PPS Food Market is a customer co-operative in a small town. Each member paid £50 to join and can vote at the annual meeting. The business sells locally prod...
Question 1 Report
PPS Food Market is a customer co-operative in a small town. Each member paid £50 to join and can vote at the annual meeting. The business sells locally produced food and clothing, with prices set to remain affordable. This year PPS made a surplus of £54 000. Managers propose retaining £18 000 for new refrigeration and sharing the rest equally between 240 members. Some members want the business to become a public limited company so that it can raise more cash by selling shares. Others want it to remain a co-operative because customers and local jobs are important. Consider the following options before selecting an answer.
(a) Define the term co-operative. [2]
(b) State three stakeholder groups, other than members, that may be affected by PPS Food Market. [3]
(c) Calculate the payment each member would receive if the remaining surplus is shared equally. [5]
(d) Discuss whether PPS Food Market should become a public limited company. [10]
Answer Details
(a) A co-operative is a business owned by its members [1] and run for their mutual benefit, with democratic control such as one member, one vote [1]. Ownership and voting rights are therefore based on membership, not on how much share capital a person owns. [2]
(b) Three stakeholder groups other than members are employees, customers and suppliers or local producers. Each may be affected by PPS's decisions about prices, expansion and jobs. The local community, government and lenders would also be valid stakeholder groups. [3]
(c) First remove the amount retained for refrigeration from the surplus:
\[£54\,000-£18\,000=£36\,000\]
This is the surplus available to members [2]. Divide it equally among 240 members:
\[£36\,000\div240=£150\]
Each member receives £150 [3].
(d) Becoming a public limited company would allow PPS to sell shares to the public [1]. This could raise substantial finance for refrigeration, further stores or online delivery [1]. Limited liability may make investment more attractive [1], and expansion could lower average costs and increase PPS's market reach [1].
However, remaining a co-operative keeps one vote for each member, rather than allowing shareholders with the most shares to control the business [1]. PPS can continue to use surplus to support affordable prices and members rather than maximise dividends [1], while protecting local suppliers and jobs [1]. A plc may face pressure to produce short-term profit, potentially leading to higher prices or less support for local objectives [1].
A justified conclusion is that PPS should remain a co-operative if its main purpose is member and community benefit. It should become a plc only if the need for large-scale growth finance is more important than democratic member control and local aims. This directly weighs its stated objectives against the finance advantage. [2]
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