You must have heard a lot about cooperative societies in various movies or shows. Let's know what they exactly are and some legal provisions associated with them.
A co-operative society is a business organization with a special mode of doing business, by pooling together all the means of production co-operatively, according to the Co-operative Societies Act, 1912. Few examples are Mother Dairy and Amul.
There are a few legal provisions that a co-operative society has to abide by, let's have a look at them.
1. Restrictions on share holdings: Any member of the co-operative society, whose liability is limited, is not allowed to hold shares of the same society exceeding 20% of the total number of shares of the society. Also the value of total shareholding in the society must not be more than Rs. 1000. For better clarification, for example a cooperative society has 250 shares of Rs. 100 each outstanding. In this case, any member can hold a maximum of 10 shares of the society(minimum of 20% of total shares and Rs. 1000).
2. Restrictions on Borrowings and Loans: Section 30 of the Co-operative Societies Act specifies that a registered society can accept loans and deposits from any person, be it a member of the society or not. But at the same time , section 29 puts a restriction of making loan to any person other than a member of the society. However, a registered society may grant a loan to another registered society, but only by a special sanction of the registrar.
Thus, a cooperative society is not allowed to grant loans to any person other than a member, but it can accept loans from any person.
3. Appropriation of Profits: The Central Act also specifies the cooperative societies to transfer a prescribed percentage of profits to reserve fund, before it can be distributed to the members as dividend or bonus.
4. Contributions to Charitable Purposes: Cooperative societies can also donate amounts for charitable purposes, but only after the sanction of registrar. The amount so donated must not be greater than 10% of the net profits of the society remaining after transfer to compulsory reserve fund. For better understanding, let's say a society has net profit of Rs. 100,000. It has to transfer 25% of its profits to the reserve fund. Then the society can donate a maximum of Rs 7500 towards any charitable purpose, after the sanction of registrar i.e. 10% of (100,000-25,000).
5. Investment of Funds of the society: A cooperative society can invest its funds in the following:
In the Central or State Co-operative Bank
In securities specified in section 20 of the Indian Trusts Act,1882. (Refer Glossary)
In shares, securities bonds or debentures of any other limited liability society.
In any other cooperative bank , as approved by the registrar of societies.
In any other moneys permitted by the Central or State Government.
6. Investment of Reserve Fund: The amount which the society has compulsorily transferred to the reserve fund, can be utilized in the following ways:
In the business of a society, as working capital.
For some public purposes which is likely to contribute to the object of the society.
May invest as per point 5.
Thus, these are some of the significant provisions needed to be complied by the cooperative societies for their effective management and operation.