## Restrictions on Shareholding and Borrowings (Co-operative Societies Act, 1912)

### Section 5 — Restriction on Shareholding

In a society where member liability is limited, no individual member (other than a registered society) can hold shares exceeding:

20% of the total number of shares, OR
Shares of a value exceeding ₹1,000

whichever is lower.

Implication for auditor: Verify the share register to ensure no single member holds beyond the prescribed limit.

### Section 30 — Restriction on Borrowings from Non-Members

A registered society may accept loans and deposits from non-members, but only:

Subject to restrictions and limits laid down in the bye-laws of the society.

Implication for auditor: Examine the bye-laws to check whether borrowings from non-members are permitted and within limits.

### Application Logic

Fact	Section Applies	Outcome
Member holds > 20% shares or > ₹1,000 worth	Section 5	Violation — excess holding must be flagged
Loan from non-member, bye-laws silent	Section 30	Permissible if no restriction in bye-laws
Loan from non-member, bye-laws restrict	Section 30	Violation if limits exceeded

Worked example

### Example 1

MTP 7 Scenario: Aman Co-operative Society — 1,000 shares @ ₹10 each (total capital ₹10,000). Mr. Dhairya holds 200 shares (₹2,000). Mr. Shivam (non-member) has given a loan; no restriction in bye-laws.

Analysis of Mr. Dhairya's shareholding:

Total shares = 1,000; 20% limit = 200 shares — at face value ₹2,000.
However, Section 5 limits value to ₹1,000, meaning maximum permissible = 100 shares (₹1,000).
Mr. Dhairya holds 200 shares (₹2,000) — violates Section 5; he can hold a maximum of 100 shares.

Analysis of Mr. Shivam's loan:

Section 30 allows borrowing from non-members subject to bye-law restrictions.
Since the bye-laws have no restrictions, the loan from Mr. Shivam is permissible.

⚠️ Common exam mistakes

Applying only the 20% share count limit and ignoring the ₹1,000 value cap — both conditions apply; the stricter one prevails
Concluding that borrowing from non-members is automatically prohibited — it is allowed unless the bye-laws restrict it
Forgetting that registered societies (as members) are exempt from the Section 5 shareholding cap
Not checking the bye-laws before commenting on non-member borrowings

Bare-Act text Section 5 (shareholding limit); Section 30 (borrowings from non-members) · Co-operative Societies Act, 1912 · click to expand

Section 5: In the case of a society, the liability of the members of which is limited, no member other than a registered society shall hold such portion of the share-capital of the society as would exceed one-fifth of the total number of shares or of the value of shareholding to one thousand rupees. Section 30: A registered society shall accept loans and deposits from persons who are not members subject to the restrictions and limits of the bye-laws of the society.

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Co-operative Society Audit – Restrictions on Shareholding and Borrowings

Worked example

⚠️ Common exam mistakes