118

CHAPTER-9

LIQUIDATION OR WINDING UP OF
A JOINT STOCK COMPANY

1. What is winding up or liquidation of a company?

2. What is Modoraba?
3. What is Musharikah?
 PTER-9LIQUIDATION OR WINDING UP OF A JOINT STOCK COMPANY 119

LIQUIDATION OR WINDING UP OF AJOINT

STOCKCOMPANY
1. WHAT IS WINDING UP OR LIQUIDATION OF A COMPANY?
By winding up of a company is meant the end of the ife of a company It is the permarert
closing down of its business A company is the creature of law. It, therefore. cannot de
natural death. The termination of its existence is affected by law. Thus winding u o
the company is a legal procedure in which all the affairs of the company are wound
ne
Itsassets are sold out and claims of the creditors met out of sale
proceeds.
of their shareholdings
balance if any, Is distributed among shareholders in proportion
the liquidator:
This work is done by
Methods or modes of Winding up.
Acording to the Companies Ordinance 1984 a company can be wound u

following three ways

Winding up by Court
(0)
() Voluntary winding up
to supervision of the court
(un) Winding up subject
briet
These three modes
of winding up a company are
now discussed
in
1-Winding up by Court.
as under
-

for winding up by the court are

The main grounds
the company to De
resolution. A special resolution nas been passed by
9 By special
wound up by the court
on e
report. A public
company s wounc u
(i) Default in delivering statutory repot to he
and submitted starutory
that it has not held (a) statutory meeting
ground annuai generai meetings
wo consecuitive
registrar (b) has not held a public company
commencement of business is another ground. it or
(un) Delay in yeear or tne date
or ts incorporaton
business within one
does not c o m m e n c e order its winding up
the court may
Suspends business for a whoe year. up s
De wound
below
A
minimum.
company
pubic maypvate
(Iv) Members reduced company L
below Seven (LeSS
tnan wO n case
D
members are reduced t s rovec
wound up by the court
may be
() Failure to pay debt.
A pubic company
Its debts.
nat t i s unable to pay t t ceases to
1ne c o u t may
wind up 3 company
company.
Ceases to bea listed
VI
be a listed company
company.
-Voluntary winding up of a
is of two
kinds

of the company
ne
voluntary winding up
winding up
(a) Members voluntary
up
(D) Creditors voluntary winding
120 INTRODUCTION TO BUSINESS

(a) Member Voluntary Winding up

in case members rtarI wndng up e drectors deciare in_ the meetng o
varetaiders r a e umcary s f ter kaucation The company s sovent e eetng then
passes a resoition tor volurtary wrdng and appointquidator themseives The voluntary
wridng u t r e comgany ty e members tremseves may taxe piace under the following

rcumstares
1. E x p i r of period. # the perod fxed tor the duraton of the company in the Articles
tas expirec. h e tompany may De wound up voluntarnily by passing à resoiuion in the genera

eeting
2. By special resolution. t h e company resoves by a special resoluion that the

am pany be wound up e com pany th wi be Dut to an end

3. Declaration of solvency. the ma,orty of drectors in a special board meeting

u r e company and submit a

statutory deciaration veritied by the
companys
to w
audtor o
eove the Regstrar of tre joint stock companes that the company (a) has no debts (b) is
atie to pay t s detts in u l wthun a penod not erceeding one year from the commencement ot

wnding up

4. Appointment of liquidators. The company n general meetng ot the shareholders

ral aptont one or more liqudators for the purpose of winding up the attairs and distributng
tre assets oft the company The sharenoidersfox the remuneraton to be pad to the liquidator
On the appantrment of iquidator all powers of the drectors and other oticers ot the company
shall cease except so tor as the company in generai meeting or the liguidator sanctions the
Powers to remain with them

5. Final meeting and dissolution. When the atfars of the company are finally wound
p the qudator shal calla generai meetng of the sharenoiders and place before them the
tull accounts of the company and send its copy to the Registrar within one week Of the
meeting The company shal be dissolved on the expiration of three months on the receipt ot
the copy of account and other reilevant documents from the liquidator
(b) Creditors Voluntary Winding up.
A winding up in
the case of
whuch a declaration of has not been delivered
solvency to tne
reg strar is known as Creditors Voiuntary Winding up The company calls a meeting ots
credtors and appoints a liquidator When liquidation is complete. the liquidator calls the tins
meetng of the company and the creditors and places before them the full account A cOpy o
his report is also sent to the regstrar The registrar on receiving the accounts and other
documents takes the action of dissolution of company as laid down in the Companies
Ordinance
I1-Voluntary Winding Up Subject to Supervision of Court.
ACCording to Companes Ordinance a voluntary winding up of a company can also pe
carned under the sthict Supervision of the court When a company has passed resolution o
voluntary winding up the court may of its own motion or on the appication of any perso
entiuea to appiy to the court tor winding9 up of a company makes an order that volunta

to the cou
winding up sral contunue Dut Subject to creditors contributors or others to apply
and generally on such terms and conditions as the court thinks just

Grounds for issuing "Supervision order".

1The liqudator performs nis dutes in a partal manner
2 The liquidator does not stricty observe the rules for winding up the company
CHAPITENY : LIQUDATON OR WINDING UP OF AJOINT
STOCK COMPANY 121
3The liquidator is not
taking Keen interest in
4 The winding up resoluion 1s realizing the assets of the company
obtained by fraud
2. WHAT IS
in an islamic systen, tnere is
MODARABA?
piace
rombined with skil and bothno are to work
tfor the capital to be
given on interest Capital st
anoement in
Halal
on
profit and loss shaning
bass
arrangem
DusineSS
technicaly caned Modaraba
wherein capital is
combined with knowledge and skil is
Definition of
Modaraba. Modaraba means a business in which the
Zarib) participates wn nis money and an other (Modarab) with his effortssubscrider or 5K or
koth hhis efforts and skill and shall include Unit Trusts and Mutual Funds
both
by wnatever
ne called. Ine prot eafnea during the year are distributed
ame
among the financIers ao
entrepreneurs accoraing to thne agreed ratio. in case of loss, it is shared among the hnanciers
proportion to ie capa invested in the business. it losses occur due to the negigence or
modarab (managimg rusteE) or there is a breach of the terms of agreement by him, then e
losses will ais0 o e Dy him. Modaraba is an effective device for raising of large amounts
of resources for prOoUcuve purposes in place ot joint stock companies. A MOdara0a s a
erson It can sue and De sued in its name through the modaraba company The government

of Pakistan promuigated the Modaraba Companies and Modaraba (Floatation and Control)
Ordinance in i960. tne main reatures of this are as under.-

Registration of Modaraba Companies.

1. A company is registered as "modaraba Company". The main conditions of eligibilty
for registration as Modaraba Company are as under-
) It should be a company (private or public sector) registered under Companies
Ordinance or any other law in force.

() If a company undertakes floatation and management of Modaraba, then its paid up

capital shOuld not be less than Rs. 5 million
and sSKill 1or on the
n) The promoters ot the company should have knowledge carrying
businessS.
not be insolvent, convicted of fraud by
(V The ofice bearers of company should
the
cOurt or invoived in breach of trust.

Conditions for Modaraba Companies.

in any business of the same
nature in
The modaraba company shail not engage in
with the modaraba fioated by it.
The
modaraba company shall subscribe
cOmpetiton than ten percent of the total amount
offered for
each modaraba floated by it not less

Subscription shall not take loans

or their relatives
modaraba company
n e directors and officers of the
fom Modaraba fund or against ts
securn (b) baiance sheet (c)
(a) protit and loss accOunt
MOdaraba company shall provideModaraba Cerdicare nofders within 5 months
of the
to
s and the company's report
ciose of the accounting perioo scholars
(2 religious
board comprising o tree persons
an u s Board. A religious set up This Board wigive ciearance to each Modaraba
has been
ha e
e of High Court) is permissible
under and
shariah Halal
economic activity undertaken
HAPTER-9-- LIQUDAION OR WINDING UP OF A JOINT STOCK COMPAN
*****
123
orm of capital and 1a pour he participation wil come into existence through Mushankah
eestment Agreement to be erntered into between the Bank and the Parny
3 The Mushankan Investment shal be used only for financing the raquirements of
working capitai o e eaparues trom Trade & Industry in the Corporate Sector
in the Musharikah Venture shal be in the ratio
4 Investmentenvestment of funds
agreed upon Deween me Bank and thepparty.

5 Management: while the entire

management and operation of the musd
remain witn the party. the Bank shall evaluate. supervise and monitor its
venture shal
ven
pertormd
ance
Sharing of Profit.
The Bank has been allowed complete
a flexibility negotiations with their cliens vis-d
in

sthe eweigntage,
Otion the itmanagement fee, sharing ratlo of the remaining profit and
wherever is applicable
b) Sharing or profit befween the Bank and the party is determined on the projected
protit forecast
(c) The ratio ot profit havin9 been agreed to the management fee could be detemined
varying with the profit projections

(d) After
the
providing for the management fee, the remaining profit is distributable berween
Bank and clients basis of their respective funds
on the
employed in the Venure
ia sharing ratio of profit, after payment of
Product basis The
MANAGEMENT FEE, shail not be alterable.
e) the profit achieved by the party is more than the profit projections given
Bank may, in ts own discretion, allowed "good management fee" at higher rate than earlier the
originaily agreed upon
() It on the other hand, the profit achieved by the Party is less than the projected profit,
nen the management fee will be reduced and it may even be wiped off in certain
uations.

7Sharing of Lo58: The loss shall be shared by the Bank and the Party strictly in the
atio of funds deployed in the business by each one ot them ne Bank's. share of fund will be

actua amount financed by it. worked out on daily product basis The party's share of fund
Geployed in Musharikah shall be he total capital deployed by them,
worked out on daily
pouCt Dasis The capital as depioyed by the paty shali be deemed to include

(0) Paid-up Capital

() All types of Reserves
n All un-appropriated profits

0LongShort Term Loan/Capital raised through participation Term Certificates etc

otner

orrowing on which interest is not paid

Deduct from the total capital( to v) losses, if any, brought forward
Weightage: Weightage lo the bank's or the clients tunds employed in the venture
a s o De
applied wherever agreed upon
branrh
The met of applying weightage. wherever necessary shall be conveyed to the
Nches
alongwith the Sanction Advice
om tha ocurity: The Bank shail in its own right and discretion, obtan adequate security
P t y to ensure safety of the capital invested/tinanced as also for the profit that may
 INTRODUCTION TO BUSINES
*********************

124..-.-.-.-** securities
obtained by the Baniv
given by party. The
the cost
be earned as per profit projection insured at the party's
and
expenses.
shall, asusual, be kept fuly such companies
be restricted to oniy
under Musharikah shall
10 Selectivity: Financing
selected the Bank.
by
as will be

partes would not be confined to any particular sector of Trade&Industry

rack-record
Theselection of sectors. The basis of selection shall be their satistactory
and it willcover all the Dank shall exercise ts
for which the
and viability of the proposal (project),
Dusiness morality
Own discretion.
which in ther opinion have
Bank shall select good parties
Criterla of selection. The
11. bank account.
(a) Satisfactorily operated
(b) management, and
Efficient
of the directors has
none
2 3 years; provided,
Record of profit during the last
to
(c)
Deen a defauiter to the Bank.
have complete option to either
participate.
to Parties from Trade & Industry
12. Option interest based system
or i invited by Bank
from the Bank on existing
borrow money
partcipate in Musharikah.

Since the Bank is taking up

this system of
13. Centralized Sanctioning Powers. c a s e at the highest leve
needs careful examination of each
Tinancing for the first
time which Musharikah system shall rest with
under
the
tor working capital financing
the power approving
Head Office only.
of financing. The terms and including.
conditions of financingInvestment
14
Terms& Condition the Bank and the party is in the MUSHARIKA
the mode of or loss
sharing profit by
Agreement
A. LONG QUESTIONs
1. What is winding up of a company? Discuss the various methods or modes of
(Ans. 1)
winding up a company.
(Ans 2)
2. What is Modaraba? Discuss its working in brief.
3. Explain the meaning of Musharaki as an Islamic mode of investment (Ans.3)
B. SHORT ANSWER QUESTIONS
1 Under what circumstances, a company can be wOund up by the court
2. Wnte a note on voluntary winding up of a company Subject To Supervision of court

3 Define Modoraba. Can it be sued inits name?

4. What is Musharikah?

C. OBJECTIVE TYPE QUESTIONS

1. In which of the following circumstances, the court may order for the compulsoy
iquation of a company?
(a) Default in delivering statutory report
(b) Members reduced below minimum (7 in case of public company and 2 in case
private company Ltd) One member according to Companies Ordinance (amenae
in 2002
(c) Company fails to pay debt.
(d) All the above three Ans.(
 2
CHAPTER-9- LIQUIDATION OR WINDING UP OF AJOINT STOCK COMPANY

2. Indicate the correct answer:

(a) Modoraba can be sued in its name through the modoraba company
(b) The directors can take loans from modoraba fund.
(c) The register cannot cancel the registration of modoraba company Ans.(a)
An important advantage of Musharikah is that
3.
(a) Sharing of the profit among partners is equal.
(b) Musharikah investrment is mainly for fixed capital only.
(c) The loss Is to be shared by the bank and the party strictly in the ratio of runos
invested in the business by each one of them Ans.(c)

4. Fill up the blanks

in a public company
(a) There is a divorce between owner and

(b) A private company must have atleast _director

as declared by the
(c) The individual shareholder is entitled to receive

company. of management of a
The board of directors of a company is the
(d)
company. of the shareholders.
(e) The secretary calls
dividend (d) Chief organ (e) Meetings
Ans: (a) Management (5) 1 (c)
 126

CHAPTER 10

cooPERATIVE SOCIETICS
1. Cooperative and its characteristics
2. Principles of cooperative organization
3. Classification of cooperative societies
4. Types of cooperative societies
(Summarized)
5. Advantages and disadvantages of cooperatives
6. Forming a cooperative society in Pakistan.
7. Distinction between a public company and a
cooperative
society when both are artificial persons.
 (HAPTER:1 r N A I I V E SOCTE TIE

127

COOPERATIVE SOCIETIES
1. MEANING OF CO-OPERATIVE
COOPERATIVE AND ITS
CHARACTERISTICS
co-operative isit isa special torm of organization. It differs from other
nizations as Set up not to earn profit but to render service to ltsmajor forma o
ro-operative society dered
s
ds an association of individuals who members.
resources tor caryng o Gertain Dusiness voluntarily
for the mutual welfare ol the
poOo e
hemselves The nternational Labour Office (LO) defines a memoers
as5Ociation porsons usually limited means, who have voluntarily Joined
of of co-operative as
an
to achieve a common together
economic end and through the formation of a democraticaly
controlled business organzation, making equitable contributions to the capita
required and acceping a tair share of risks and benefits of the undertaking. In the
words of Calvert, "a Go-operative Sociciy ià form of
organlzation wherein persons
a

voluntarily associate together as human beings on basis of equality for the promotuon
of economic Interest oft themselves".
From the deflnitions of
co-operative given above, we find, that the foundation of
co-operative organization is based on rendering servlce to the members of the
organization and not earning profit. There is a co-operation among the members and
not competition. ft is based on self-help and not a profit seeking business. It aims at
of and not undercutting one another. The motto is "Each
moral solidarity the members
for one and all for each".
Characteristics of Co-operation undertaking:
The chief characteristics or features of a co-operative organization are as
follows:
(1) Body Corporate. The cooperative society is registered under the Cooperative
Societies Act, 1925. Being a corporate body like a company, t enjoys certain privileges which
are subject to control and supervision of the state A Cooperalive society enjoys perpetual
SuCcession. It has its own common seal. It can hold property in its name. It can enter into

contractwith other persons. It can file and defend suits. A cooperative society requires at
6ast ten members to form a
sciety
2) Voluntary association. The mêmbership of cooperative sOCiety is voluntary. Any
of a society. He can also leave
erson having a common interest can become the member

Organization by giving due notice to the sOciety

In a co00perative sOCiety, a member has only one vote
r n e man one vote. of one man one vote makes the society
The principle
h ve of a shares held by him.
Uy democratic
4) motive. A cooperative society primanily
IS set
up tor renderingonservice to its
mem ervice not debarred to earn pronit the service
DrvidedS In a particular field. A sOciety is, however,
to the non-members. is the provision of
5) of cooperative organization
of profit. The objective
e Ice stribution
to its members Whatever little profit it earns
is
party spent (107a
at the most) for the

o n e tourth of the protit

as reserve
S m e m b e r s The society also keeps
 INTRODUCTION TO BUSINE SS
128

Control andmanagement. Each member

has one vote
in a cooperative
society
(5) arrairs Or the society The
to carry on day to day
The members elect the managing committee of
carries out the policies as laid down in the general meeting the
managin9 committee
society
to rules. a cooperative society does transacton
(7) Cash Transaction only. According
credit transaction is entertained
on cash basis and no

(8) Religious and political neutrality.

A cOOperative society. considering without
and economic betterment of its
for the soCial
religious faith and political differences works
membersS
Is generaly imited
The of the members of the cooperative society
liability
(9) Liability. the liability of the members is unlimited
In case of agricultural cooperative credit societies,

2. PRINCIPLES OF CoOPERATIVE ORGANIZATION

IS a society which
Cooperative Societies Act 1925, Cooperative society
According to thethe
has its objectives promotion of common interests of t s m e m b e r s in accordance with

The fundamental principles of cooperative organization

are as under
cooperative principles".
membership. The members of a cooperative society is voluntary
1. Voluntary
ne individuals who have a common interest in a society can buy the shares and be enrolled
as a member of the society

2. Equality. All members of the society enjoy equal rights and status Each share
one vote in the management of the business and no
holder in a cooperative society has only
owns more than one share One man one vote is the
weigntage is given to a member who
guiding principle of a cooperative society.
3. Decision democratic. The society is organized on the principles of democracy
Every shareholder has equal say in the affairs of
The decision of the majority is binding on others
the society. No member can dictate terms

4 Spirit of co-operation. All the members of _the society are to extend ful co
operation in achieving the objectives of the society. There should be no ill-will. hatred
jealousy among the members. All for each and each for all is the basic principle of a
cooperative society.
5 Welfare objective. The primary objective of a co-operative is to provide goods and
services to the members at a fair price. The profit at the end of the year is distributed among
the members on the basis of their transactions with the society. The Cooperative Act provides
thatone fourth ofthe profit can be keptin the
reserve. The percent of the profit can be used
for providing amenities and facilities to the members
6. Honesty. The elected executive members of the society who
manage the affairs o
tie society should be men of character and a symbol of honesty
7.
each other
Mutual confidence. The co-operatives should have mutual confidence and trust
They should work like a team in achieving the objectives of the society
8. Economy. The members should try their utmost in avoiding wastes both in
purchase and sale of commodities. The money should be
interest of the society
spent economically and in the
be
9.
Payment of dividend. A
cooperative society cannot pay dividend more than
per annum to its members on the
paid up share capital of the company In case
consumers. cooperative society. the profit is distributed among the members on the basis
individual purchases made
by them in a trading year
 APTER-10 COOPERATVE SOCIETIES 129
10. Sales on
casn. H5 tne resources of the society
on cash basis ony. e d t ransacton is entertained are limited, the ociey e

11.Market prices ot the

commodities. The society charges prevailing market pria
goods from ior-mebers, However, the members
a0ds purchased. Ihe society earns only nominal of from the society are given discoun
protit them.
Note: The socienes which are operating in Russia, China or in other
communist countES
cannot be caeu peruveSOcienes They lack the basic principles of co-operaon
instance, 0 e e Sps not
voluntary (2) Decision in purchase,
ownership production, eO
or
marketing are cen y onurOled and are not democratic (3) The belongs
The pront
_tate(4) isnot aistriouted to the
workers but the wages are paid O
e
3. CLASSIFICATION OF CO-OPERATIVE SOCIETIES
Types of cooperatives
There are a
number of
cooperative societies which have been in
countries or the word some ol the cooperatives have been formed to heip consue
started the caplau
others to help producersThereare some societies which help the farmers in providing credt
for the purchase of fertilzers, seeds etc and some help them in the promotion of trade. The
important types or cooperative soieties in brief are as under.

(1) Producers Cooperative Societies. The producers cooperatives are established by

small producers. The members of the society produce goods in their houses or at a common
place. The raw material, tools, money etc is provided to them by the society. The output is
collected by the society and sold in the market at the wholesale rate. The profit is distributed
among the members in proportion to the goods supplled by each member

The producers cooperatives are successful where (1) business is on smail scale (2
needs special skill of doing a work (3) work is labour intensive and (4) management is honest
and efficient

(2) Consumers cooperatives. Consumers cooperatives are established to remove

middlemen from the field of trade. These societies purchase goods at the wholesale prices
and sell them to the members at cheaper rates than the market. However, the goods are soid
The protit, f any, is distributed among the members in
to non members at the market rates.
ne shape of bonus.
The consumers cooperatives have been functioning very sUccessfully in the advanced
countries of the worid. However, their pertormance in developing Gountries including Pakistan,
IS not satisfactory due to the followirng reasois.
(1) These societies lack capital (2) Co-operative spint is missing among the members (3)
here is no continuous supply of goods to the ooperauve (4) The go0ds are mostily sub-
Standard and lack variety (5). The persons appointed for seling the commodities lack initiative

do treat the customers properly (6) nere are complaints

no! wrong bilin9 (7) Prices of
of

with the prices prevaiing i

u e maket (5) The
goods which
E Commodities do not change
are short in the market are underSod.
are formed
9 Cooporative marketing societies. or cooperative marketng socletiesand
Thetrade artisans
Small producers for the promotion two ne sma agnculturists10 sell the goods at
ntanily associate together
for achieving main oojecuvesto Firstly,
make available permanent
and econaly,
dnerative prices by eliminating middlemen
C ready market for the products or tne n e mbers.
It grades them,
cooperative society
or
tne products wnen
colectswhole-saie its members.
ne marketing at the pricE tne market is favourable
p s them in its warehouses and sells
 130
***
INTRODUCTION TO BUSINESS
The sale
proceeds distributed among the members according to the quality and
Is
the product pooled with the
society The sOCiety also helps the producers in
quantity of
money 10r meeting their urgent needs The small producers also get providing advance
Trom T h e raw material, tools etc
society provides marketing information to its members he marketing
cOOperatives thus greatly helip the members in the promotion of trade by eliminating
middlemen, selling goods at fair prices and making advance payments to meet
the
urgent needs of the producers.
4) Cooperative credit societies. The cooperative credit societies are established t
nan cia help to small farmers and to low income traders, artisans etc. In rural areas
ne urai Credit Cooperatives provide short team loans to agricuitunists at lower rates of
erest or the purchase of inputs like fertilizer, seeds, catte etc. In cities, the Urban Credt
uooperatives provide credit to their members for the purchase of raw material wage
paymentS elc. In urban areas, artisans. small trades ana low income ousinessien mostly
benefit from these societies.
(5) Co-operative Insurance. The co-operative insurance society is formed for the poling
o economiC risks of its members The co-operative sociely may take groupinsurance palicy
Or ns members. it may bargain with a sound insurance company for lower premium The co-
operauve nsurance society can also be organized tor issuing policies of smal amount

THe cO-operative insurance has not proved successful because (1) the contribution to the
poolaf the sOciety is normally not adequate to pay the ciaims of the members who sufer loss
2 ne capltal of the society is not looked after carefully (3) Funds are not wisely invested (5)
iha claims are not paid
promptly
(6) Co-operative Housing Society. The co-operative housing society is organized to (1)
procure and for the construction of houses on homogeneous basis (2) purchase of
construction malenal in bulk and providing them on non profit basis to the members (3) supply
of electriity. gas, and other soclal amenities to its members (4) providing of loan for the
construction of houses by mortgaging the property (5) levying of tax on the members for
meeting expenditure of providing them essential services
(7) Co-operatlve Farming Societies. Due to fragmentation of holdings. the area in
possession of most of the tarmers is too small They can not employ improved methods of
Cuitrivabon he co-operative tarming soCiety enables the small farmers to consolidate t
smal
unis Or land intO large tarms paves tne way tor mechanization of agriculture and i
Use of other improved inputs of agnicultures.

(8) Miscellaneous societies. in addition to the major forms of societies mentioned

above, there are large number of establishments which are organized on co-operatives For
instance, there are co-operative societies lor processing of raw material into finished goods
(processing co-operatives) here are co-operative soCieties for fisheries. cold storage
forestry poultry farming etc., etc
Role of cooperatives in the promotion of trade
There are a number of cooperatives which indirectly or directly help in the promotion of
for
trade In country The Cooperative Credit Societies,
a instance, provide financial help to
iow income farmers,arisans., businessmen to purchase inputs. produce goods and sell these
in the market at reasonable prices The Consumers Cooperatives, another type of
cooperalive. purchase goods in buik from wholesaiers or producers and sell these mosty to
members a reasonable priceshe consumers cooperatives, thus, assist in eliminating
middlemen
trom trade and providing quality goods at tavourable prices
rovision ot quality goods al low prices increases sale of goods
to consumers
The
Similarly, the Marketing
Cooperatives help in the promotion of trade by pooling the goods produced by its members
 APTER-10 COOPERATVE SociETIES
13

them in the mäket at proper time and at best

na seling possible prices. They aisoo u d
hanest trading pracues w e g s , iasures and accounting which help in the promoion
operative in recent years is not considered merely a form of organization, t
vement now which aime at
improving the economic conditions of the iow
e
groups
on a self help basis.
4. TYPES OF COOPERATIVE SOcIETIES (Summarized)
to the nature of activities performed, the types of cooperative societies
are
According
3s unoder
various

Types of Cooperative Object of Formation Main Functions

Societies

(1) Consumers The object of formation is to The main activities carred

Cooperative aliminate middlemén and to
ensure a reguiar provision
on by it are to purcnds
of goods in bulk from producers
and sell these
standard goods at reasonable or wholesaiers
prices to
its members

The activities
2) Producers purpose of forming this he a
SOciety is to h e l p the m e m b e r s i n performed are to purcase
Co0perative
in raw materal, equipments
providing inputsand tools etc and sel the output
marketing of the products.
produced in the market

society
The sells the output
(3) Marketing ne
this
main
society
object ot
is to
formation of
prolect t h e | producedat best possiDle
Cooperative the market
producers from exploitation by price in
middlemen in marketing of their

prooucts

The motive of formation

ot thist accepts deposits from
4) Credit Cooperative members and provides
loans
society is to provide
ioans to
the
members at reasonable rates ortor productive purposes to its
members only
interest
provides seeds,
main ODject or estaoisningnis 5OCiety
(9) Farming CooperativeThe
this society 1s to help
smail
the rertiizer, agricultural
member
farmers to
consoidate
tneir landmachinery in
tO
the
producing he
holdings and achieve economies tarmers
maximum output rom tneir
of large scale tarming
tand noioings

purchases land.
is to provide
land
rorne Society
Cooperative
The object make roads, p r o v i d e
Ousing construction
of houses
water for their
the
electricity.
memberS in h e colonies

DISADVANTAGES OF
ADVANTAGES
AND
5. CO-OPERATIVES
certain advantages
of business ownership, enjoy
a special form n e main advantages
claimed by
being
ad.ne co-operatives. forms of organizatons
of by other brief are as under
whuch
re are not availed
availed
by oneas
soCIetes
in
ETent kinds of co-operative
 INTRODUC TION TO BUSINESS
132

Merits of Cooperatives.
The co-operative society eliminates the profit earned by
1. Elimination of middlemen. n e cooperaives
socety
middlemen in the supply ot commodities
to the
consunmers
Supplies goods and services to the members at the whole-sale pricce
2. Economy in expenditure. The co-operative sociery nas not to empioy the

specialists in the field of production and distribution Ihere is no top management The
members themselves organize the business and reduce tne Ovenedd expenses to the
inimum There is thus a saving in production costs of the commodites

. Equal status. Each shareholder has one vote in the management ot business of the
SOciety All the members thus stand on equal footing regardless of the number ot shares they

own

Cooperative society mostly organized to produce

Is
4. Employment opportunities. retail serviIces otconsumer goods to its members at a
also provides
go0ds on a smail scale
It

the market h e co-operatives thus provide employment opportunities to the

Costlower than and in smail scale industries
needy persons in consumer c0-0peratives
5. Financial assistance: The cooperative extends loan tacilities to the agricultures for
the purchase of inputs It also gives financial assiIstance to the members tor the construction

f houses.
6. Social benefits. The co-dperative society creates among the members a spirit
sacrifice. tolerance, co-operative an self help The environment thus created by the
cooperatives can be very helpful for the social and economic progress of the country
7. Benefit to agriculturists. The agriculturists who live far away from the market ca
obtain their farm needs at a lower price through the agricultural purchase co-operative
Similarly. they can sell their produce at a ftair price through the agricultural marketing co
operative society by elminating middlemen

8. No thesurplus stock: ofThe cO-0perative sOCiety purchases the commodites

according to requirements the members It thus does not have to keep any surplus
stock in hand

9. Extension of market: The co-operative purchases

basis. The
the commodites at the
wnolesae price and sels them non mostly on profu consumers, other than the
members. are attracted towards co-operatives, and become the shareholders of the socety
and avail of all the benefits of co-operatives
10. End of class struggle. In the cooperatives, there is no class struggle of master ana
All the members
servant.emptoyer and employees
the class struggle comes to an end
are the owners of the society As sucn

11. Distribution of dividend. In

the consumer co-operative society. the
distributed to the shareholders volume ot purchases made by them in a
on the
pro
trading
There is thus justification on the distribution of dividend of a sOCiety which is often ye
caed
patronage dividend".
12. Better standard of living:The co-operative society helps its members in provia
employment to
the people and Supply ot goods at lower price than the market It thus nep
raising the standard ot living of the members
13. Limited liability. The liability of the members the
shares held by them
is mostly limited to the vaue
o
 R-10- COOPERATIVE SOCIETIES 133

14. Stable lite. Tne cooperanve

longer period It has, thererore,socleties,
unlike sole
fairfy a stable life It proprietorship partnership.
or
can only be dissolved ei
tnroug"
or 8 onge
rocess of law

Limitations/Disadvantage or Co-operatives.

Inspite of various advantages claimed of co-operatives, they have by and large

proved
an unsuccesstul enot and are on the decline in all the developing capitalistic counte t
world The main limitations of a co-operative form of ownership are given below
1. Small scale:
Every trading firmn in order to be a viable economic unit must operate
minimum scaie e maKeung area or the co-operative society is
meet the operationai costS or the irm. it, therefore, suffers losses andmostly toogoes no
finally

liquidation
2. Lack of tinance: A
co-operative firm lacks finance Its credit rating from the externa
resources Suc nerciabankS and other financial institutions is low. It, therefore. falls
tor meeting the normal requirements of the business and ultimately suffers
shortot capitai
losses

3. Ineffectiv management: A cO-operative firm is

mostiy unable to attract
speciailzed
skills to run its affairs. It cannot afford to Ihe members who
manage the affairs find the work ginteraetinn a
ides to them
s o r t uratiOn Dut iarer on tmey oEgin to o
nterest The co-operative firm ultimately tails due to inettective
managemen
organzauo d
D o e s not adopt new tochniquos: A co-operative firm carries on its activities in an
oldtashion t nes its best to avoid the risk element and does not adopt new techniques in the
world It mosty remains content with service motive and as such it
does changing
ever business
not flourish

5 Delay in decision making: The decisions in

a co-operative are made by the

management committee The control and authority, therefore, passes

thusleads to delayed decisions The decisions are mostly person oriented instead of being
to many persons and

service oriented and thus adversely affects the organization

6. Defective services. The co-operative tirm gets defective and delayed services
hin ery of
Outside agencies For instance. fertilizers. seed
members
e
not uimely
dvaable to the society which creates dissatistaction among the

Lack of true
yAmember
leadership: An interested group normallydominates a co-operatives
once elected to an office of the management holds the office til his death
ordissolution of the co-operative society The business of the firm remains with one
dndgement and that affects its business

8. Absence of motivation: Man is selfish by nature. The employees are mostly low
P n the cooperative. They take less interest in the development of the society Lack of
Oation is, thus. an obstacle in the development of cooperative societies
Permanent child of the government: The cooperative in Pakistan is dependent
upon Government for protection and financial support It, therefore, is bottlefed, breastfed
na
spoonfed. The political interference has adversely effected the coop. movement
neeneeting challenges of Business world. Cooperatve extension work is the most urgent
in th e developing countres The co-operave oganzaton can beter serve the farmers
D r h u r c h a s e of inputs like seeds, tertilizers erc t can aiso help in the marketing of
hurmaat a tair price both in cities and rural areas can temper dominating commercial
a n activities
with a human touch and moral tavour The reorientation of economic
 INTRODUC TION TO BUSINESS
134

mechanism in terms of values of life like fellowship. 5ervice se dependence, sOcia

terms spirit be carried as a movement
should Cooperative can be operated
awareness. towards help. The
selfPakistan. sincerity and
successfully under an effective policy of state
movement in
honesty at the Top can regenerate co-operativo

CO-OPERATIVE SOCIETY IN PAKISTAN

6. FORMING A
of economic interests of
The co-operative societies, whose main object is
the promotionsocieties Act 1925
in Pakistan under the Co-operaive
ts members, are establishment
it there are at least 10 members
Application
A sOCiety Is
for Registration. registered
be accompanied by
à copy o' the
The application shall
above the age of 18 years (2)
to the Act
which should not be contrary
proposed by-laws of the society
of members. (1) A members
cannot right uniess he exercise hiis
Rights and Liabilitios
to the society prescribed by
the rules or bY-laws (2)
IT the
liabity of a
has paid all the dues
is limited by shares,
member snal nave many votes as
member in a registered society eah
of a membDer, a regStered soCiety may
as may be prescribed by
the by-laws (3) On the death
in the
the person n o m i n a t e d
of the deceased member to
transfer the shares of interest
application farm

Property and Funds of a Registered Society:

other than a member (2)A
(1) A registered sOciety shall not make a loan to any person
to Such an
trom persons who oniy are not members
SOCiety shall receive deposits and loans
extent as prescribed by the rules or by laws (3) A sOciety may invest or deposit ts runds in the
(4)
bank, in
the shares or on the
securities o any registered society Ine
government saving in the reserve tund the remainder of
SOCiety shall keep at least one tourth of the net protits
the protits may be distributed as prescribed by the rules or by-laws of the society

Dissolution of Society: (1) The society can be dissolved by the Registrar on receipt o
has been held under
made Dy three-fourths ot the members (2) An
enquiry
application been reduced to less than ten
A
Section 35 of the ACt (3) The number of members has
the
will appoint a liquidator to wind up the affairs ot the sOciety as prescribed by
Registrar
COoperative Act, 1925

7. DISTINCTION BETWEEN A PUBLIC COMPANY

AND A CO-OPERATIVE sOCIETY WHEN
BOTH ARE ARTIFICIAL PERSONSs
A cooperative society in Pakistan is registered under the Cooperative Act of 1925 The

Act thus gives it a special status like a company A cooperative society enjoys a certa
special privileges of a company It is identical to.company in certain respects but in many
other affairs, they are ditferent from each other The identical points of a cooperative Soery
d u d Company are as under-

ldentical points.
A co-operative society 9gets its entity on registration A company gets its entty on

incorporation
2 Both are artificial persons
3 Both enjoy perpetual succession

4 Both can hold property in their names

 CHAPTER
10 --
COOPERATIVE SOCIETIES 135

5 Both can sue a tird pany and

delfend lega! proceedings in a court of iaw

Both can enter into contracts with other

persons
Distinguishing Points

The main poins Or aistincion between a

company and a cooperative are.
hovweve a
oilbw

Joint StoCA Company

Co-operative Society
Legislation. It is incorporated under
I t is registered under the Co-operative
the Companies ordinance 1984 Soc ACt
Oe
Objective. The company is formed The co-operative society is formed tor
with tme sole oojective of
the
earning promotion of thrift. seif-help. soCial and

protit economic welfare of its members Protit is

given lest importance in it

Membership. There above

shouid be at CO-Operalive sOciety requires at l e a s
east the ten members above trhe age of 18 years to
seven
to
members
torm a
majo
age
there is no maximum imit
public company
in case
andof form a sOCiety

private Ltd company the minimum

number of members is and the
maximum number is 50

4 Contro. The affairs of the company The society is managed by rts elected
are
managed and controlled by the
Doard or directors
executive body-witn president
secretary as its main office bearers
and

5. Operation Area. Due to a large Being a small organization. it operates

organization the operation area o within a limited area It caters the
purchase sale of commodities is very 2conomic needs of its members on a
**
Smain scaie

6. Profit Distribution. The directors

Protits are given least importance in a
aeciare the divIdend and (atter
CO-operative society n case of
consumer s co-operative tne p r o s are
crediting a part of the profit in the
reserve fund fnecessary) distributed according to the transactions
profits made by a member in a trading yea
distribute the net
in
prOportion to the shares held by
Sharenolaers
Share transfer. The shares A member can transter his share to his
can
be by-iaws of
easily sold or purchase in stoc nominee,
neir.
SOclety in its oicee
as per the
exchanges
8It cannot attract large capital as the
Capital formation. The company
can business IS carried on a smail scaie
Jvide its ownership into shares o
d Genominations and can atrd

dge capital trom thousands

ncomes
dua s of varying
 36 INTRODUCTION TO BUSINESS

Joint Stock Company Co-operative Society

9. Borrowing Power. The company can It can borrow money rom non-members
raise funds subject to its Rules of only to a limited extent as may be
Memorandum and Articles of prescribed by the rules and by-laws of thel
Association It can also SOCiety
additional funds Dorrow
by the sale
o
debentures
10. Voting rights. In a company, ther 10 Cooperative society works on the principle
vote depends on the number o of one man one vote. A member holding
shares held by a sharenolder more shares has only one vote

11. Purchase of shares. In a

company 11. A member in a sOCiety cannot hold morel
there are resthctions
no placed thon than
one-tifth of_the share capital on
members tor the purchase of shares shares exceeding Rs one thousand
by
a person
|12. Ownership and control. In a publid 12 In a cooperative society. the members
company
take
separate
ownership and
control are keen interest in the affairs Or the
company
The board of directors Ownership and control is very ciose in
the
control the affairs of the company to conduct of societys Dusiness. t IS In
the
the shareholders Who are the rea hands of the members of the
society
Owners
13.
Privileges. A company has no
specia 13. A cooperative sOciety generally enjoys
priviiege o7
reduction in
corporate tax certain privileges In registration ees
or exemption from stamp duty etc exemption trom stamp duty. provision o
Credit al low rate of interest etc
14. Liabilities. In a
joint stock 14. In a cooperative society. the liability ot
Company. the iability of each the members limited only when
is
ember, is limited to the extent of
SOciety makes it limited
the
nis value
of shares held by him in
hat company

15. Audit. The accOunts of the

are audited
company 15 The accounts of the
society are
auditor/auditors
every year by a
qualified every year by an auditor nominated audite
appointed
9eneral meeing of the company
in
the writing by the registrar in
Coop. Society
16. Advice. The audtors work is
upto audit of accounts it is no confined 16 The auditors work
not confined up
is
auditors duty to part audit of
the books of t
give advice either accounts.
directors or members. to auditors can give ne
proper maintenance suggestions
tor tn
of books.
17. vouchers etc as a
guide of the sociey
accOunt
Dissolution. There are a
chances of the
very fewM 17. The life of the
dissolved It
Company being IS society is
Sometimes dissolved normally short
normally possesses due to ack
perpetual lite interest by the members
 137
wTER-10C0OPERATIVE SOCIETIES ****** ** **** ************

LONG QUESTIONS
(Ans1
What is cooperativer Discuss tne roundation on which it is based.
what are the salient features of a cooperative form of organization. (Ans
(Ans 2)
scuss in brief the main principles of cooperative organzation
Describe briefy the varlous types of cooperative societios. Explain their role in t
romotion of trade. (Ans
Define a cooperative society. Discuss its main advantages and disadvantages. 1
imitation8.
(Ans: 5)
(Ans: 5)
How a cooperative soCiety 1s fomed in Pakistan?
what are the main points of distinction between a public company and a cooperat
society wnere botn arg artificial persons. (Ans: 7

&What is a cooperative society? How does it differ from a jolnt stock company
(Ans:7

Define cooperative. Discuss briefty various types of cooperativa societies Do you thin n
(Ans 5)
can meet the chalenge of the business words"
B. SHORT ANSWER QUESTIONSS
. Write wO main advantpges of cooperative societies.
Wrte four demerits or limitatons of cooperative societies.
Write a note on cooperative farming society
4 How a cooperative society is formed.

5. How would you define a cooperative society?

Ans. Cooperative society is a special form of business ownership It is a voluntary association
of persons who join together for promoting theit economic interest through the principle of
sef help which means "each for one and all for each"

6. Do the cooperatives have equal rights?

Ans. The answer is Yes Each member in a cooperative has ane vote irrespective of the
number of shares held by him.
7. How s the profit distributed in cooperative organlzations?
Ans.Cooperative organizations distribute profit among its members in the form of drvidends
and
bonuses, these
but should not be
more than 10% of the paid up share capital of the
company In case of consumers cooperative society. bonus Is given in proportion of the
volume of business transacted by each member with the cooperaive sociely

.A cooperative society has perpetual existence. Do you agree?

Ans. Acooperative society has perpetual existence. Its life is not affected by the death,
mbers. As it is created by law, therefore it can be
disso nyo
dISsolved only through the process ia or

8JECTIVE TYPE QUESTIONS

e c t the correct answer
A Co-operative is

avoluntary organizaton
Tormed by the
C) computsory forGOvernment
consumers to oin. Ans.(a)
138 INTRODUCTION TO BUSINESS

The primary motive of co-operative movements is

(8) to earn protit

)increase production
(C) to serve members Ans.(c)
3 A Co-operative society is registered under the Cooperative Societes Act of

a) 1925 (D) 1956 (C) 1948 Ans.(a)

4
Say Yes or no to the followir
(a) A co-operative society is a democratic organisation
() The voting in a society s on the basis ot one-share one-vote

(C) The members can transfer their shares in a society

(d) A co-opperative society can be started with 7 members
[Ans. Yes: (a)(b)(c) No: (d)
5 The minimum number of members required for the registration of a cooperative society is
(a)two (b) seven (C) ten (d) twenty Ans. (c

5 In cooperative society the voting nghts of the member

a) In proportion to the capital paid by each member

(D) Equal irrespective of the amount of capital cantributed

C) in proporton tO the nomina vaue ot capital heid by each member

() in proportion to the total finance supplied Ans.(b)

Write the correct answer
a) The lability of the cooperation society is () generaly limited to the amount of
nominal value of capta held by the member (i) Unlimited (l) agricuitural
cooperation society imited Ans.(a)
8 Write whether the following statements are rue or halse
0)
Registration of Cooperative Society is compulsory
(u) A COoperative society is wound up with the death oi one its member

(i) Cooperative society works tor the weltare of its members

(1V) Shares are freely transferable in

cooperative societies
(V)There is secrecy in
cooperative society
(v) Cooperative society is a non profit organzation
(Vi) Cooperative societies eliminate middleman
Ans: (9 True () Faise (n) True (v) True (V) False (vi) True (vin) true