Principles of Cooperative Organization

A cooperative undertaking or organization is a voluntary association of individuals for the common interest of its members. It is formed for conducting some business activities. It is a protective device used by the economically weak persons of the society to safeguard their common interest against the exploitation of economically strong.

The cooperative may thus be organized not for earning a profit as the main motive but with the basic object of organizing to render services to its members. It is a democratic form in which the consumers are the owners and managers. Mr James says that cooperation is self-help made effective by an organization.

Principles of Cooperative Organization

The following are the fundamental principles of the cooperative organization (cooperative societies).

Voluntary Association

It is a voluntary association of persons where there is no restriction for its membership. Any person can become a member of society and can leave it at any time after due notice to the society.


The capital of the society is generally divided into a number of shares of equal value. In this form of organization, all members enjoy equal rights of ownership and consider equal voice in the management of the cooperative enterprise.


Its members must not be dishonest and selfish. All the activities must be carried on honestly and fairly.

Cash Terms

Generally, the goods are supplied to its members on a cash basis. To deal on credit term is strictly prohibited. This tendency creates the habit of thrift among the members and saves the cooperative society from bad debts and keeps members out of unnecessary losses.

Self Services

All the administrative and business activities are conducted by the members themselves. Salaried persons are also employed but they have no voice in the management.

Distribution of Surplus

In principle, the cooperatives do not distribute their profit according to the capital held by the shareholders.

But the surplus earned by a cooperative is contributed to the following sectors.

  • At first, a moderate rate of interest on capital is provided to individual members.
  • Some portion of the surplus is spent on social and welfare activities of the members.
  • Some amount is transferred to reserve fund for strengthening the institution.
  • Another portion of the surplus is utilized for the payment of bonus to the employees.
  • In the case of consumers cooperative society, the surplus may be distributed among the members on the basis, of the purchases made by them.


It is a democratic form of organization where every member is allowed to participate in the management of the business. “One member, one vote” is the basic principle of a cooperative organization and therefore managing committee cannot over look any section of members.


All the activities of the society must be carried on economically and unnecessary expenditure and wastage are to be avoided.

Spirit of Sacrifice

The cooperative society must be based on the principle of all for each and each for all. There must be spirit of self help and mutual help amongst the members.

Service Motto

It is a form of business house not with the profit as the guiding motive but with the primary object of rendering maximum services to its members.


There must be trust and confidence among members for the successful operation of the society. The members must be united, associated while taking any decision regarding certain matters.

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