Share Capital as a Source of Co-operative Funds Flashcards
(125 cards)
1
Q
——- is often said to be the oil that lubricates the wheel of business operations
A
Capital
2
Q
Define fixed capital in the context of Co-operatives
A
Fixed capital concerns items that often remain in the service of the Co-operative over a long period of time.
3
Q
Provide examples of fixed capital for a Co-operative.
A
land, Building, Equipment, Vehicles among others.
4
Q
How is the recovery of fixed capital typically achieved?
A
The capital invested in fixed assets is tied up for long periods and can only be recovered after a number of years through depreciation.
5
Q
What is another term used for fixed capital?
A
long term capital
6
Q
Define operating or working capital for Co-operatives.
A
This is the type of capital that is consumed in the actual operation of the Co-operatives, used for items like paying for supplies, salaries, wages, and electricity.
7
Q
What are some examples of expenditures covered by operating or working capital?
A
Paying for supplies, salaries and wages, electricity, and other payments involved in the operation.
8
Q
What is another term used for operating or working capital?
A
short– term capital
9
Q
What is meant by owned capital in a Co-operative?
A
This is the capital contributed from within the Co-operatives itself, including fines, savings, special deposits
10
Q
Define borrowed capital for a Co-operative.
A
This is the capital raised from other resources; it is capital raised outside the Co-operative
11
Q
What is share capital in a Co-operative?
A
share capital is the money contributed by members
12
Q
What is the relationship between share capital and membership in a Co-operative?
A
As soon as a person is admitted as a member, they are expected to acquire shares in recognition of their membership. This means that share Capital is tied to membership.
13
Q
xplain the difference between buying shares and paying for them in a Co-operative
A
Co-operatives often permit members to buy shares and pay for them later in installments.
14
Q
Why do Co-operatives often allow installment payments for shares?
A
This helps to encourage membership as well as the buying of more shares
15
Q
When is it important to time installment payments for shares?
A
It is important to time the installment payments to those periods that members have reasonable income, like the period of harvest.
16
Q
What is a key difference in how a joint stock company determines the minimum share value?
A
The joint stock company determines the total capital requirement, decides on the number of possible shareholders, and divides the total capital requirement by this number to get the minimum share value.
17
Q
Why can’t Co-operatives use the same method as joint stock companies for determining minimum share value?
A
- it implies a pre–determined maximum membership, which is contrary to the Co-operatives principle of open membership.
- It will disqualify those intending members who are poor and need the Co-operative the most.
18
Q
Why is Co-operative shareholding tied to the person of the individual member
A
Because, unlike the shares of an ordinary joint stock company, Co-operatives share cannot be freely traded, i.e., it is not negotiable outside the Co-operative circle
19
Q
What happens when a Co-operative member wants to give up their shares?
A
A member who desires to give up some or all of their shares has to return them to the Co-operatives.
20
Q
What is usually required when a member wants to withdraw their share capital?
A
A period of notice of termination is given before actual payment is made to the seller.
21
Q
Why might a Co-operative member find it difficult to access cash from their shares in an emergency
A
Holding Cooperative shares means holding up of money paid for them, and getting cash back involves a notice period.
22
Q
Explain why Co-operative shares are generally not considered transferable
A
: A member wanting to transfer shares needs the society to pay for the value, the transferee then applies for membership (not automatic), making it cumbersome.
23
Q
How does increased share acquisition potentially affect a Co-operative member’s liability?
A
The acquisition of more shares implies a corresponding increase in liability of debts of the Co-operatives by the member, especially in limited and multiple liabilities
24
Q
How does increased shareholding affect voting rights in a Co-operative?
A
Increase shareholding does not imply more voting as Co-operatives emphasizes the one man, one vote principle.
25
What typically happens to the value of a Co-operative share over time?
The value of Cooperatives share held by a member normally remains at par, meaning reserve building is not reflected in the share value.
26
What is a legal limitation on the amount of share capital a single member can hold in a Co-operative?
The law says that the value of share being held by a member should not exceed 25% of the fixed share capital of the given Co-operatives Society.
27
Why is the share capital of a Society typically smaller compared to that of Joint Stock Companies? (General Reason)
Co-operative shareholding has limitations such as being tied to the individual, not freely transferable, and not directly linked to increased benefits like voting rights or appreciation in value, unlike joint stock companies
28
How can creating preference shares help increase a Co-operative's share capital?
By still maintaining the basic minimum shareholding for everybody, a resolution can be made that additional dividends will be paid to members who buy more than the minimum
29
Define Sponsor Share as a way to increase Co-operative capital.
This is share capital provided by third parties (private or state institutions) who do not necessarily use the Co-operative's services but wish to support its growth.
30
Explain how deduction from loan amount can increase share capital in credit Co-operatives.
When a member gets a loan, a deduction is made from the loan amount before payment, and this amount automatically increases the member’s share capital holding.
31
What is a primary condition for an intending member of a Co-operative related to share capital?
An intending member typically has to pay for shares as a condition for membership as well as exercising membership rights.
32
What is a reserve fund in the context of Co-operatives?
Reserves are funds created and maintained within the Co-operative's business enterprise as a form of security against unforeseen circumstances. Reserves can be classified into statutory and voluntary.
33
What are voluntary reserves in a Co-operative?
Voluntary reserves are created only after the statutory reserves have been met. They are regulated by members considering their needs and circumstances. The procedure for creating them and the manner of their creation are indicated in the byelaws of each Co-operative society.
34
What are statutory reserves in a Co-operative?
Statutory reserves derive their existence from relevant laws (statutes) that require their creation irrespective of members' feelings. They must be created, especially from the declared net result (profit) of the Co-operative. The law stipulates the minimum rates at which they are built up, as well as the aims and conditions for their use.
35
What are some general characteristics of Co-operative reserves?
Except in extremely rare cases, no individual member has claims to parts or the whole of them
. They belong to the member as part of the group forming the co-operative and are sometimes called common capital or social capital
.
◦
Unlike share capital, which can be withdrawn upon termination of membership, an individual member has no such right in respect of the reserves
.
◦
Reserves are much more stable than share capital stock, with changes mostly in the form of yearly increases
.
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Reduction in reserves can only arise if specific losses are written off from this source following the recommendations of the appropriate law
.
36
What is the major source of Co-operative reserve funds?
Retained Annual Surpluses (profit) constitute the major source of Co-operative reserves.
37
How do entrance/admission fees contribute to Co-operative reserve funds?
Small fees paid by new members upon admission are a source of reserves
. Justifications include:
◦
Serving as token compensation for enjoying services made possible by reserves created by existing members
.
◦
Indicating a serious intention to join the Co-operative, apart from paying for the share
.
38
How can uncollected/lapsed share capital become a source of reserve funds?
If the byelaws state a maximum time limit for a withdrawn member to collect their share capital refund, and they fail to do so, the refund lapses and is transferred to the reserves.
39
Can uncollected/lapsed dividends and patronage refunds become part of reserve funds?
While not common, the principle applied to uncollected/lapsed share capital can also apply to uncollected/lapsed dividends and patronage refunds of existing members.
40
How do penalties contribute to Co-operative reserve funds?
When a member breaks the rules and regulations of the Co-operative (clearly stated in the byelaws), the resulting penalties can become a source of reserve funds
41
What role do grants and gifts play in Co-operative reserve funds?
Grants and gifts from Governments and other private donors (both domestic and foreign) can contribute to Co-operative reserves
42
What are "valuation or concealed reserves"?
This source of reserves arises from bookkeeping techniques through valuations and depreciations
43
What are some advantages of Co-operative reserves?
◦
Stable Capital Source: Reserves provide financial stability as they are not available to individual members upon withdrawal
.
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Increased Security for Lenders: Reserves act as a form of security, encouraging lenders to advance more loans
.
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Cheap Source of Capital: Reserves are cheaper to obtain as they do not involve the administrative costs associated with share or borrowed capital
.
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A Source of Long Term Capital: Reserves are available on a secured long-term basis and tend to increase yearly, minimizing problems of long-term investment
.
44
What are some limitations or potential conflicts associated with Co-operative reserves?
Source of Conflicts between Management and Members: Members may prefer higher patronage refunds over rapid reserve creation favored by management
.
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Conflict Arising from Timing: Conflicts can occur regarding the timing of refunds versus reserve conservation, especially during festive periods
.
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Danger of Autonomy of the Management: Large reserves might lead management to feel they can make investments without member approval
.
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Loss of Control of the C-operatives by Members: Technical bookkeeping practices can be used to manipulate reported profit without members' knowledge
.
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Creation of All False Sense of Security: High reserve levels can lead to carelessness in financial matters
.
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Comparative Slowness in Reserve Creation: Reserves are created from surpluses, so low or no surplus means slow or no reserve growth
.
45
Why is profit referred to as "surplus" in Co-operatives?
Profit is referred to as surplus because the primary motive of forming a Co-operative is not to make surplus but for mutual assistance. If a balance remains after expenses are subtracted from income through efficient management, this balance is called surplus.
46
Why is Co-operative finance known as "self-finance"?
: Co-operatives finance is known as self-finance because:
◦
Members, who are the owners and users, also provide the finance for the business
.
◦
Reserves increase every time the Co-operative makes a surplus, and these reserves are not withdraw
47
How does borrowed capital differ from owned capital (share capital and reserves) in cooperatives?
Borrowed capital is obtained from outside the cooperative and must be repaid with interest, unlike share capital and reserves which remain permanently and may not bear interest. Borrowed capital also generally does not confer decision-making powers and is usually fixed over time, excluding interest rates, while owned capital can fluctuate.
48
Who has the supreme authority for borrowing money in a cooperative?
The Annual General Meeting of the cooperative, which consists of all its members, has the supreme authority for borrowing money and ultimately bears the risk.
49
Who does the Annual General Meeting delegate the power to borrow to? Are there any conditions on this delegation?
The Annual General Meeting delegates the power to borrow to the management of the cooperative. The maximum amount to borrow and the borrowing terms are clearly specified.
50
: Can the Director of Cooperative Services influence a cooperative's borrowing capacity? If so, how?
Yes, the Director of Cooperative Services may limit generally or specifically the maximum liability of a cooperative, beyond which no registered society is expected to take loans.
51
What is one advantage of borrowed capital for a cooperative in terms of member services?
Borrowed capital can enable the cooperative to improve its services to the members, thereby enhancing the cooperative effect.
52
What is a financial advantage of borrowed capital for tax-paying cooperatives?
Borrowed capital interest rates are deductible from tax.
53
What is a key disadvantage of borrowed capital concerning interest payments?
Borrowed capital requires regular payments of interest, even when the cooperative is making net losses, unlike owned capital.
54
Can a creditor recall borrowed capital at any time? How does this compare to reserves?
Borrowed capital cannot be recalled by the creditor and is therefore not secured compared to reserves.
55
What is a major factor affecting the availability of borrowed capital?
The availability of borrowed capital depends largely on the availability of acceptable collaterals, which cooperatives may find difficult to provide
56
Why might a cooperative choose to obtain loans from its own members?
Reasons include lower interest rates compared to banks, interest being attached (unlike fixed maximum rates on share capital), potentially no need for collaterals, and it demonstrates member confidence in the cooperative. These loans are treated as third-party transactions, not based on membership.
57
What are the two main forms of financial assistance that governments in Nigeria provide to cooperatives?
Governments provide grants which are not repayable and may be for specific projects, and loans which attract low interest rates and are to be repaid
58
What are some potential drawbacks of cooperatives receiving loans from the government?
These include the perception that the money is "National cake" and does not need to be repaid, laxity in government oversight leading to high default rates, and the danger of government interference in the cooperative's affairs.
59
What are some advantages of borrowing capital from financial institutions like banks?
: Banks usually have more funds to lend, offer access to financial management experts, and may provide overdraft facilities
60
What are some disadvantages of borrowing capital from financial institutions like banks?
Bank loans are often short-term, they usually demand collaterals, bank officials can be inflexible, and banks may insist on having a say in the cooperative's internal affairs.
61
Where are cooperatives often advised to borrow from preferentially over banks and financial agencies?
Cooperatives are often advised to borrow from organizations that are part of the cooperative movement or have friendly relations with them
62
How can Cooperative Thrift and Credit/Investment Societies lend money to other cooperatives?
These societies can lend directly if there is personal acquaintance, or more commonly, through unions, federations, and other cooperative apex organizations that borrow money to their affiliate members
63
How can suppliers of goods/services act as a source of borrowed capital for cooperatives?
Suppliers can extend loan funds by providing goods and/or services on credit, which are paid for by the cooperative after they are sold.
64
What is a key takeaway regarding borrowed capital as a source of funds for cooperatives?
Borrowed capital is a significant source of funds for cooperatives, especially due to limitations of owned capital. It has distinct features, advantages, disadvantages, and various sources that cooperatives should carefully consider.
65
What are the layers of Co-operative Management structure?
The structure of Co-operative Management is in layers: the members (owners and users) who constitute the General Assembly (highest level), and the Board of Directors (also known as officers or Committee Members elected by the general members).
66
Who are the members of a Co-operative?
The members of a Co-operative are also known as the owners and users of Co-operatives goods or services. They constitute the General Assembly
67
How are the functions of the general members recognized and appreciated?
The major ways the function of the general members are recognized and appreciated is through meetings, known as General Meetings, which are usually held four times a year. Special meetings can also be summoned as circumstances and situations arise
68
What are the objectives of General Meetings in a Co-operative?
The objectives of General Meetings include:
◦
To identify, analyse and solve problems
.
◦
To give information
.
◦
To obtain opinion and recommendation
.
◦
To decide on a course of action
.
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To conduct business transaction (e.g., payment for goods, receiving/repaying loans)
.
◦
To build enthusiasm and emphasize social reasons for cooperation
.
69
What are Byelaws in the context of a Co-operative?
Byelaws are the rules and regulations with which the society will be managed. They are made from model byelaws prepared by the Director of Co-operative services. The General Meetings can amend existing byelaws.
70
How are the Board of Directors or Committee Members elected and removed?
It is the duty of the general meeting to elect Board of Directors or Committee members into various offices (e.g., president, secretary, treasurer). The members also have the power to remove anybody from office who is found wanting in their responsibilities
71
What are some of the functions of the Committee Members (Board of Directors)?
Some functions of the Committee Members include:
◦
To Represent the Society before legal authorities and in transactions with third parties
.
◦
Power to Sue and be sued on behalf of the Society
.
◦
Manage the Society’s Affairs as indicated in the byelaws
.
◦
Maintaining the Society’s Account properly
.
◦
Making Policies for the Co-operative Society
.
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Controlling the Manager, including hiring and firing
.
◦
Ensuring the Security of Society’s Assets
.
◦
Being liable for any loss due to acts contrary to co-operative principles, laws, and byelaws
.
72
What are the duties of the President of a Co-operative Society?
The duties of the President include:
◦
Presiding at all general and committee meetings
.
◦
Ensuring that the business of the Society is well managed
.
◦
Being a signatory to the Society’s accounts
.
◦
Representing the Society at all meetings within and outside the country
.
73
What are the duties of the Treasurer of a Co-operative Society?
Taking charge of all money received by the society
.
◦
Disbursing money according to Committee directives
.
◦
Signing the cash book and producing the cash balance when asked
.
◦
Ensuring that funds exceeding the authorized limit are kept in the bank
.
◦
Signing members' passbooks
.
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Being a signatory to the Society’s accounts and other important transactions
.
74
What are the duties of the Secretary/Manager of a Co-operative Society?
◦
Maintaining and keeping the books of accounts and other records
.
◦
Summoning meetings (through the president's directive) and taking the minutes
.
◦
Preparing and submitting the accounts of the Society, including final accounts
.
◦
Managing the day-to-day activities of the secretariat and junior staff
.
75
What are some problems associated with the members in the management of Co-operatives?
Some problems with members include:
◦
Lack of understanding and appreciation of the bye-laws and co-operative laws, leading to increased autonomy for managers
.
◦
Illiteracy, hindering their ability to interpret financial statements for decision-making
.
◦
Lack of the right attitude regarding the increasing autonomy of management and committee members, often failing to address malpractices
.
76
What are some problems faced by Committee Members in the management of Co-operatives?
Some problems faced by Committee Members include:
◦
Inadequate functional education hindering their ability to perform duties
.
◦
Low level of Co-operative knowledge
.
◦
Greed and the urge to embezzle in connivance with the manager
.
77
What are some problems associated with the Manager in the management of Co-operatives
Some problems associated with the Manager include:
◦
Increased self-autonomy leading to dictating to the owners and exploiting their ignorance
.
◦
Lack of managerial skills and current trends in Co-operatives administrative management
.
◦
The need for attitudinal change regarding their position within the Co-operative
.
78
When can formal cooperatives be said to have started in Nigeria?
Formal Cooperatives in Nigeria can be said to have started in 1907.
79
What was one of the earliest formal Cooperatives in Nigeria?
Among the earliest formal Cooperatives in Nigeria was Agege Planters union (APU)
80
What was the main purpose of the Agege Planters Union (APU)?
The Agege Planters union (APU) was formed to ensure that cocoa was the major farm produce being exported from Nigeria and earning the Country much foreign exchange.
81
Name two other early farmers' unions mentioned alongside the Agege Planters Union.
Two other early farmers unions mentioned are the Egba farmers Union and the Ibadan farmers
82
What were the reasons for the Egba farmers Union joining the Agege Planters Union?
to pool resources together to purchase inputs of production at reduced prices, to exchange ideas by sharing experience on how they could produce the best quality cocoa, and to collectively fight for government recognition.
83
When did the European form of Co-operative arrive in Africa?
The European form of Co-operative arrived in Africa in the 1920s.
84
Which colonial power introduced the European form of Cooperatives to Africa?
The British introduced the European form of Co-operatives to Africa.
85
In what year did the government yield to the demands of the Agege Planters Union and other farmers regarding cooperatives?
The government yielded to the farmer in 1926
86
What was the government's initial action in 1926 in response to the farmers' demands?
In 1926, cocoa fermentaries were built for the farmers.
87
What were some of the reasons for the rapid development of Cooperatives after the government's initial involvement?
Government saw Co-operative as a means of realizing more income, other farmers observed the APU and saw it as a way to enhance their living standards, and improved farming techniques could be better spread through Co-operatives.
88
Who did the government commission to study and report on the further development of cooperatives in Nigeria?
The government commissioned Mr. C.F. Strickland, a Co-operatives expert
89
In what year did Strickland submit his report, and what was its title?
Strickland submitted his report in 1933, titled “the introduction of Cooperatives Societies in Nigeria.”.
90
What did Strickland's report generally recommend?
introduction and development of Co-operatives in almost all spheres of economic endeavours
91
What key action related to cooperative law did Strickland undertake?
Strickland went a step further by drafting a proposed ordinance (Law) for Co-operatives development.
92
Who was appointed as the first Registrar of Co-operatives in Nigeria?
Major E.F. Haig was appointed as the first Registrar of Co-operatives in Nigeria
93
What specific directive was given to the first Registrar of Co-operatives?
Haig was specifically directed to form new Co-operative Societies.
94
What was the name of the first registered Co-operative Society in Nigeria, and in what year was it registered?
The first registered Co-operatives Society in Nigeria was the Gbedun Co-operative Produce marketing Society Ltd, registered in 1937
95
What government bodies were created to further the development of cooperative societies?
Departments were created in the relevant ministry such as the Ministry of Commerce, Industries and co-operatives for the purpose of promoting Co-operative society.
96
What were the two principal reasons why the colonial government decided to spread formal Co-operatives in Nigeria?
The two principal reasons were economic and political reasons.
97
Mention some of the economic reasons for the colonial government's intervention in Co-operative development.
Economic reasons included: bringing peasant farmers into the market economy, earning foreign exchange, ensuring regular food supply, facilitating extension work, and helping farmers realize better income.
98
What was the political reason behind the colonial government's promotion of Cooperatives?
The colonial government thought that Co-operatives would act as a link between the government and emerging political movements and could divert mass energies from political struggles
99
What was a key negative consequence of the government's political motivations for promoting cooperatives?
Contrary to the colonialists' expectation, some of the Co-operatives joined elites to agitate for the country’s independence.
100
How did poor co-operative education contribute to the failure of early cooperatives?
Many illiterate members could not understand the principles of formal Co-operative nor apply business principles in their management.
101
What role did the dishonesty of cooperative leaders play in the failure of early cooperatives?
Many Co-operatives leaders were dishonest, and Co-operatives funds often ended in their private pockets.
102
Why were members of early cooperatives often disloyal?
Disloyalty was partly due to a lack of understanding of what Co-operatives are and partly because of the fraudulent activities of their leaders, leading members to trade with more profitable middlemen.
103
What was a significant inadequacy in the oversight of early cooperatives?
There was inadequate supervision from either the government department responsible for Co-operatives and from the apex organization
104
What were the intended purposes of government and apex organization supervision of cooperatives?
The purposes of supervision were: to check if business was conducted according to byelaws, to identify negative deviations from byelaws, and to make necessary corrections.
105
What were some likely reasons for the inadequacy of supervision?
Reasons likely included the smallness of the government staff, inadequate motivation, and inadequate means of transport.
106
What is identified as the starting point for the history of formal Cooperatives in Nigeria?
The starting point for the history of formal Co-operatives in Nigeria is 1907 with the Agege Planters Union (APU).
107
What key legislative action did the colonial government take regarding cooperatives?
The colonial government passed the Co-operatives Law of 1935 (This is inferred as Strickland submitted a draft ordinance, and the conclusion mentions the passage of a law).
108
What is mentioned as a key factor that did not end the history of Co-operatives in Nigeria?
The failure of the early Co-operatives did not end the history of Co-operatives in Nigeria; efforts were made to encourage their spread.
109
Explain the factors responsible for the failure of early Co-operative in Nigeria.
The factors responsible include inappropriate political roles of government, poor cooperative education, dishonesty of cooperative leaders, disloyalty of the membership, and inadequacy of supervision from government and apex organizations.
110
What did a 1988 situation report reveal about the spread of Cooperatives in Nigeria?
A 1988 situation report provided a clearer picture of the spread of Co-operatives in terms of the number of registered Cooperatives, number of registered agricultural co-operatives, and other types of cooperatives by state.
111
According to the 1988 report, which state had the highest number of registered cooperatives?
According to the 1988 report, Oyo State had the highest number of registered cooperatives with 5000.
112
According to the 1988 report, in which state were no agricultural cooperatives reportedly practiced?
According to the 1988 report, Kano State reportedly had no agricultural cooperatives practiced as of 1988.
113
Based on experience mentioned in the source, what were the predominant "other forms" of Cooperatives in Nigeria besides agricultural cooperatives in 1988?
The other forms of Co-operatives were predominantly Co-operatives in thrift and credit societies due to their popularity among Nigerians
114
What is a common action taken by the government to promote Co-operative development in Nigeria?
A common action is the creation of Co-operative Departments at both the State and Federal Government levels to supervise Cooperative development.
115
What is considered the most important role of the government in Co-operative affairs?
The most important role of government is to legislate to direct Co-operatives and give them legal personality.
116
What is the name of the current co-operative law in Nigeria
The current co-operative law mentioned is the Co-operative Decree of 1993
117
What are some of the provisions included in the Co-operative Decree of 1993 in Nigeria?
Provisions include: a definition of Co-operative, a description of the objects and procedures for establishment, registration, amendment, and dissolution, conditions of membership, methods of administration, management, and internal audit, and the protection of the name “Co-operative”.
118
What is another way the government supports Co-operatives financially in Nigeria besides providing loans?
Government also provides outright grants to Co-operatives which are usually not repaid
119
What is a known problem faced by Co-operatives that has led to government intervention through staff secondment?
One problem of Co-operatives is incompetent management due to a shortage of skilled personnel with the right management skills
120
(I.C.A.) ,means
International Co-operatives alliance (I.C.A.).
121
How does the government address the issue of incompetent management in Co-operatives?
Government sometimes posts staff to Co-operatives where there is a lack of personnel through staff secondment, while respecting the independent nature of Co-operatives.
122
What is a positive consequence of government intervention in the promotion of Co-operatives in Nigeria?
Positive consequences include: the formation of more Co-operatives leading to more employment opportunities, the facilitation of training and development of Co-operative personnel, the availability of loans for viable businesses, and the provision of technical assistance.
123
What is a negative consequence of government intervention in the promotion of Co-operatives in Nigeria?
Negative consequences include: over expansion leading to non-viable Co-operatives, mismanagement and liquidation due to over promotion, compulsory membership when Co-operatives were used to package programs, and members starting to see Co-operatives as government agencies rather than member-owned organizations
124
How did the secondment of government officials sometimes negatively impact Co-operatives?
Secondment sometimes created ill feelings as members saw it as government taking over their Co-operatives.
125
What has been a trend in the power of government intervention in Co-operatives during the post-independence period in Nigeria?
The power of state (government) intervention in Co-operatives has increased during the post-independence period, giving government officials wider power to intervene.
