A cooperative is a financial organization formed for the benefit of its members. On October 18, 2017, Nepal passed the new cooperative act 2017. (2074). Individuals can establish themselves in 3 ways under the new cooperative legislation of 2017 (2074):
- Single-purpose cooperative organization
- Multifunctional cooperative organization
- Labor cooperative organization
1. Single-purpose cooperative organization
Cooperatives with a minimum of 30 participants can be formed thematically based on a subject. The term “thematic” refers to a group of subjects, such as animal husbandry, agriculture, farming, and, in the past, fisheries, that can be used to form a cooperative. A cooperative requires at least 30 people to form. To start a cooperative in the municipality of Udi, at least 100 people are needed.
2. Multipurpose cooperative organization
There are several reasons why a multipurpose cooperative organization might be formed. A cooperative for various purposes must have at least 30 members. Kahari members can deposit and lend money here.
3. Cooperative labor organization
Cooperatives founded on the labor and abilities of working youth are possible.
A cooperative with at least 15 Nepali people can be formed if such a cooperative is established. A cooperative of 15 plumbers and electricians, for example. Similarly, campus teachers could establish a school.
4. Theme-based categorization
Cooperatives will be classified as follows.
(A) Cooperative production organization
Thematic and leading agricultural special subjects such as dairy tea, sugarcane fruit, and Fisheries, as well as other manufacturing organizations, can be established in accordance with production strategies. Cooperatives of this type are formed because it is more convenient to produce in bulk. Such cooperatives can be run by at least thirty farmers or fishermen.
(B) Cooperative Organization
Customer cooperatives’ thematic and main subjects are consumer groups, savings and loans, energy, and health. Other consumer stores may be opened based on demand and service strategy. A cooperative can be formed with at least 30 members.
(C) Labour Cooperative Organization: Concerned individuals may initiate
Handicrafts, food, industrial production, restaurants, and labor contracts, among other things, based on skill or labor characteristics and a self-employment plan.
(D) Cooperative Organization with Multiple Purposes
Other multipurpose organizations that provide labor or skills-based services for multipurpose production, consumption, and self-employment can also be established.
Where should a cooperative be registered?
The new cooperative act of 2017 (2074) requires cooperatives to register with municipalities and provincial governments:
Cooperatives of at least 30 people from the municipal area may be formed. The municipality has thirty members who are permanent residents.
2. Provincial Government Registration
If three municipalities’ residents form a single-purpose or multi-purpose cooperative, it must be registered with the provincial government. For example, if the people of three municipalities in Kathmandu district want to register cooperatives, the provincial governments in Kathmandu district must be registered in Hetauda.
Only after being registered under the Cooperative Act of 2017, can a cooperative organization carry out its functions (2074 ). The following procedures must be followed when registering cooperatives:
3. First meeting of the preliminary assembly
The first preliminary meeting is a gathering of individuals who wish to form a proposed organization.
The meeting should be called in accordance with the nature of the organization.
A minimum number of interested individuals must be present.
Under the supervision of the meeting’s designated person chosen from among those present. A cooperative society must have at least 30 members, according to the Cooperative Act of 2074. Before applying for registration, the first preliminary meeting must be held.
The meeting is attended by 30 members, with one serving as chairman. The meeting should cover the following topics:
- To create the cooperative regulation’s constitution and working scheme
- Establishment of various committees
- Second meeting of the preliminary assembly:
- The first preliminary assembly meeting will establish a working scheme and regulations for which various committees will submit reports. Prior to the second Preliminary Meeting, the various committees must carry out the responsibilities assigned by the previous preliminary meeting.
Meanwhile, other people who are interested may be invited to the second preliminary meeting. The following agenda should be decided by discussion in the presence of the minimum number required by law to form according to the type of organization:
- Adoption of draft regulations; approval of the proposed action plan
- To delegate the right to register the organization to the Chairman of the Ad Hoc Board of Directors and up to two others.
- After the organization’s registration, open a bank account and deposit the funds raised for share and member entry fees.
- Assign someone to manage the account.
- To sign the letter of self-declaration
- To approve the financial and administrative regulations draft
- If there is a savings and loan institution, the draft savings mobilization guideline will be passed and implemented.
- To make decisions on other issues concerning the organization’s formation.
The application form includes the following information:
Individuals must file an application for registration and obtain a certificate of registration following the Second Preliminary Assembly meeting. The application and any supporting documentation are then delivered to the municipal office.
The paperwork will then be reviewed by the municipal registrar. If the paperwork is complete, the registrar will issue a certificate of registration. After receiving a certificate of registration, the society can begin operations.
A co-operative society’s dissolution is governed by law:
According to the cooperative act of 2074, cooperative societies can be dissolved in the following circumstances:
- Decisions on dissolution can be made by a two-thirds majority of the society’s total membership.
- If the Registrar receives an application with a reasonable clause, the application may be dissolved.
- The Registrar has the authority to dissolve the society if it is determined to be inactive and not operating for two years.
- If it is discovered to be operating in violation of the law and its objectives, the registrar has the authority to dissolve it.
The Co-operative Act 2074 governs and guides cooperative organizations in Nepal. Prospective members are required to discuss all matters pertaining to the formation of the co-operative prior to the start of the co-operative. A co-operative organization cannot begin legal business operations unless it is registered with the co-operative department.
- First Meeting
- Registration of Application
- Application evaluation
- Registration certificate
It is the preliminary stage before undertaking a cooperative activity. At this meeting, all members will discuss a variety of topics, including the cooperative’s and benefits, the number of members, objectives, required capital, and rules and regulations. They will form a separate committee and sub-committee once they have decided to form a co-operative. Various people will be assigned various responsibilities at this meeting, such as capital collection, law and by-law development, registration preparation, and so on.
Registration of Application
It is the second stage of registering a cooperative. At this point, a completed registration form is submitted to the co-registration operative’s department. The cooperative act includes a checklist of information that must be submitted with the registration application. In general, the following information should be included with the registration application:
- Cooperative name and address
- The goal and scope of the collaboration
- Cooperative capital structure
- The minimum membership fee is
- Before beginning any cooperative, members must reach an agreement.
- Copies of co-operative laws and by-laws
- Application evaluation
The relevant department or cooperative authority will investigate the information provided in the application form. It determines the accuracy of information.
The department will determine whether the law or by-laws of cooperatives are in conflict with or in support of a country’s current law. If the department determines that certain things need to be changed, it will issue a notice of amendment. If the cooperative team is unable to provide such an amendment, the department will refuse to register the application.
After all documents are submitted, an application is evaluated based on the requirements, and if it meets the criteria, approval for the issuance of a certificate is granted.
After making an entry in the registration book, the registrar of the co-operative department will issue a certificate of registration. After receiving a certificate of registration, the co-operative can begin legal operations. The savings and credit cooperative is required to follow the NRB’s rules and regulations. Before beginning economic activities, it must meet all of the NRB’s basic requirements.
Cooperatives’ Role in Developing Countries
Developing countries are those that are in the process of industrialization and development. In developing countries, income availability and resources are lower. They are gradually developing their industrialization resources. The cooperative organization is critical to the country’s development.
The significance of cooperatives in developing countries such as China, Nepal, India, and Sri Lanka is explained below:
10 Advantages of Cooperative Organization
- Encourage People to Save
- Help with Institutional Credit for Economic Diversification
- Eliminate Middlemen and Increase Employment
- Improve Living Standards Proper Resource Utilization
- Democratic Leadership Encourages Saving
- Financial Independence
- Increased Level of Confidence
Cooperative organizations encourage people to save by offering a high rate of interest on savings. They offer savings opportunities by collecting a small amount of money daily or monthly. They go door to door collecting savings.
Offer Institutional Credit
Banks and financial institutions are only available in urban areas in developing countries such as Nepal. Urban residents must obtain a loan from a money lender at a high interest rate, whereas co-operatives in the regular area provide institutional credit to their members through a simple process. They avoid taking advantage of money lenders.
Economic Diversification Assistance
The cooperative organization conducts economic activities in rural underdeveloped areas. Banks and financial institutions are not present in rural areas, but cooperatives facilitate lending and saving services to the rural public, allowing them to begin and develop economic activities.
Getting Rid of Middlemen
Consumer cooperatives and marketing societies aid in the elimination of middlemen consumers. Cooperatives buy products directly from manufacturers and distribute them to their members. Marketing society assists in selling and promoting product manufacture directly to consumers. This helps to eliminate the role of the middleman, benefiting both consumers and manufacturers.
Creating Workplace Opportunities
To function at various levels, the cooperative organization requires various types of human resources. It increases the number of job opportunities in society. Co-operatives, on the other hand, promote business by offering loans and other services. When a business is established and developed, it will create new job opportunities in society.
Raising the standard of living
Various co-operatives are formed to assist and promote their members’ economic lives. Members’ saving habits are developed. Members are saved and later used for various purposes such as production, distribution, education, health, game and sports, cultural and traditional activities. These facilities raise people’s living standards.
Use of Resources Properly
Cooperatives assist their members in developing managerial skills. They provide various training to their members regarding organizational and resource management. It aids in the effective utilization of resources, so that people understand the significance of scarce resources.
A democratic management system is used by cooperative organizations. They allow their members to freely express their ideas, knowledge, and opinions. It fosters democratic culture in society. They encourage members to accept the organization’s norms, values, rules, and regulations.
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Alpana Bhandari is a founding partner and CEO of Prime Legal Consultants and Research Center. She graduated from American University Washington College of Law. She specializes in corporate/arbitration and family law.