongful or fraudulent actions or personally guarantee business debts. Additionally, some professions may have specific regulations that affect the extent of limited liability.

2. Complex Formation: Setting up an LLP can be more complex and time-consuming than forming a sole proprietorship or a general partnership. It typically involves registration with government authorities and the drafting of an LLP agreement, which can be legally intricate.

3. Regulatory Compliance: LLPs may have fewer compliance requirements compared to corporations, but they still need to adhere to various regulations and reporting requirements. Failure to do so can result in penalties and legal consequences.

4. Less Attractive for Raising Capital: LLPs are often not the preferred choice for raising capital through the sale of equity, as the ownership structure and the ability to issue shares are limited compared to corporations. Investors looking for ownership and voting rights may prefer other business structures.

5. Limited Continuity: In some jurisdictions, the death, retirement, or withdrawal of a partner can lead to the dissolution of the LLP unless the LLP agreement specifies otherwise. This can disrupt business operations and require reformation.

6. Tax Complexity: While pass-through taxation is an advantage, it can also lead to complexity in tax planning and compliance for partners, especially if the LLP operates in multiple states or countries.

7. Professional Restrictions: In some regions, LLPs may be restricted for use by certain professionals, such as doctors, lawyers, and accountants. These professionals may be required to form specific professional entities instead.

6. What is Joint Hindu Family or Hindu Undivided Family ? What are the Features and Merits of HUF.

Ans:- A Joint Hindu Family (HUF), also known as a Hindu Undivided Family, is a unique form of business organization and family structure recognized under Hindu law in India. It is primarily associated with Hindu families but can also include Jain and Sikh families. Here are some of the key features and merits of an HUF:

Features of HUF:

1. Formation: An HUF is formed automatically by Hindu, Jain, or Sikh families when they live together, share a common ancestry, and jointly own and manage family property.

2. Common Ancestral Property: The core feature of an HUF is joint ownership of ancestral property, which is passed down from generation to generation. This property is considered the common property of all members of the family.

3. Karta: The HUF is managed by the eldest male member of the family, known as the Karta. The Karta has significant decision-making authority over the family's financial and business matters.

4. Co-Parceners: Members of the HUF who have a birthright to the ancestral property are called co-parceners. Traditionally, sons and grandsons (up to three generations) are considered co-parceners, but this can vary based on regional customs and legal interpretations.

5. HUF Business: HUFs can engage in various businesses and investments using the income from the family property. The income generated is considered the income of the HUF, not of individual members.

Merits of HUF:

1. Tax Benefits: HUFs enjoy certain tax benefits in India, such as separate tax exemptions and deductions under the Income Tax Act. This can lead to reduced tax liability for the family.

2. Continuity: An HUF ensures the continuity of family wealth and property across generations. The ancestral property remains intact and is passed down to succeeding generations.

3. Pooling of Resources: HUF allows family members to pool their financial resources and jointly manage their assets, which can be advantageous for business or investment purposes.

4. Asset Protection: In some cases, HUF property may be protected from creditors and legal claims against individual family members. This can provide a level of security for family assets.

5. Ease of Succession: The HUF structure simplifies the process of transferring property to the next generation without the need for complex legal procedures.

6. Business Structure: HUFs can engage in various business activities, and the income generated is taxed at a lower rate compared to individual income tax rates, providing a potential tax advantage.

Limitations of HUF:

1. Limited Professionalism: Business decisions might be influenced by family dynamics and personal considerations, potentially affecting efficiency. There is possibility of absence of professionalism in decision making.

2. Conflict Potential: Differences among family members regarding business strategies or roles can lead to conflicts, disrupting operations.

3. Gender Bias: The traditional structure often gives managerial authority to the eldest male, limiting opportunities for female family members.

4. Scope for Misuse of Power: Since the Karta has absolute freedom to manage the business, there is scope for him to misuse it for his personal gains. Moreover, he may have his own limitations.

5. Legal Formalities: Complying with legal requirements and tax regulations can be complex due to changing laws and interpretations.

6. Limited Expertise: The skills and expertise available within the family might be limited, hindering the adoption of modern business practices.

7. Succession Challenges: The process of transferring managerial authority from one generation to the next can lead to succession disputes.

7. What is Joint Stock Company ? What are theFeatures of a Joint Stock Company.

Ans:-  A company is an artificial person created by law, having a separate legal entity, with a perpetual succession and a common seal. It is an association of many persons who contribute money or money’s worth to a common stock and employs it for a common purpose. The common stock so contributed is denoted in terms of money and is called capital of the company. The persons who contribute it or to whom it belongs are members. The proportion of capital to which each member is entitled is his share.

According to The Companies Act’ 2013 – “Company means every association of person formed and registered under this Act or any companies enacted prior to the Companies Act, 2013.” [sec.2 (20)]

Characteristics of a Joiny stock Company

The system of joint stock organization is very useful for large undertakings for which large capital is required. It is an incorporated association created by law, having distinctive name, a common seal, perpetual succession, limited liability etc. formed to carry on business for profit. Some of the essential characteristics of a company are given below:

1. Artificial Person: A company is an artificial person, which exists only in the eyes of law. The company carries business on its own behalf. It has a right to sue and can be sued, can have its own property and its own bank account. It can also own money and be a creditor.

2. Created by law: A company can be formed only with registration. It has to fulfill a lot of formalities to be registered. It has also to fulfill a lot of legal formalities in order to be dissolved.

3. Separate Legal entity: A company has a separate legal entity and is not affected by changes in its membership.

4. Perpetual succession: A company has a continuous existence. Its existence does not affected by admission, retirement, death or insolvency of its members. The members may come or go but the company may go forever. Only law can terminate its existence

5. Limited Liability: The liability of every member is limited to the amount he has agreed to pay to the company on the shares held by him.

6. Voluntary Association: A company is a voluntary association. It cannot compel any one to become its member or shareholder.

7. Capital Structure: A company has to mention its maximum capital requirements in future in its memorandum of association. Its capital is divided into shares, which are easily transferable from person to person.

8. Transferability of Shares: The shares of the company are movable property. The shares of a company are freely transferable by its members except in case of a private company, which may have certain restrictions of such transferability.

Advantages of Joint Stock Company:

1. Limited Liability: One of the main advantages is that shareholders' liability is limited to the extent of their investment in the company. Personal assets are protected from business debts.

2. Large Capital Base: Joint stock companies can raise substantial capital by issuing shares to a large number of investors. This capital is crucial for expansion and growth.

3. Ease of Transfer of Ownership: Shareholders can easily buy or sell their shares in the stock market, allowing for smooth transfer of ownership without disrupting business operations.

4. Perpetual Existence: The company's existence is separate from its shareholders. Even if shareholders change, the company continues to exist and operate.

5. Professional Management: Companies often hire professional managers to run the business, ensuring expertise in various areas and freeing shareholders from day-to-day operations.

6. Diversification: Investors can diversify their portfolios by investing in shares of different companies, reducing risk compared to investing in a single business.

7. Enhanced Credibility: Joint stock companies often have a higher level of credibility and reputation compared to other business forms, making it easier to attract customers and investors.

8. Access to Resources: The ability to issue shares and raise capital from the public gives joint stock companies access to a wide range of resources for expansion and development.

Limitations of Joint Stock Company:

1. Complex Formation: Establishing a joint stock company involves legal formalities, documentation, and regulatory compliance that can be more complex than other business structures.

2. Loss of Control: As ownership is divided into shares, individual shareholders might have limited control over company decisions, especially in larger corporations.

3. Shareholder Conflicts: Disagreements among shareholders can arise over management, policies, and objectives, potentially leading to conflicts and affecting business operations.

4. Market Fluctuations: The value of shares in the stock market can be volatile, leading to uncertainty in terms of the company's valuation and shareholders' investments.

5. Dividend Pressure: Shareholders often expect dividends, which can put pressure on the company to distribute profits even if it would be wiser to reinvest them.

6. Disclosure Requirements: Joint stock companies are required to disclose financial and operational information, which might limit privacy and potentially expose sensitive data.

7. Regulatory Oversight: Companies are subject to various regulations and reporting requirements imposed by regulatory bodies, increasing administrative burdens.

8. Risk of Hostile Takeovers: When a substantial number of shares are owned by the public, the company is vulnerable to takeovers by external parties, impacting its direction.

8. What is Co-operative Society – ? What are the Features, Advantages and Disadvantages of Co-operative Society.

Ans:-  Meaning of Co-operative Society: The term cooperation is derived from the Latin word ‘co-operari’, where the word ‘Co’ means ‘with’ and ‘operari’ mean ‘to work’. Thus, the term cooperation means working together. So those who want to work together with some common economic objectives can form a society, which is termed as cooperative society. It is a voluntary association of persons who work together to promote their economic interest.

It works on the principle of self-help and mutual help. The primary objective is to provide support to the members. People come forward as a group, pool their individual resources, utilise them in the best possible manner and derive some common benefits out of it.

Characteristics of Cooperative Society

Based on the above definition we can identify the following characteristics of cooperative society form of business organisation:

(a) Voluntary Association: Members join the cooperative society voluntarily i.e., by their own choice. Persons having common economic objective can join the society as and when they like, continue as long as they like and leave the society and when they want.

(b) Open Membership: The membership is open to all those having a common economic interest. Any person can become a member irrespective of his/her caste, creed, religion, colour, sex etc.

(c) Number of Members: A minimum of 10 members are required to form a cooperative society. In case of multi-state cooperative societies, the minimum number of members should be 50 from each state in case the members are individuals. The Cooperative Society Act does not specify the maximum number of members for any cooperative society. However, after the formation of the society, the member may specify the maximum member of members.

(d) Registration of the Society: In India, cooperative societies are registered under the Cooperative Societies Act 1912 or under the State Cooperative Societies Act. The Multi-State Cooperative Societies are registered under the Multi-State Cooperative Societies Act 2002. Once registered, the society becomes a separate legal entity and attain certain characteristics. These are as follows.

(i) The society enjoys perpetual succession

(ii) It has its own common seal

(iii) It can enter into agreements with others

(iv) It can sue others in a court of law

(v) It can own properties in its name

(e) State Control: Since registration of cooperative societies is compulsory, every cooperative society comes under the control and supervision of the government. The cooperative department keeps a watch on the functioning of the societies. Every society has to get its accounts audited from the cooperative department of the government.

(f) Capital: The capital of the cooperative society is contributed by its members. Since, the member’s contribution is very limited, it often depends on the loan from government. and apex cooperative institutions or by way of grants and assistance from state and Central Government.

(g) Democratic Set Up: The cooperative societies are managed in a democratic manner. Every member has a right to take part in the management of the society. However, the society elects a managing committee for its effective management. The members of the managing committee are elected on the basis of one-man one-vote irrespective of the number of shares held by any member. It is the general body of the society which lays down the broad framework within which the managing committee functions.

(h) Service Motive: The primary objective of all cooperative societies is to provide services to its members.

(i) Return on Capital Investment: The members get return on their capital investment in the form of dividend.

(j) Distribution of Surplus: After giving a limited dividend to the members of the society, the surplus profit is distributed in the form of bonus, keeping aside a certain percentage as reserve and for general welfare of the society.

Merits of Cooperative Society

The cooperative society is the only form of business organisation which gives utmost importance to its members rather than maximising its own profits. The merits of this form of business organisation are given below:

(a) Easy to Form: Any ten adult members can voluntarily form an association get it registered with the Registrar of Cooperative Societies. The registration is very simple and it does not require much legal formalities.

(b) Limited Liability: The liability of the members of the cooperative societies is limited upto their capital contribution. They are not personally liable for the debt of the society.

(c) Open Membership: Any competent like-minded person can join the cooperative society any time he likes. There is no restriction on the grounds of caste, creed, gender, colour etc. The time of entry and exit is also generally kept open.

(d) State Assistance: The need for country’s growth has necessitated the growth of the economic status of the weaker sections. Therefore, cooperative societies always get assistance in the forms of loans, grants, subsidies etc. from the state as well as Central Government.

(e) Stable Life: The cooperative society enjoys the benefit of perpetual succession. The death, resignation, insolvency of any member does not affect the existence of the society because of its separate legal entity.

(f) Tax Concession: To encourage people to form co-operative societies the government generally provides tax concessions and exemptions, which keep on changing from time to time.

(g) Democratic Management: The cooperative societies are managed by the Managing Committee, which is elected by the members. The members decide their own rules and regulations within the limits set by the law.

Limitations of Cooperative Society

Although the basic aim of forming a cooperative society is to develop a system of mutual help and cooperation among its members, yet the feeling of cooperation does not remain for long. Cooperative societies usually suffer from the following limitations.

(a) Limited Capital: Most of the cooperative societies suffer from lack of capital. Since the members of the society come from a limited area or class and usually have limited means, it is not possible to collect huge capital from them. Again, government’s assistance is often inadequate for them.

(b) Lack of Managerial Expertise: The Managing Committee of a cooperative society is not always able to manage the society in an effective and efficient way due to lack of managerial expertise. Again due to lack of funds they are also not able to derive the benefits of professional management.

(c) Less Motivation: Since the rate of return on capital investment is less, the members do not always feel involved in the affairs of the society.

(d) Lack of Interest: Once the first wave of enthusiasm to start and run the business is exhausted, intrigue and factionalism arise among members. This makes the cooperative lifeless and inactive.

Types of Cooperative Societies

Cooperative organisations are set up in different fields to promote the economic well-being of different sections of the society. So, according to the needs of the people, different types of cooperative societies are formed in India. Some of the important types are given below.

(a) Consumers’ Cooperative Societies: These societies are formed to protect the interest of consumers by making available consumer goods of high quality at reasonable price.

(b) Producer’s Cooperative Societies: These societies are formed to protect the interest of small producers and artisans by making available items of their need for production, like raw materials, tools and equipments etc.

(c) Marketing Cooperative Societies: To solve the problem of marketing the products, small producers join hands to form marketing cooperative societies.

(d) Housing Cooperative Societies: To provide residential houses to the members, housing cooperative societies are formed generally in urban areas.

(e) Farming Cooperative Societies: These societies are formed by the small farmers to get the benefits of large-scale farming.

(f) Credit Cooperative Societies: These societies are started by persons who are in need of credit. Credit Co-operative Societies accept deposits from the members and grant them loans at reasonable rate of interest.

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