Cooperative societies suffer from the following drawbacks:
1. Limited capital:
A cooperative society is formed usually by people with limited means. The principle of ‘one man one vote’ discourages members to invest large amounts in the society. Therefore, a cooperative society often faces shortage of funds. It is not able to mobilise adequate capital for large scale operations.
2. Inefficient management:
A cooperative society is managed by a managing committee consisting of office-bearers elected by the members. These office-bearers may not be competent and experienced. A cooperative society cannot afford to employ expert professional managers at high salaries.
3. Lack of motivation:
Honorary office-bearers of a cooperative society have very little incentive to work hard for the society. There is no direct link between effort and reward. Members are often ignorant of the principles of cooperation. Office bearers may misuse funds for personal interests. Lack of competition may slacken efforts.
4. Non-transferability of interest:
The shares of a cooperative society are not transferable. A member who wants to quite the society has to submit his shares to the society in order to get his money back.
5. Lack of secrecy:
The affairs of a cooperative society are openly discussed in the meetings of its members. Every member is free to inspect the books and records of the society; therefore, it becomes difficult to keep the secrets of business.
6. Excessive government control:
The day-to-day working of a cooperative society is bound by legal rules and regulations. Keeping of accounts, regular audit and inspection are essential. Reports have to be submitted to the Registrar. Time-consuming formalities restrict flexibility and initiative.
7. Rift among members:
The success of cooperatives depends directly on the loyalty and cooperation of members. Quite often disputes arise among the managing committee and the members.
Some members may want to dominate the working of the society. Members are drawn from different sections of society. There is often lack of harmony and amity among them.