Types of Business Ownership: Everything You Need to Know

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By: Site Engineer, Staff

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After the entrepreneur has identified all the business opportunities available to him then he can now go ahead to determine the form of business ownership he wants.

Certain things have to be considered, such as the government laws and regulations surrounding the business being planned his plans for continuity, his ability, amount and availability of capital needed and other vital issues.

There are common five forms of business ownership.

These are:

  • Sole Proprietorship
  • Partnership
  • Private Limited Company (LTD)
  • Public Limited Company (PLC)
  • Cooperative Societies

The Sole Proprietorship

This form of business is known as the sole trader or one-man business. The sole proprietorship is the business that is owned, managed, financed and controlled by an individual. This is the commonest, easiest and simplest form of business to establish and dissolve. It is equally the oldest business unit and most popular around the world.

Advantages of Sole Proprietorship

  • The total income and profits belong to the sole owner.
  • He is his Own Boss. He does not have to take orders from anybody. He can start and finish work at his own choice. He has no board of directors to sanction or question his decisions.
  • It is easy to start when compared to the formalities required to start other business types.
  • Freedom of action. The sole proprietor has no restriction as he determines how the business
  • Tax Savings. Since the business is regarded as his private business no tax is paid on the business other than the private one paid by the sole owner thereby saving lax on the business.

Disadvantages of Sole Proprietorship

  • It Lucks Stability and Continuity: The sole proprietor is the business; his personal qualities determine its success: If he falls sick, his business falls sick; and if he dies, the business generally dies also.
  • Limited Financial Resources: There is a limit to the amount of capital he can provide. He cannot borrow from the stock exchange. Lack of access to extra funds may therefore hinder the growth and expansion of business.
  • Risky and Insecure: A one-man business is very vulnerable to trade recessions.
  • Management Difficulties: Most of the sole proprietors have little management abilities-hence they find it difficult to carry on any major change that needs professional management inputs.
  • Unlimited Liability: Although the owner takes all the profits, he is personally liable for all the debts and obligations of the business. He does not have the advantage (which a limited liability company has), of being able to protect himself, by limiting his liability to the capital he has put or agreed to put in the business. Lack of opportunities for the employees due to the nature of the business and character of some owners, opportunities for growth by the employees either not available or possible. This is the reason why some one-man businesses do not have highly qualified employees.

Partnership

A partnership is an association of two or more persons with the common purpose of marking a profit through the pursuit of lawful and legitimate objectives. The people forming the association are called partners and they agree from the short capital each will bring to the business, what specific functions each will perform and how profit will be shared.

These conditions are generally embodied in what is called a deed partnership, which is usually drawn up by a solicitor. This form of business organization is not very popular, except for people in professions, such as solicitors, accountants, engineers, doctors, and management consultants.

Types of Partnership

  • Ordinary Partnership: In an ordinary partnership, each active partner may take part in the management of the business, and each partner is liable the debt of the firm since all the partners have equal contractual powers and responsibilities.
  • Limited Partnership: This is a partnership in which the liability of the limited partner is restricted to the amount of capital he has agreed to contribute to the business. It is very important to note here that in this type of partnership, there must be at least one ordinary partner who is responsible for all the debts of the partnership and who therefore has greater powers, rights and responsibilities than limited partners. The limited partners therefore take no part in the management of the firm.

A limited partnership is very rare for the following reasons:

  • The limited partnership must nevertheless be registered with the registrar of companies.
  • The advantages of limited liability can be better secured through the limited company
  • The right of the limited partner is also limited. Though he can have access to the books of the partnership and offer advice, he is prohibited from taking part in the management of the firm. If he takes part in management, he incurs the same unlimited liabilities as the ordinary partners.
  • Although there may be many partners, there must be at least one ordinary partner.

There are three kinds of partners:

  • Sleeping or Dormant Partner: This partner does not take part in the organization and management of the business. He merely contributes capital to the business.
  • Nominal Partner: This partner only consents to his name being used as one of the partners in the business without having a real interest or contributing money to the business. He may be a retired politician, army or police or a big business professional.
  • Active Partner: An active partner is one who takes an active part in the organization and management of the business. He is normally treated according to the provision of the partnership deed.

Partnership Deed (Agreement)

A partnership agreement is advisable in any partnership. It normally outlines what each partner contributes to the business, be it financial material or managerial.

In general, the partnership agreement defines the role of each partner in the business relationship.

Some of the typical articles contained in a partnership agreement as a checklist to guide one when writing such agreement are shown below:

  • Name, purpose and location of partnership
  • Duration of agreement if known
  • Financial contribution by partners
  • Role of individual partners in business management
  • Authority of partners in conduct of business
  • Nature and degree of each partner’s contribution to the business
  • Bow business expenses will be handled
  • Separate debts
  • Signing of cheques and management of bank account
  • Division of profits and losses
  • Reparation of accounts and recording system
  • Drawings and salaries
  • Absence and disability
  • Death of a partner (Dissolution and winning up)
  • Rights of the continuing partner
  • Sales of partnership interest
  • Settlement or disputes and arbitration.
  • Additions, alteration, or modifications to partnership agreement. How to determine goodwill and calculate amount to be paid on retirement for each partner
  • The method of audit

Dissolution of Partnership

A standard partnership usually has a deed or articles of partnership, which are drawn up to regulate the running of the company.

The subject, however, to whatever terms or agreement between partners in such a document, a partnership is dissolved:

  • By death or bankruptcy of any partner or at the option of other partners, if one partner changes his shares in the property with the payment of his separate debt.
  • If entered into for a fixed term, by the expiration of that term.
  • If entered into a single adventure or undertaking, by the term termination of that adventure or undertaking.
  • If entered into for an undefined time, by any partner giving notice to the other or others of his intention to dissolve the partnership. In such a case. The partnership is dissolved as from the date mentioned in the notice date of dissolution and, if no date is mentioned, as from the date of communication.
  • If the objects for which the partnership business is earned on become illegal, e.g., where the business involves trading with an enemy country or where some partners belongs to an enemy country.
  • On application by a partner, the court may order dissolution of partnership in any form of the following cases:
  • When a partner is adjudged a lunatic.
  • When a partner is incapable of performing his part of the partnership agreement.
  • When a partner is guilty of conduct regarded by the court as calculated to prejudicially affect the carrying on of the business.
  • A partner willfully or persistently commits a breach partnership agreement.
  • When circumstances have arisen in the opinion of the court, which render it just and equitable that the partnership be dissolved.

Advantages of Partnership

  • Specialization: It is equally a method of improving the management of the business since partners specialize in different fields which are normally tapped for the progress of the business.
  • Freedom and Flexibility of Actions: Members of a partnership enjoy freedom and flexibility of actions as against the owners of a corporation.
  • Availability of Capital: It is a method of raising capital since the partners can contribute more capital than an individual (sole proprietor).
  • Access to Capital: Banks are likely to have more confidence in lending 10 a group of people than to one person. Partnership is also more likely to have access to more credits from financial institutions than a sole proprietorship
  • Continuity: The death or retirement of a partner may not necessitate the death of the business. There is greater continuity in a partnership than in the case of a sole proprietorship.
  • Ease of Formation: It also enables new people to be introduced into the business since the formation is easy.
  • Tax Benefit: members of the partnership enjoy tax benefits as they only pay their personnel income taxes.

Disadvantages of A Partnership

  • Delay in Taking Decisions: For policy implementation and decision making; members always wait for their individual consent or opinions. This action slows progress and sometimes good and big opportunities arc missed daring the bureaucratic process.
  • Unlimited Liability: Liability in an ordinary partnership is unlimited. Each partner is liable as a member of the partnership and in his personal capacity, for the debts and obligations of the partnership to the extern a; his personal wealth. This is called joint and several liabilities. It means that each partner can be sued jointly with the other partners, or individually, for the debts and liabilities of the partnership, sometimes even after withdrawal or retirement. The liability in a limited partnership is limited.
  • The Problem of Continuity: The partnership has no perpetual existence. In less provided otherwise in the partnership agreement, the death or resignation of a partner may result in the dissolution of the partnership.
  • No Legal Personality: Like the one-man business, a partnership as such has no legal personality and cannot sue or be sued. The individual within it can still be sued.
  • Cannot Own Property: The partnership cannot own property in its own right. All properties of the partnership arc deemed by the law to be invested in the partners jointly and severally as trustees.
  • Limited Borrowing Power: Partnership borrowing power is limited as it cannot issue debenture and it cannot appeal to the public to take shares. Thus it cannot borrow from the stock exchange. The amount it can raise is limited to the amount the partners can contribute, either from their own resources or by borrowing privately from friends and relations.
  • High Business Risk on Members: Unlike public limited liability companies, which have many shareholders, partnership risk is always concentrated on the few members when such negative risk occurs.
  • Individual Commitment: Each partner can enter into a contract for the partnership which is binding, on the rest of partners.

Regrettably, the partnership has not been able to work successfully in developing countries. This is due to some factors, which always come in the form of tribalism, mistrust, religious fanaticism, greed, poverty, and poor value system.

Limited Liability Company (Ltd)

A Limited Liability Company (Ltd) is a more popular and more common business association, especially where production and trade are required on a large-scale. A company may be limited in a number of ways:

  • By Share: This simply means that the company is formed on the principle that the obligations, that is, the liability to pay debts and other costs, of each member of the company is limited to the value of shares which he has taken in the company. If the member was already paid a part of the value of such shares, then his liability is limited to that portion of the value of the share still remaining to be paid by him.
  • By Guarantee: In this case the members’ liability is limited, by the constitution of the company, to the amount the members have agreed to contribute to the company, if the company winds up and goes into liquidation. In effect the members are placed in the position of guarantees of the company’s debts up to the agreed amount. That company is accordingly described as limited by guarantee. It is important to note that in this type of business organization. It is not compulsory for the members to subscribe or contribute money to the company while it is in operation. Only when it is wound up do the members need to contribute in order to liquidate the debts and liabilities of the company. The law assumes that the working capital of such a company has already been obtained from other sources, such as grants, fees, subscriptions and endowments. It is also noteworthy that no distribution or sharing of profits is contemplated in such companies, and that it is a form of association that is favored by non-profit-making enterprises.
  • Both Shares and Guarantee: This is the most popular and common form of business organization.

A Limited Liability Company can be a private company or a public company. Each type has its own advantages and disadvantages.

Private Limited Company

This is formed to enable a sole trader, a small group of business association or a family to carry on a business. Its most advantage derives from the fact that it gives the business a legal personality and limits the liability of its owners to the amount of capital they undertake to subscribe to the company.

The members of such a company are not personally liable for its losses or other obligations beyond the value of the capital they have undertaken to contribute.

In a nation like Nigeria, the Companies Decree 1968 defines a private company as one whose articles of association:

  • Restrict the right to transfer its shares
  • Limit the number of its members to fifty excluding current and past employees of the company and
  • Prohibit any invitation to the public to subscribe for its shares or debentures

How to Form A Company

To form a company, certain legal requirements must be met before commencing business. The principal condition as enumerated in the Companies and Allied Matters Decree of 1990 (Nigeria) are as follows:

(a)        The Memorandum of Association

This is a company’s charter, which defines the limits to the company’s powers. It regulates company with the outside world and contains the following information:

  • The name of the company with “limited” or “Plc” as the last word where appropriate.
  • The situation of the registered office.
  • The objects of the company.
  • A statement that liability of the shareholders is limited. This Memorandum of Association must be signed by at least two. Case of a private company, or seven in the case of a public company, which must agree to take one or more shares in the company being formed.

(b)       Articles of Association

These are regulations governing the internal management of the company. The articles are subordinate to and controlled by the Memorandum of Association. A public may draw up Articles of Association with the Memorandum. A specimen is include in the companies and Allied Matters Decree, and when a company does not draw up its own, it is implied to have adopted this set of Articles in the Decree known as “Table A”. The Articles of Association lay down rules concerning the problems of management and would include among others the followings:

  • The issue, transfer and forfeiture of shares.
  • Method of dealing with any alterations in the amount of capital.
  • Procedures in cajoling general meeting, and the method of voting.
  • The procedure dealing with the division of profits and the payment of dividends
  • Intimal or document of audit and other internal or domestic affairs of the company.
  • The qualifications powers and duties of the directors.

(c)        Statement of Authorized or Nominal Capital

The Memorandum and Articles of Association are forwarded to the Corporate Affairs Commission together with the followings:

  • A list of persons who have consented to become directors
  • A declaration by a lawyer that the provisions of the Company and Allied Matters Decree have been complied with.
  • A statement of the Authorized and Nominal capital.

The above documents must be deposited with the Registrar General at the Corporate Affairs Commission who will inspect them before allowing the company to commence business by the issue of Certificate of Incorporation.

In addition, the necessary fees and stamp duties, which will vary according to the amount of the authorized capital stated in the Memorandum of Association.

Advantages of a Private Limited Company

  • Unlike a partnership, it has a legal personality and can sue, be sued, and property in its own right.
  • Maximum membership of fifty is greater than the maximum membership of twenty in a partnership. A private limited company can, therefore, raise capital from more members than a partnership.
  • Liability is limited. This means that the private wealth of the owners is protected in case of the insolvency or bankruptcy of the company. This is not the case with a partnership.
  • Unlike the partnership, they themselves can leave the management of the firm to executive directors and exercise control more remotely at the shareholder’s meeting.
  • It is very useful in a family business where the intention is to retain ownership and control within the family while at the same time obtaining the advantages of limited liability.
  • A private company can raise capital by issuing debentures, which a partnership cannot do.

Disadvantages of a Private Limited Company

  • It is difficult to determine the value of its shares.
  • Because its membership is limited to a maximum of fifty, its resources (funds) are limited, e. the number of people it can appeal to for funds is restricted.
  • Because it is not quoted on the stock exchange it cannot raise funds through the stock exchange.
  • Its Articles of Association limit the transferability of its shares. This further limits their marketability.
  • Its shares are not quoted on the exchange. They are therefore less marketable than the shares of public companies.

Public Limited Company (PLC)

While two subscribers may form a private company, at least seven members are requirement for a public company. In addition, while the maximum membership of a private company is fifty, there is no maximum number fixed tor a public company. Before such a company is incorporated in Nigeria, for example, the subscribers must file two major documents with the Registrar of Companies. One is the Memorandum of Association and the other is the Articles of Association.

Advantages of a Public Limited Company

The advantages of the public limited company are:

(i)         Limitation of Liability, like the private limited company

  • The member’s obligations are limited to the value of the shares he has undertaken to subscribe to the company.
  • His personal wealth or assets cannot be encumbered the company’s debts beyond the unpaid value of his shares in the company.
  • His personal wealth or assets cannot be encumbered with the company’s debts beyond the unpaid value of his shares in the company.

(ii)        Borrowing Powers, these are greater in a Public Limited Company

  • It has a legal personality it can sue and be sued, unlike the sole trader and the partnership.
  • It can own property in its own right.
  • Lenders can take a floating charge over the whole assets of the company. In this way, lenders can obtain effective undertakings and assets of the company. A floating charge cannot be taken on the assets of a sole proprietor or a partnership in Nigeria because such undertaking do not and cannot own property and because of restrictions imposed by the Bill of Sales Act.

(iii)       Wealth Distribution

  • The public limited company affords individuals the opportunity of becoming wealthy through share purchase in good companies. These individuals ordinarily would not have been associated with those companies if not for shares obtained.

(iv)       Potential for growth, this is greater in a Public Limited Company

  • It can raise more capital; because of this, and because public limited companies are large they can also.
  • Take advantage of economies of scale.
  • Bear much more easily the costs of raising funds, or quotation on the stock exchange and of employing financial and other consultants.
  • Buy and sell in large quantities, they have a greater bargaining power in relationship to producers, buyers and financial institutions than the sole proprietor, the partnership or the private limited company.

(v)        Capital Cannot be Withdrawn

  • Usually in the public limited companies, capital cannot be withdrawn once contributed. When a shareholder wishes to withdraw from the company, he has to transfer his share to another willing buyer via stock exchange market.

(vi)       Greater Facilities for Raising Additional Capital, because, unlike the one-man business, the partnership and the private company

  • It can appeal to public to subscribe to its shares.
  • Its shares are quoted on the stock exchange.
  • The absence of restrictions on their transferability makes its shares more marketable.
  • Although it has a maximum of seven members, there is no maximum limit to the number of its shareholders.
  • The value of its shares is more easily ascertainable.
  • As a result of all these factors, it can appeal to virtually the whole world to subscribe to its capital, compared with the partnership whose maximum membership is twenty, or the private limited company whose maximum membership is fifty.

(vii)      Stability and Perpetuity

  • Unlike a partnership, it cannot be dissolved, because of the death, resignation or bankruptcy of a member.
  • Unlike a one-man business, it has continuity of management, because it does not fall sick or die because the director has died.
  • Unlike the partnership and the sole proprietor, it has a legal personality; it can sue and be sued.

(viii)     Risk Diversification

  • Due to the flexibility occasioned by easy entry and exit being enjoyed in the public limited company share ownership, it becomes easy and possible for an investment, in many companies all over the country, thereby diversifying his business risk by not putting all his eggs in one basket.

Disadvantages of Public Limited Companies

  • Formalities and Expenses: Public companies are more difficult to form because many formalities and documents are required and initial costs are high especially of being quoted on the stock exchange.
  • Conflict of Interest: The conflicts of interest between shareholders and the Board of Directors or between the top management and the board of directors are always rampant. Shareholders are always interested in their dividends and may not want to hear any story on business expansion, which the management may insist on carrying out. This situation always brings a conflict of interest and in fighting amongst those involved on the high level.
  • Lack of Privacy: There is no privacy in public limited company because the company must be required to submit a copy of its accounts to the Registrar General Corporate Affairs Commission.
  • Loss of Control: The possibility of a divorce of ownership from control is greater than in private limited company or partnership. When there are many shareholders, each is usually content to leave the company management in the hands of the shareholding executive directors. Only when the company runs in very serious difficulty may shareholders be sufficiently concerned to turn up at annual general meetings to question the management.

The disadvantages notwithstanding, the advantages of the public limited company (or joint stock company as it is often called) are overwhelming. For this reason, it is the most acceptable most popular and the most usual type of business.

Cooperative Societies

This is another form of business organization available for the entrepreneur to choose. Entrepreneurs have the option of joining together to form cooperative societies depending on what they want to do.

This is an organization engaged in the manufacture and distribution of consumer goods, operated democratically for the mutual benefit of its members and customers. Consumer’s cooperative is an enterprise, whose owners are both the customers and users of the facilities as well as goods and services provided.

The business organization where resources are provided together by various cooperators with the view of making a profit is called cooperative society. Normally, people come together out of their own free will to obtain some economic goods and services which would be either too difficult or too costly for them to obtain alone.

The Cooperative Movement

During the industrial revolution there was distress which gave rise to cooperative society formation. The modern cooperative movement places its origin from the opening of a cooperation store in load lane, Rochdale, Lancashire, Britain, in 1844.

The Rochdale plan type of cooperative society was formed by a group of flannel weavers. They organized as the Rochdale Society of equitable pioneers. They developed certain basic principles, which led to the success of the earlier formed cooperative ideas of Robert Owen and others. These principles are collectively known as “Rochdale plan.”

The principles are as follows:

  • Open membership
  • Democratic control (one–man, one vote)
  • Sales at prevailing prices and with patronage dividends.
  • Sales for cash
  • Educational activities

The rise of modem cooperative movement in Africa originated in far-reaching economic social and political changes. In the rural areas, small farmers and other rural entrepreneurs such as weavers, gold smith hunters to mention but a few, were alarmingly indebted to shylock rural moneylenders. These moneylenders exploited the fact that these local entrepreneurs were desperately in need of money to keep their businesses going.

The cooperative organization was formed to:

  • Combat the monopolistic practices of foreign countries.
  • Provide efficient preparation and marketing facilities for export crop producers.
  • Help farmers improve the qualities of their products.
  • Supply needed credit at various levels to the farmers.

In those days the export of Nigerian industrial crops was in the hands of the British firm served by the West African Produce Control Board (WAPCB). This body embraced Ghana, Sierra Leone, Gambia and Nigeria. The producers brought their products in small lots to the local agents who collected and massed them in bulk to the produce examiners at the purchasing centers.

But these individuals were not interested in the welfare of the producers. They paid monopoly prices and did not encourage improvement in quality nor listened to the complaints of the producers. The producers facilitated their own work and improved their bargaining power by forming cooperative societies. These societies arranged for the collecting, buying, and grading and received from the government a subsidy often one Naira per ton of cocoa.

The first of agricultural produce marketing cooperatives was that of Obedun Farmers near Ibadan. It was registered on the 19th August 1937. Following the multiplicity of these societies, the need was felt to them so that they could benefit from the economic advantage of large-scale marketing in 1939. The first area Federation of cooperative society was registered as the Ibadan Cooperative Produce Marketing Union. The Ife Union, the Ilesha and Ijebu Union registered in 1945 to 1944, there were 176 Agricultural produce marketing cooperatives with 12,340 members. They marketed 9,800 tons of cocoa that year. Other crops marketed were: cotton, palm kernels, rice rubber and yams. Of the 176 societies existing, 90 were in Uyo province, 55 in Ondo, 24 in the Cameroon, 12 in Benin, 8 in Abeokuta, 5 in Ijebu and 2 in Owerri.

These activities of the Agricultural produce marketing cooperatives slowed down after the Second World War. In order to reactivate the four marketing unions, existing in Ibadan, Ife, Ilesha, and Ijebu-Ode were merged into the Association of Nigerian Cooperative Importers Ltd.

Thereafter cooperatives marketing societies were either exporting or none exporting depending on whether they were affiliated or not. The non-exporting societies were those located in Benin and Warri provinces. In the former Eastern Region in Nigeria, 33 marketing societies were in existence in the 1950s. These societies were located at Umuahia, Ikon, Manfe and Kumba. They were, however, engaged only in cocoa marketing during this period approximately twenty-nine of them were located in Cameroon.

These first two palm produce-marketing societies were registered in 1953. Their success led to the multiplication of palm produce marketing societies. By 1962 these societies provided 90 percent of Nigeria’s total largest export of Palm Kernel and palm oil, between 1967 – 1970, however, the activities of the palm produce marketing societies came to standstill due to the civil war.

In the Northern States of Nigeria, the development of cooperatives progressed very slowly. This was attributable to three main factors.

  • Poor transport and storage facilities
  • Lack of credit facilities
  • Shortage of managers

However, with government aid, the rapid growth, which resulted, was tremendous. Between 1961 and 1962, there were 25 cooperative unions, which handled some 20,000 tons of groundnuts 5,000 tons of cotton 2,000 tons of palm kernels, 2,000 tons of Soya beans, 1,500 tons of beniseeds and 5500 tons of cocoa. Their continued progress superseded that of the southern states.

The cooperative societies have since been modernized and even many cooperative banks have been established throughout the country to offer financial assistance and encourage members of the public who operate accounts with them.

Characteristics of Cooperative Society

  • Cooperative societies are normally registered with the Registrar of Cooperatives.
  • They always have to elect policy marketing officials who in turn employ\managers.
  • They raise capitals by charging themselves.
  • They distribute part of the profits to their members according to an agreed procedure.
  • They can borrow from financial institutions like Limited Liability Company.
  • Each member is only allowed one vote irrespective of the shareholding.
  • No proxy voting during meetings.

Types of Cooperative Society

There are two main types of cooperatives, namely: Retailer Sponsored Consumer Cooperatives and Wholesaler-Sponsored Cooperatives.

Others include:

  • Producer Cooperative Society
  • Consumer Cooperative Society
  • Cooperative Banks
  • Estate Developers’ Cooperative Societies
  • The Thrift and Credit Cooperative Societies

Wholesale Cooperative Society

Each member of the cooperative is responsible for his output. They serve the retail societies with a high proportion of their goods requirements, using their own transport. They engage in advertisement for the movement as a whole. This joint marketing is of tremendous benefit to members. It is possible for the cooperative society to obtain better prices and also have better storage facilities and transport than each individual member could provide.

Retail Cooperative Society

This type buys from the wholesale cooperative society and other sources in order to stock wide variety of goods. The goods are then sold to members at a price cheaper than the market price.

Producer Cooperative Society

This is a combination of producers who usually pool their produce together. Each member must sell his or her produce to the society, who will in turn sell to the public either wholesaler and/or on retail basis at a profit.

Consumer Cooperative Society

This is normally the end of the chain of production. Members of the customer cooperative usually get a membership discount, since the cooperative shops usually sell to all customers at regular prices. The major objective is to enable members obtain lower prices than they might be able to obtain if they bought at a regular shop.

The Thrift and Credit Cooperative Societies 

In these societies, the members’ resources are pooled together to help them cultivate saving habit and thus create avenues for cooperators to borrow money at reasonable rate of interest. When members need loans, they ask the cooperative for assistance. The society will then pool the members’ savings for investment. Members can withdraw or borrow when they wish.

Advantages of Cooperative Societies

  • Through organized workshops for members, they become educated and aware.
  • Members are helped to borrow money at a cheaper rate for their economic development.
  • They normally have ready market hence no money is spent on an advertisement for their goods.
  • The openness of the membership brings more funds to the societies and members.
  • Members can withdraw when they wish, even at a short notice.
  • There is always an easy control of demands and supplies since they are already known, unlike private ones that have occasional customers.
  • Members have equal voices despite their contributions.
  • They help their members to cultivate saving habits through thrift and credit societies.
  • Members are helped to acquire some gain, which they could not otherwise acquire, through easier access to credit, better storage facilities, better prices, and others.
  • Members are not likely to be cheated because of their combined talents, goods, and wealth unlike when they are alone.

Disadvantages of Cooperative Societies

  • Through easier capital withdrawal by members the progress of the society can be hindered.
  • Many members are neither interested in the management of society nor attend meetings.
  • There may be inefficiency in society’s management due to the poor qualification of the management team.
  • The nonchalant altitudes of the members may affect their elections, which may make unpopular candidates to emerge, which will, in turn, affect the general management of affairs.
  • Cooperative societies cannot soil their shares in the stock exchange.

Prospects of Cooperative Societies

The African Cooperative Societies were established on very bold and laudable objectives.

  • Combat Unemployment: The unemployment situation in developing countries has continued to worse despite the efforts made by the cooperative societies to combat it. On the contrary many farmers arc discouraged to farm the lands because of the poor profits realized from the sale of their products. Instead of cultivating the land, they have abandoned the farm m search of non-existent jobs in the towns.
  • Combat Rural Exodus: The government saw the establishment of cooperative societies as one way of keeping able-bodied men and women in rural areas. However, the rate at which these able-bodied men and women desert the rural areas and stream into the over populated cities in search of jobs causes’ great concern to the government.
  • Improve Quality, Skills, and Techniques: With the establishment of cooperative societies, farmers, craftsmen, and even petty traders are motivated to improve the qualities of their products and service. They receive expert advice on the techniques and modem equipment to be used.
  • Improve the General Standard of Living: Farmers and craftsmen obtain better prices for their goods through cooperatives. A sense of saving is inculcated through active involvement in the thrill and loans societies. Consequently, the standard of living and incomes of the fanners, craftsmen, and workers are improved.
  • Encourage Rural Development: Through government loans and rural support, cooperative societies are able to establish many small-scale industries in many parts of the country. They also provide their respective localities with basic necessities such as pipe-born water, electricity and sometimes roads. This is evident in the western states where the cocoa farmers’ societies have been instrumental to many development projects in the villages.
  • Encourage Effective Utilization of Vast Commercial Land: Communities are encouraged to organize community farming along cooperative lines. They are supplied with extension staff, planting materials and equipment by the government. Government contributes 50 per cent of the establishing each community cooperative project. This helps farmers to make use of these vast commercial lands lying fallow.
  • Conserve and Improve the National Income: Farmers and craftsmen produce more for local consumption and for export because of the government. The improved quality of product attracts higher prices for the products produced. It also encourages local consumers to buy locally. The national incomes are conserved through savings and the establishment to local industries by cooperatives.

Problems of Cooperative Societies

  • Poor Cooperative Education: The staff, the cooperators and the general public are not sufficiently educated as to the objectives of and the benefits derivable from cooperative societies. This situation has resulted in a lack of interest and poor cooperative activities.
  • Lack of Capital: The activities of cooperative societies, at every level, are seriously handicapped by insufficient funds. The loans obtainable from the government and through subsidies are inadequate. Many enterprises businessmen are unwilling to part with their money in unprofitable activities of cooperatives.
  • Land Tenure System: The problem of land tenure is more evident fanners’ cooperative societies, where the farmers find it difficult to acquire enough land for their farming activities. The land tenure system that exists in many parts of Africa is not conducive for elaborate farming.
  • Managerial Inefficiency: In Africa the establishment of cooperate societies was not well planned. Consequently, the cooperative staff who are to give expert advice are untrained, inefficient and inadequate. Members of cooperative societies who serve on the boards of management are preponderantly illiterate. They lack managerial efficiency especially in consumer cooperative.
  • Mismanagement of Funds: The cooperative staff manipulates and deals with illiterates who cannot understand the records and accounts’ statements of the cooperative societies. The staff has little or no consideration for the cooperators. In the former western region. Discovered that money realized by the cocoa farmers’ cooperative societies was diverted to political campaigns.
  • Lack of Interest on the Part of Cooperators: The success of cooperatives depends to a large extent on the attitude and support of members. Members have been found to be interested only in their personal business and consequently leave the running of their societies to dubious officials.

Reasons for the Failure of Consumer Cooperative in Developing Countries

Despite the unsuitable social and economic conditions at the beginning of the cooperative movement, the agricultural producer cooperatives met with some success, while the consumer cooperative has a failure.

  • Failure to make wholesale purchases from the importing firms. The limited financial resources at their disposal caused this. They were also not credit worthy, as many of them had no collateral securities.
  • Selling on credit and below market prices. Due to one of the principles of cooperatives, members dabbled into selling on credit and below the prevailing market prices.
  • Lack of trained supervisory staff: Because consumer cooperative was introduced prematurely in Nigeria, no effort was made to train supervisor staff.
  • Strong competition from a large number of market women and retail stores: The market women and retail stores looked at the consumer cooperatives as their major competitors. They did everything possible to frustrate their activities, including selling below cost price, forming buying groups and buying large quantities of goods at cheaper prices.
  • Members of consumer cooperatives had strong petty trading interest and often bought for resale rather than for consumption.
  • Lack, of mutual trust among members of all consumer cooperatives. In almost all business enterprises involving more than two persons in Nigeria, there is always a lack of mutual trust and understanding among members. Each partner tries to dupe his other partners in the business. The consumer cooperatives faced this problem from their existence.
  • Members were disloyal to their societies: They preferred to buy where the prices, were cheaper or where the products involved were of personal interest to them. Consequently, consumer cooperatives suffered from poor annual turnover.
  • Members Ignorance regarding, the basic purpose of consumers’ cooperative societies: Because many members of the consumer cooperative were illiterates, it was difficult; to educate them on the purposes of the societies. Singularly enough, the officials who were supposed to educate the members were themselves poorly trained and inexperienced.
  • Failure to keep records and accounts up to date. The members who were appointed to keep these records were not knowledgeable in accounting principles and procedures.
  • Members were unwilling to share in the management of their society because many members had their own private business and others employed in government and private establishments, they could not participate actually in the representing of their cooperatives.

This article has detailed and analyzed different forms of business ownership, and also explained in detailed about their salient forms and operations. The entrepreneur is now at liberty to choose which one for his business set-up. There are certain inherent advantages and disadvantages, which were clearly explained to help the entrepreneur weigh adequately the benefits of the one to choose.

 

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