Forms of Business Units 3

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


-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-perative 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.


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.


• 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.


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 cooperative society and City-chicken consumer co-operative society


• 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


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 cooperative 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 cooperative 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

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