Membership interests
Generally
The bill generally permits a UCA to increase, decrease, establish, or alter the
authorized amount and divisions of membership interests by amending the articles
or the bylaws. A membership interest is personal property and does not give the
owner of the interest any interest in specific cooperative property. A UCA may issue
authorized membership interests on terms and conditions prescribed in the articles
or bylaws or, if authorized in the articles or bylaws, on terms and conditions
determined by the board. The bill specifies disclosures that a UCA must make to any
person to whom a membership interest is issued and to other members. A UCA may
not issue a membership interest to any person unless the subscription price of the
membership interest has been paid for in money or property. Any subscription price
paid for in property must be approved by the board. The bill includes provisions that
apply if records of membership interests or UCA securities are missing.
Patron membership interests
A UCA may have patron members, who must engage in certain transactions for
or with the UCA as a condition of receiving financial rights or distributions. A UCA
may also have nonpatron members. With certain exceptions, if a UCA has patron
members, all patron membership interests, collectively, must have not less than 51
percent of the UCA's financial rights to profit allocations and distributions. The bill
allows a UCA to amend its articles, by a majority vote of patron members, to reduce
this required percentage to as little as 30 percent. Any amendment to provide for a
reduced percentage must be approved by affirmative vote of the patron members.
Nonpatron membership interests
The bill requires each person to whom a membership interest, other than a
patron membership interest, is issued to sign a member control agreement (see below
for definition) or a statement agreeing to abide by any applicable conditions imposed
under the bylaws. Unless the bylaws contain a sufficient description, the UCA must
provide each person to whom a nonpatron membership interest is issued a
description of the rights and obligations applicable to holders of that nonpatron
membership interest, the transferability of that nonpatron membership interest,
and the manner in which profits and losses are divided and allocated among the
membership interests and membership classes.
Transfer and reacquisition of membership interests
A membership interest may be transferred with the approval of the board. The
bill, though, allows a restriction on the transfer or registration of a transfer of
membership interests to be imposed by various methods. Such a restriction is not
binding with respect to membership interests issued prior to the adoption of the
restriction, unless the holders of those membership interests are parties to the
agreement or voted in favor of the restriction. Such a restriction is enforceable only
if it is not manifestly unreasonable under the circumstances. In addition, such a
restriction is enforceable only if the restriction is disclosed as provided in the bill, is
imposed under the law governing the UCA or is included in the articles or bylaws,
or relates to an uncertificated membership interest and is included in information
sent to the holders of such a membership interest.
The articles or bylaws may provide the patron members, individually or
collectively, or the UCA with the first privilege of purchasing the membership
interests of any class of membership interests offered for sale. In addition, unless
the articles or bylaws provide otherwise, a nonpatron member may force the UCA to
acquire the member's nonpatron membership interests if the articles or bylaws are
amended in a manner that materially and adversely affects the rights and
preferences applicable to the nonpatron membership interests of the nonpatron
member. The bill provides a procedure that applies to a nonpatron member who
intends to force such an acquisition. The bill also contains provisions concerning the
wrongful transfer of certain UCA securities.
Allocation of profits, losses, and distributions
The bill specifies that, unless otherwise provided in the articles or bylaws, the
allocation of profits and losses among nonpatron membership interests individually
and patron membership interests collectively shall be based on the value of
contributions to capital made according to the patron membership interests
collectively and the nonpatron membership interests individually. Also, if not
otherwise provided in the articles or bylaws, distributions of the UCA must be made
on the basis of value of the capital contributions of the patron membership interests
collectively and the nonpatron membership interests individually.
Assignment of financial rights
With certain exceptions, a member's financial rights in a UCA are transferable
in whole or in part. An assignment of a member's financial rights under the bill
entitles the assignee to receive, to the extent assigned, only the share of profits and
losses and the distributions to which the assignor would otherwise be entitled. An
assignment does not dissolve the UCA and does not entitle or empower the assignee
to become a member, to exercise any governance rights, to receive any notices from
the UCA, or to cause dissolution. In addition, the assignment may not allow the
assignee to control the member's exercise of governance or voting rights.
The bill allows a restriction on such an assignment to be imposed in the articles,
in the bylaws, in a member control agreement (see below for definition), by a
resolution adopted by the members at a members' meeting, or by an agreement
among members and the UCA. A restriction may not affect financial rights reflected
in the required records of the UCA before the adoption of the restriction, unless the
owners of those financial rights are parties to the agreement or voted in favor of the
restriction. Also, a restriction generally is enforceable only if it is not manifestly
unreasonable under the circumstances and is noted conspicuously in the required
records of the UCA.
The bill also allows a security interest in a member's financial rights to be
foreclosed and otherwise enforced, and allows a secured party to assign a member's
financial rights in accordance with the chapter of the Uniform Commercial Code
dealing with investment securities, without the consent or approval of the member
whose financial rights are subject to the security interest.
Statement of membership interest
The bill requires a UCA, upon the request of any member, to state in writing
the particular membership interest owned by that member. The statement must also
describe the member's rights to vote, if any, and to share in profits, losses, and
distributions, restrictions on assignments of the member's financial rights or voting
rights, and any assignment of the member's rights then in effect other than a security
interest.
Terms of membership interests
Unless the articles or bylaws provide otherwise, all membership interests must
be of one class, without series. The membership interests must be patron
membership interests and, if authorized, nonpatron membership interests with
specified voting rights. Unless the articles or bylaws provide otherwise, the
membership interests must have equal rights and preferences in all matters not
otherwise provided for by the board. The rights and preferences of membership
interests may be made dependent upon facts ascertainable outside the articles or
bylaws, or outside the resolution or resolutions establishing the particular class or
series of membership interest, if certain disclosure requirements are satisfied. In
addition, the rights and preferences may include by reference some or all of the terms
of any agreements, contracts, or other arrangements entered into by the UCA in
connection with the establishment of the particular class or series of membership
interests, if the cooperative retains at its principal office a copy of the operative
provisions in the agreements, contracts, or other arrangements.
The bill allows a UCA to specify in the articles or bylaws, or by resolution, that
membership interests are subject to the right of the UCA to redeem the membership
interests at a price fixed in the articles or bylaws or by the board; that owners of the
membership interests may receive cumulative, partially cumulative, or
noncumulative distributions; that particular membership interests may have
preference over any other class or series of membership interests for the payment of
distributions; that the membership interests may be convertible into membership
interests of any other class or series; and that, with certain exceptions, the
membership interests may have full, partial, or no voting rights. The bill allows the
board, by resolution, to establish a class or series of membership interests, set forth
the designation of the class or series, and fix the relative rights and preferences of
the class or series.
The bill specifies that a subscriber for membership interests or a member is
under no obligation to the UCA or its creditors with respect to the membership
interests subscribed for or owned, except to pay to the UCA the full consideration for
which the membership interests are issued or to be issued.
Judgment creditors
The bill generally allows a court to order the payment of an unsatisfied
judgment from a member's or an assignee's financial rights in a UCA.
Powers of estates and fiduciaries
If a member who is an individual dies or a court adjudges the member to be
incompetent to manage his or her person or property, or an order for relief under a
judgment of bankruptcy is entered with respect to the member, the member's
executor, administrator, guardian, conservator, trustee, or other legal representative
may exercise all of the rights applicable to the member's membership interest for the
purpose of settling the estate or administering the member's property. In addition,
if a member is not an individual and is dissolved, terminated, or placed by a court
in receivership or bankruptcy, the member's legal representative or successor may
exercise all of the rights applicable to the member's membership interest. However,
in certain circumstances, if the member's membership interest is terminated, the
terminated member's interest is considered to be that of an assignee of financial
rights and the rights to be exercised by the executor, administrator, guardian,
conservator, trustee, legal representative, or successor are limited accordingly.
Certificated membership interests
The bill allows a UCA to issue certificated membership interests. The UCA
must provide each holder of a certificated membership interest with a certificate of
membership interest as described under the bill. Among other things, a certificate
of membership interest must contain the name of the cooperative; a statement that
the cooperative is organized under the laws of this state and the laws established in
this bill; the name of the person to whom the certificate is issued; the number and
class of membership interests, and the designation of the series, if any, that the
certificate represents; a statement that membership interests are subject to the
articles and bylaws; and any restrictions on transfer of the membership interests
that the certificate represents. This required information may be stated by reference
to the back of the certificate or to another document. A certificate of membership
interest is legally presumed to be proof of the ownership of the membership interest
that the certificate represents. The bill contains a procedure for the issuance of
replacement certificates of membership.
Uncertificated membership interests
Unless prohibited by the articles or bylaws, the board may adopt a resolution
permitting uncertificated membership interests. With certain exceptions, the UCA
must give each person who obtains an uncertificated membership interest a
statement containing the information required to be stated on certificates. Holders
of certificated and uncertificated membership interests of the same class and series
generally have identical rights and obligations.
Contributions, allocations, and distributions.
Generally
If authorized by the board, a UCA may accept a contribution, make agreements
requiring a member or potential member to make a contribution as a condition of
membership or receipt of a membership interest, and make agreements providing a
person with rights to make a contribution. A person may make a contribution to a
UCA under the bill by paying money or transferring property to the UCA or
performing services to or for the benefit of the UCA, or by promising, in writing, to
make such a payment or transfer or perform such services. Under the bill, no
purported contribution is an actual contribution until it is accepted by the board,
given a value, and recorded accordingly.
Value of contributions
Under the bill, the value accorded to a contribution by the board is legally
presumed to be proper if the board acted in good faith and on the basis of methods
that are reasonable under the circumstances. The bill specifies that directors who
are present and entitled to vote, and who, intentionally or without reasonable
investigation, fail to vote against approving a consideration that is unfair to the
UCA, or who overvalue property or services received or to be received by the UCA as
a contribution, are jointly and severally liable to the UCA for the benefit of the
members who did not consent to and are damaged by the consideration or
overvaluing of property or services.
The bill requires a UCA to restate the value of all existing contributions upon
acceptance of a new contribution. The bill requires the board to follow a specific
procedure to calculate the restated value of the contributions, unless a different
procedure is provided in the articles or bylaws.
Contribution agreements
As noted above, the board may make agreements requiring a member or
potential member to make a contribution as a condition of membership or receipt of
a membership interest. Such an agreement, called a contribution agreement, must
be in writing and signed by each person required to make a contribution under the
agreement. A person's rights under a contribution agreement generally may not be
assigned to nonmembers. Under the bill, a contribution agreement is irrevocable for
a period of six months, unless otherwise provided in the contribution agreement or
unless each person required to make a contribution under the agreement and, if in
existence, the UCA consents to a different period. Unless the contribution
agreement provides otherwise, all payments or other actions required under the
agreement must be made or taken at the time or times determined by the board. The
bill requires the board to ensure that any call for a person to make a payment or
perform an action required under a contribution agreement is made uniformly to all
membership interests of the same class or series.
Unless the contribution agreement provides otherwise, if a person fails to make
a payment required under the contribution agreement, the UCA may bring an action
for breach of contract, sell any membership interests that are subject to the
contribution agreement and bring an action to collect any deficiency, or cancel the
contribution agreement. The bill further requires any person who fails to make a
required contribution of property or services to pay to the UCA an amount equal to
that portion of the value of the contribution that has not been made, as stated in the
UCA's required records.
A UCA may sell membership interests as described above only if the amount
due under the contribution agreement relating to those membership interests
remains unpaid for a period of 20 days after the UCA gives written notice of demand
for payment. The total offering price of the membership interests in such a sale must
be at least the amount of the balance owed by the person, plus the expenses
incidental to the sale. After such a sale, the UCA must pay to the person whose
interest was sold either the amount by which the proceeds of the sale, less the
expenses incident to the sale and any additional amounts the person is required to
pay under the terms of the contribution agreement, exceeds the amount of the
payment the person failed to make or the total amount paid by the person under the
contribution agreement, whichever is less.
A UCA may cancel a contribution agreement as described above only if the
amount due under the contribution agreement remains unpaid for a period of 20 days
after the UCA gives written notice of demand for payment to the person required to
make the payment. Unless the contribution agreement provides otherwise, if the
UCA cancels a contribution agreement, the UCA may retain any payments made as
provided in the contribution agreement.
Contribution rights agreements
As noted above, the board may make agreements to provide a person rights to
contribute to the UCA. These agreements, called contribution rights agreements,
must be in writing, although they may incorporate terms by reference. A person's
rights under a contribution rights agreement generally may not be assigned to
nonmembers.
Allocations of profits, losses, and distributions between members
The bill generally requires profits and losses to be allocated between patron
membership interests collectively and nonpatron membership interests collectively
on the basis of the value of contributions received from patron membership interests
collectively and nonpatron membership interests collectively. However, the
allocation of profits to patron membership interests collectively in a fiscal year may
not be less than 51 percent of the total profits for that fiscal year, except that, in
certain circumstances, this allocation may be reduced to as little as 30 percent of the
total profits.
The bill requires the articles or bylaws to prescribe the manner in which cash
or other assets of a UCA will be distributed among the membership interests of the
UCA. Unless the articles or bylaws provide otherwise, a UCA must distribute cash
or other assets to patron membership interests collectively and nonpatron
membership interests collectively on the basis of the value of contributions received
from patron membership interests collectively and nonpatron membership interests
collectively. As above, the distributions to patron membership interests collectively
in any fiscal year may not be less than 51 percent of the total distributions for that
fiscal year, except that in certain circumstances this required distribution may be
reduced to as little as 30 percent of the total distributions.
Allocations and distributions of profit to patron members
The bill allows a UCA to set aside any portion of profits allocated to the patron
membership interests that the board determines is advisable for the purpose of
creating or maintaining a capital reserve. The bill also allows the board to set aside,
from the portion of profits allocated to the patron membership interests, an amount
not to exceed 5 percent of the annual net income of the UCA for promoting and
encouraging cooperative organization and any amount for reserves for new
buildings, machinery and equipment, depreciation, losses, and other proper
purposes.
At least once per year, a UCA must allocate and distribute to patron members
(and, if authorized in the bylaws, to nonmember patrons) all profits allocated to
patron members in excess of dividends on equity and additions to reserves. These
distributions must be made on the basis of patronage, except that any distributions
to nonmember patrons must be made as provided in the bylaws. A cooperative may
establish allocation units and pooling arrangements and may account for and
distribute net income to patrons on the basis of allocation units and pooling
arrangements. A cooperative may offset the net loss of an allocation unit or pooling
arrangement against the net income of other allocation units or pooling
arrangements. Distributions may be made in the form of cash, capital credits,
allocated patronage equities, revolving fund certificates, or securities. In addition,
if a nonmember patron with patronage credits is not qualified or eligible for
membership, the UCA may credit to the nonmember patron's account a refund due
to the nonmember patron. The board may issue a certificate of interest to reflect any
such credit and, after the board issues such a certificate, the patron may receive
distributions of profits in the same manner as a patron member.
Member control agreements
With certain exceptions, the bill allows any person who has entered into a
subscription or contribution agreement, or any member, to enter into a written
agreement with the UCA that relates to the control of or the liquidation, dissolution,
or termination of the UCA, or any phase of the business and affairs of the UCA. Such
an agreement, called a member control agreement, may not take effect unless it is
signed by all persons who are then members and all persons who have entered into
contribution agreements. A member control agreement may not relate to voting
rights of patron members or patron member allocation and distribution provisions.
The bill allows any result that is required or permitted to be accomplished through
a provision in the bylaws to also be accomplished through a member control
agreement.
Unclaimed property
The bill allows a UCA to distribute any abandoned property in its possession
to an entity that is exempt from taxation under section
501 (a) of the Internal
Revenue Code, rather than delivering the property to the state treasurer under the
unclaimed property law. The bill allows the articles or bylaws to extinguish the
rights of the owner of the abandoned property upon distribution to the tax exempt
entity.
Merger and consolidation
Generally
The bill generally allows a UCA to merge or consolidate with any business
entity to the extent permitted by the applicable law of the jurisdiction under whose
laws the surviving business entity will be organized. To execute a merger or
consolidation, the board must prepare a plan of merger or consolidation and notify
each member of the proposed merger or consolidation. The plan must then be
approved by a specified vote of the members and articles or merger or consolidation
must be filed with DFI.
Merger of subsidiary or parent without member approval
The bill generally allows a parent UCA that owns at least 90 percent of the
outstanding ownership interests of each class and series of a subsidiary business
entity to merge the subsidiary into the parent or the parent into the subsidiary
without a vote of the members of the parent or the subsidiary. The bill also generally
allows a parent UCA that owns at least 90 percent of the outstanding ownership
interests of each class and series of two or more subsidiary business entities to merge
the subsidiaries into one another without a vote of the members. However, in neither
case may a UCA merge with a business entity organized under the laws of this state,
other than a cooperative or UCA, unless the law governing the business entity
specifically authorizes merger with a UCA. To execute either type of merger, the
board must prepare a plan, give notice of the merger and other information to each
member of each applicable subsidiary no later than ten days after the effective date
of the merger, and file articles of merger with DFI. If, immediately prior to either
type of merger, a business entity that is party to the merger is owned, at least in part,
by persons other than the parent UCA or an affiliate of the parent UCA, those
persons have dissenters' rights under the law governing the business entity's
organization.
Effect of merger or consolidation
Under the bill, all of the following occur when a merger or consolidation takes
effect:
1) All business entities that are party to the merger or consolidation become
the business entity surviving the merger or consolidation, as designated in the plan,
and the separate existence of every business entity that is party to the merger or
consolidation, except the business entity surviving the merger or consolidation,
ceases.
2) The title to all property owned by each business entity that is party to the
merger or consolidation is vested in the surviving business entity without reversion
or impairment.
3) If, under the laws applicable to a business entity that is a party to the merger
or consolidation, other than taxation laws, one or more of the owners thereof is liable
for the debts and obligations of such business entity, such owner or owners shall
continue to be liable for the debts and obligations of the business entity, but only for
such debts and obligations accrued during the period or periods in which such laws
are applicable to such owner or owners.
4) If, under the laws applicable to the surviving business entity other than
taxation laws, one or more of the owners thereof is liable for the debts and obligations
of such business entity, the owner or owners of a business entity that is party to the
merger, other than the surviving business entity, who become subject to such laws
shall be liable for the debts and obligations of the surviving business entity to the
extent provided in such laws, but only for such debts and obligations accrued after
the merger or consolidation.
5) The surviving business entity has all liabilities of each business entity that
is party to the merger or consolidation.
6) A civil, criminal, administrative, or investigatory proceeding pending by or
against any business entity that is a party to the merger or consolidation may be
continued as if the merger or consolidation did not occur, or the surviving business
entity may be substituted in the proceeding for the business entity whose existence
ceased.
7) The articles or other similar governing document of the surviving business
entity shall be amended to the extent provided in the plan.
8) The interests of each business entity that is party to the merger that are to
be converted into shares, interests, obligations, or other securities of the surviving
business entity or any other business entity or into cash or other property are
converted, and the former holders of the interests are entitled only to the rights
provided in the articles of merger or consolidation or to their dissenters' rights under
applicable law.
The bill also includes a procedure that a UCA may follow to abandon a merger
before it takes effect.
Dissolution
Voluntary dissolution
The bill creates a procedure by which a UCA may voluntarily dissolve. In order
for a voluntary dissolution to be initiated, a notice of intent to dissolve must be
approved by the affirmative vote of the members. The board must then file the notice
with DFI; collect, or make provision for the collection of, all unpaid subscriptions for
shares and all other debts owing to the UCA; and pay, or make provision for the
payment of, all debts, obligations, and liabilities of the UCA. After a notice is filed,
the board may lease or dispose of all or substantially all of the property and assets
of the UCA without a vote of the members.
Any property of the UCA remaining after discharge of the UCA's debts,
obligations, and liabilities may be distributed to the members and former members
as provided in the bylaws. If authorized by the members, the UCA's property may
be liquidated and disposed of at the discretion of the board. The bill allows certain
unclaimed assets to be forfeited to the UCA. After the board has provided for
payment of all debts, obligations, and liabilities of the UCA and the remaining
property of the UCA has been distributed or otherwise legally disposed of, the board
must file articles of dissolution with DFI, at which time the UCA is dissolved.
The bill provides a procedure by which dissolution proceedings may be revoked
before the articles of dissolution are filed. The bill also provides for court-supervised
voluntary dissolution in certain circumstances.
Involuntary dissolution
The bill allows member, creditors, and the attorney general, in certain
circumstances, to sue to dissolve a UCA. Under the bill, a member may bring an
action against a UCA for dissolution, liquidation, and equitable relief if any of the
following apply:
1) The directors or the persons having the authority otherwise vested in the
board are deadlocked in the management of the UCA's affairs and the members are
unable to break the deadlock.
2) The directors or those in control of the UCA have acted fraudulently, illegally,
or in a manner unfairly prejudicial toward one or more members in their capacities
as members, directors, or officers.
3) For a period that includes the time when two consecutive regular members'
meetings were held, the members failed to elect successors to directors whose terms
expired or would have expired upon the election and qualification of their successors.
4) The UCA's assets are being misapplied or wasted.
5) The UCA's period of duration as provided in the articles has expired and has
not been lawfully extended.
A creditor may bring an action against a UCA for dissolution, liquidation, and
equitable relief if the creditor has obtained a money judgment against the UCA and
an execution on that judgment has been returned unsatisfied or the UCA has
admitted in writing that a claim of the creditor against the UCA is due and owing
and that the UCA is unable to pay its debts in the ordinary course of business.
After giving a UCA 30 days to make a correction, the attorney general may
bring an action against a UCA for dissolution and liquidation, and for equitable relief
for persons other than the attorney general, if the articles and certificate of
organization of the UCA were procured through fraud; the UCA was organized for
a purpose prohibited by state law or not permitted under the law governing the UCA;
the UCA has knowingly violated a law governing the UCA, with intentional
disregard of the harm which the law is intended to avert; the UCA has violated more
than once a law governing the UCA or has violated more than one law governing the
UCA; or the actions of the UCA, or its failure to act, constitutes surrender or
abandonment of the business of the UCA.
The bill specifies procedures, including the appointment of a receiver, that
apply to involuntary dissolution proceedings (the procedures also apply to
court-supervised voluntary dissolution proceedings). In addition, the bill requires
the court, in determining whether to order a remedy in an involuntary dissolution
proceeding to consider the financial condition of the UCA. The court may not refuse
to order a remedy solely on the ground that the UCA has accumulated operating
profits or current operating profits. The court must also consider whether relief,
other than dissolution, suggested by one or more parties would permanently remedy
the cause of the action. If the court finds that a party to an involuntary dissolution
proceeding has acted arbitrarily, vexatiously, or in bad faith, the court may award
reasonable expenses, including attorney fees and disbursements, to any of the other
parties.
With certain exceptions, the bill prohibits any creditor or claimant who does not
file a claim or bring an action during the pendency of dissolution proceedings or who
has not brought an action before the commencement of dissolution proceedings, and
all those claiming through or under the creditor or claimant, from bringing an action
to collect on that claim or otherwise enforcing it.
Other provisions
Administration
The bill specifies UCA filing fees and permits DFI to assess a larger fee by rule
for documents filed in paper format. Also, if a UCA makes an erroneous filing, DFI
may revoke and expunge the filing and authorize a curative filing. Under the bill,
DFI must charge a $500 fee for any such curative filing.
Statutory references
