LRB-1745/2
PJH:lmk:pg
2005 - 2006 LEGISLATURE
April 15, 2005 - Introduced by Representatives Ainsworth, Albers, Ballweg,
Berceau, Davis, Freese, Gielow, Gunderson, Hahn, Hines, Kestell,
Krawczyk, Lehman, LeMahieu, Loeffelholz, McCormick, Musser, Nass,
Nerison, Ott, Owens, Petrowski, Richards, Seidel, Steinbrink, Suder,
Towns, Townsend, Van Roy, Wieckert, M. Williams, Zepnick and Travis,
cosponsored by Senators Kapanke, Breske, Brown, Erpenbach, Grothman,
Hansen, Harsdorf and
Jauch. Referred to Committee on Rural Development.
AB327,2,17
1An Act to amend 11.29 (1), 11.29 (4), 11.38 (1) (a) 1., 11.38 (2) (b), 11.38 (8) (a),
211.38 (8) (b), 11.38 (8) (b), 13.94 (4) (a) 1., 15.155 (4) (b), 16.957 (1) (t), 16.957 (1)
3(v), 25.17 (3) (dg) 1., 28.02 (4) (b) 5., 30.40 (9), 32.02 (10) (intro.), 32.22 (12) (a)
4(intro.), 36.56 (1), 46.037 (1), 49.45 (21) (d), 49.455 (4) (d) 1., 49.455 (4) (d) 2.,
550.90 (2), 62.237 (1) (b), 66.0425 (6), 66.0807 (1), 66.0825 (3) (f), 71.26 (1) (a),
671.26 (1) (c), 71.45 (1), 71.63 (6) (b) 4., 76.28 (1) (d), 76.48 (1g) (c), 77.51 (10),
777.53 (17r) (f), 91.19 (6), 93.01 (2), 93.06 (4), 93.06 (5), 93.06 (6) (a) to (c), 93.41
8(3), 94.67 (5) (a) (intro.), 96.01 (8), 96.08 (3) (b), 97.32 (1), 97.32 (3), 99.02 (2) (d),
9100.201 (1) (b) 2., 100.201 (1) (f) 2., 103.46 (2), 108.02 (2) (dm), 111.01 (2), 126.01
10(18), 126.11 (3) (b), 126.26 (2) (b), 126.41 (2) (b), 126.56 (3) (b), 126.56 (9) (h),
11126.57 (1) (b) 2., 126.58 (1) (c) 2., 126.59 (1) (c), 126.61 (1) (c) 2., 133.07 (1),
12133.09, 134.04 (1), 136.01 (1), 177.015, 178.42 (3) (a), 178.42 (3) (b), 180.0103
13(8), 180.0401 (2) (a) 7., 180.0401 (3) (a), 180.1506 (2) (a) 7., 180.1506 (3) (a),
14181.0401 (2) (a) 3., 181.0401 (2) (a) 7., 181.0401 (3) (a), 181.1150, 181.1506 (2)
1(a) 3., 181.1506 (2) (a) 7., 181.1506 (3) (a), 182.01 (3) (intro.), 182.017 (1),
2182.025 (1), 183.0103 (2) (a), 183.0103 (2) (b), 183.0103 (2) (c), 183.0103 (4) (a),
3196.01 (5) (b) 1., 196.01 (10), 196.02 (2), 196.025 (5) (ag), 196.09 (1), 196.11 (2),
4196.20 (3), 196.20 (4) (a) 2., 196.205 (1m), 196.205 (2), 196.26 (4) (a), 196.28 (4),
5196.37 (4), 196.374 (1) (c), 196.378 (1) (k), 196.485 (1) (b), 196.49 (2), 196.491 (1)
6(bm), 196.491 (4) (b) 1., 196.495 (1m) (intro.), 196.495 (2), 196.495 (2m), 196.495
7(3), 196.495 (4), 196.495 (5), 196.495 (6), 196.495 (7), 196.50 (2) (b), 196.52 (9)
8(g), 196.595 (1) (c), 196.605 (1), 196.795 (7) (a) 1. b., 196.796 (1) (hm), 196.807
9(1) (a), 196.857 (1g) (c), 196.857 (2m), 199.03 (12), 201.01 (3) (d), 223.105 (1) (b),
10231.35 (2) (b), 234.59 (1) (d) 3., 234.622 (7), 285.41 (1) (f), 289.41 (1) (d), 346.50
11(1) (c), 347.26 (9), 421.202 (3), 421.301 (28), 445.01 (8), 445.12 (3) (a), 551.22
12(12), 560.16 (1) (c) (intro.), 560.17 (1) (b), 560.9801 (1) (b), 560.9801 (3) (a) 7.,
13560.9804 (2) (e), 609.01 (2), 609.01 (4), 616.09 (1) (c) 1., 706.05 (2m) (b) 2., 706.09
14(3) (a), 815.18 (2) (c), 893.28 (2), 893.33 (5), 946.69 (1) (c) and 990.01 (14);
to
15repeal and recreate 59.43 (2) (ag) 1.; and
to create chapter 193 of the
16statutes;
relating to: unincorporated cooperative associations, granting
17rule-making authority, and providing a penalty.
Analysis by the Legislative Reference Bureau
This bill authorizes the creation of a new type of business organization, called
an unincorporated cooperative association (UCA). Significant provisions of the bill
include:
Organization
Purpose
The bill allows a UCA to be organized to market, process, or otherwise change
the form or marketability of products (including crops, livestock, and other
agricultural products); to manufacture products; to accomplish other purposes that
are necessary or convenient to facilitate the production or marketing of products; and
to accomplish other purposes that are related to the business of the UCA. In addition,
a UCA may be organized to provide products, supplies, and services to its members
or to accomplish any other lawful purpose.
Organizers
A UCA may be organized by one or more organizers, who must be individuals
over the age of 18. The organizers may act for themselves as individuals or as the
agents of other entities. If the UCA's initial board of directors (board) is not named
in the UCA's articles of organization (articles), the organizers may elect the initial
board or act as directors with all of the powers, rights, duties, and liabilities of
directors, until the initial board is elected or until a contribution is accepted,
whichever occurs first.
Articles
The organizers of a UCA must file articles with the Department of Financial
Institutions (DFI). The bill requires certain information to be listed in the articles.
Upon proper filing of the articles, the UCA is chartered as a separate legal entity and
it is presumed that the UCA is properly organized. After the articles are filed, the
organizers or the board named in the articles, as applicable, must hold an
organizational meeting at the call of a majority of the organizers or of the board, as
applicable, or perform other acts necessary for the purposes of transacting business
and completing the organization of the cooperative. Under the bill, three days notice
is required before any such meeting.
The articles of a UCA may be amended as specified in the bill. Generally, the
bill requires the board to adopt a resolution stating the text of the proposed
amendment and requires a majority of a quorum of members (or greater number, if
specified in the articles or bylaws) to approve the amendment. If the UCA has no
members with voting rights, the articles may be amended by majority vote of the
board.
Conversion
A UCA may also be organized by converting from another form of business
entity into a UCA under a procedure specified in the bill. Generally, to convert into
a UCA, a business entity must amend its organizational documents as necessary and
file amended articles with DFI.
Name of UCA
The name of a UCA must be distinguishable from the name of all business
entities authorized to do business in this state and all names the right to which are,
at the time of organization, reserved or provided for by law. The bill also prohibits
any business entity from using the term "cooperative" as part of its business name
or title, or representing itself as a cooperative, in this state unless the business entity
is a UCA, a cooperative organized under current law, or a cooperative organized
under a federal law or a law of another state that is consistent with the laws
governing a UCA or a cooperative organized under current law.
Registered office and agent
The bill requires a UCA to establish and maintain a registered office and
registered agent in this state. The bill specifies how the initial registered office and
agent of a UCA is designated, how a registered office or agent may be changed, and
how a registered agent may resign.
Bylaws
The bill requires a UCA to have bylaws, which must be adopted before any
distributions to members or, if the articles or bylaws provide that rights of certain
contributors will be determined in the bylaws, before the acceptance of any such
contribution. Under the bill, the bylaws must contain provisions governing the
UCA's business affairs and structure; the qualifications, classification, rights, and
obligations of members; and the classifications, allocations, and distributions of
membership interests which are not otherwise provided in the articles or by statute.
The bylaws may contain any provision relating to the management or regulation of
the affairs of the cooperative that is not inconsistent with applicable law or the
articles. In addition, the bill specifies certain information that must be listed in the
bylaws if the information is not stated in the articles. This information includes,
among other things, provisions concerning classes of member interests, rights to
share in profits or distributions of the UCA, voting and governance rights, transfers
of member interests, and the election and operation of the board.
With certain exceptions, the bylaws may be adopted or amended by the board.
In addition, the bill specifies a procedure by which the members may adopt or amend
bylaws at a regular or special members' meeting. The board may not amend the
bylaws if the articles, the bylaws, or the statutes reserve the power exclusively to the
members; the bylaws expressly prohibit the board from doing so; or the amendment
would fix a greater quorum or voting requirement for members or would amend such
a provision adopted by members as provided under the bill. Furthermore, a bylaw
that fixes a greater quorum or voting requirement for the board generally may be
amended only by the members, if the bylaw was originally adopted by the members,
or by either the members or the board, if the bylaw was originally adopted by the
board.
Unless the articles or bylaws provide otherwise, the bill also allows the board
to adopt emergency bylaws for certain purposes if a quorum of the directors cannot
be obtained because of a catastrophic event.
Required records
The bill requires a UCA to keep a permanent record of the minutes of all
meetings of its members and of the board, all actions taken by the members or the
board without a meeting by a written unanimous consent in lieu of a meeting, and
all waivers of notices of meetings of the members and of the board. In addition, a
UCA must maintain appropriate accounting records. The bill also specifies certain
records that a UCA must keep at its principal office. With certain exceptions, the bill
allows the board to determine what records are appropriate for the purposes of the
cooperative, the length of time records are to be retained, and, policies relating to the
confidentiality, disclosure, inspection and copying of records.
Powers
The bill allows a UCA to do all of the following:
1) Perform every act necessary or proper to the conduct of its business or the
accomplishment of the purposes of the UCA.
2) Exercise all rights, powers, and privileges granted to a cooperative organized
under current law, except those that are inconsistent with an express provision of the
law governing the UCA.
3) Buy, sell, or deal in its own products or the products of any other person and
negotiate the sales price of any product the UCA sells.
4) Enter into or become a party to a contract for the UCA or for the UCA's
individual members or patrons or between the UCA and its members.
5) Acquire and hold, lease, mortgage, encumber, sell, exchange and convey real
and personal property as the business of the UCA may require.
6) Act as a trustee or in any fiduciary capacity for any purpose not inconsistent
with the purposes of the UCA.
7) Issue bonds and other debt instruments, borrow money, grant security
interests, and invest.
8) Make certain advances to members or patrons.
9) Accept donations.
10) Loan money to and borrow money from its members.
11) Pay pensions, retirement benefits, and compensation for past services to
or for the benefit of the cooperative.
12) Establish and carry out employee benefit plans and provisions for the
benefit of any or all of its and its affiliates' officers, managers, directors, governors,
employees, and agents. If an affiliate is another UCA, the UCA may establish and
carry out provisions for the benefit of the affiliate's members who provide services
to the UCA, and the families, dependents, and beneficiaries of any of them.
13) Indemnify a fiduciary of any employee benefit plan or provision described
in item 12), above, and purchase insurance for or on behalf of such a fiduciary.
14) Purchase certain types of insurance.
15) Acquire, hold, or dispose of ownership interests in other business entities.
16) Organize business entities.
17) Acquire ownership interests in or organize a federation of organizations
conducting business on a cooperative plan under the laws of any state, an entity that
is organized for the purpose of forming a district, state, or national marketing, sales,
or service agency, or an entity that is organized for the purpose of acquiring
marketing facilities at terminal or other markets in this state or other states.
18) Effect the forfeiture to the UCA of unclaimed allocations, distributions, or
credits, unclaimed stock issued by the UCA, and unclaimed deposits held by the
UCA, if certain conditions are met. A UCA must use any such forfeited money within
one year after the date on which the funds are forfeited for providing scholarships
or educational loans to students or for charitable purposes, as determined by the
board.
19) Exercise certain emergency powers in anticipation of or during any time
that a quorum of the directors cannot be obtained because of a catastrophic event.
20) Enter into a marketing contract with its patron member or patron,
requiring the patron member or patron to sell a specified portion of the patron
member's or patron's agricultural product or specified commodity produced from a
specified area exclusively to or through the cooperative or a facility established by
the cooperative. The bill specifies who has title to a commodity or product subject
to such a contract, the permissible term of such a contract, and certain remedies that
are available to a UCA for breach or anticipated breach of such a contract. The bill
also includes a civil and a criminal penalty for knowingly inducing or attempting to
induce a patron member or patron to breach such a contract or for maliciously and
knowingly publishing false reports about the finances or management of the UCA.
21) Provide indemnification concerning certain securities laws claims.
Directors and officers
Board authority and selection of directors
A UCA under the bill is governed by its board, which is required to take all
action for and on behalf of the UCA except those actions reserved or granted to
members. The bill specifies that each director has a fiduciary duty to represent the
best interests of the cooperative and all members collectively. The voting authority
of the directors may be allocated according to allocation units or equity classifications
of the UCA if the directors elected by patron members have at least 51 percent of the
voting authority on general matters of the UCA or the directors elected by patron
members do not have minority voting authority on general matters of the UCA.
The board must have at least five directors, except that the board of a UCA with
50 or fewer members may have as few as three directors. Generally, unless the
directors represent districts or units, the directors must be elected at a regular
members' meeting. Unless the articles or bylaws so provide, directors may not be
elected through the use of any system of voting that permits a voter to allocate
multiple votes among eligible candidates.
A majority of the directors must be members and a majority of the directors
must be elected exclusively by patron members, unless otherwise provided in the
articles or bylaws. Any member that is a business entity or other organization may
nominate one or more individuals as candidates for election as a director, unless the
articles or bylaws provide otherwise. The bill also authorizes the patron members
to elect an outside director who is an expert in financial matters but who has no
financial interest in the UCA. An outside director may not receive any compensation
other than authorized per diem reimbursements and, unless the articles or bylaws
provide otherwise, may not vote. For other directors, the board may fix a rate of
compensation, subject to any limits under the articles or bylaws.
The bill specifies how a director may be removed from office, either by the board
or by the members, and the manner in which a replacement director may be elected.
The bill also permits a director to resign. Furthermore, the bill provides a method
for filling any vacancy in the office of director. The method varies depending upon
whether the office is filled solely by election of the patron members.
Board meetings
In addition to a typical board meeting, the bill allows a UCA to hold a "virtual
board meeting" by utilizing a means of communication through which the directors
may simultaneously hear each other during the meeting. Also, a director may
participate in any meeting of the board at which other directors are physically
present by utilizing a means of communication through which the director, all other
directors so participating, and all directors physically present may simultaneously
hear each other during the meeting. To the extent permitted in the articles or bylaws,
the bill also allows a director to give advance written consent or opposition to a
proposal to be acted on at a board meeting. If the director is not present at the
meeting, the writing does not constitute presence for purposes of determining the
existence of a quorum. However, if the proposal to be acted on at the meeting is
substantially the same or has substantially the same effect as the proposal to which
the director has consented or opposed, the writing must be counted as the vote of the
director as though the director was present at the meeting.
With certain exceptions, unless the articles or bylaws provide for a different
time period, a director may call a board meeting by giving at least ten days' notice
or, in the case of organizational meetings, at least three days' notice to all directors
as specified in the bill. If the day, time, and place of a board meeting are provided
in the articles or bylaws, or announced at a previous board meeting, no notice of the
meeting is required. Also, notice that an adjourned meeting will be reconvened need
not be given other than by announcement at the meeting at which adjournment is
taken. The bill also permits a director to waive notice of a board meeting by giving
a waiver of notice before, at, or after the meeting. In addition, attendance by a
director at a board meeting is a waiver of notice of that meeting, unless the director
objects at the beginning of the meeting to the transaction of business because the
meeting is not lawfully called or convened and does not participate in the meeting
after the objection.
The bill specifies that, unless otherwise provided in the articles or bylaws, a
majority of the directors currently holding office is a quorum for the transaction of
business. Any director who objects at the beginning of a board meeting to the
transaction of business because the meeting is not lawfully called or convened and
who fails to participate in the meeting after the objection is not considered as present
at the meeting for purposes of determining whether a quorum is present. In the
absence of a quorum, a majority of the directors present may adjourn a meeting until
a time when a quorum is present. In addition, if a quorum is present when a meeting
is properly convened, the directors present may continue to transact business until
adjournment, even though the withdrawal of a number of directors originally
present leaves less than a quorum.
With certain exceptions, the board may take action only by the affirmative vote
of a majority of directors present at a meeting at the time the action is taken or a
majority of the minimum number of directors that would constitute a quorum for the
transaction of business at the meeting. In the latter case, if the action is taken with
the authorization of less than all directors, the authorizing directors must ensure
that all other directors are notified immediately of the action and its effective date.
Failure to provide the notice does not invalidate the action, but any director who did
not authorize the action may not be held liable as a result of the action.
As noted, there are certain exceptions to the affirmative vote requirement. Any
director who objects at the beginning of a board meeting to the transaction of
business because the meeting is not lawfully called or convened and who fails to
participate in the meeting after the objection may not be considered as present at the
meeting for purposes of the majority vote requirement. Also, unless the articles or
bylaws provide otherwise, any action required or permitted to be authorized at a
board meeting may be authorized without a meeting if that action is authorized by
all directors and is evidenced by one or more written statements, signed by each
director, describing and consenting to the action. Furthermore, the articles or bylaws
may allow the board to take any other action on behalf of the cooperative, other than
an action requiring member approval, without a board meeting, if the action is
authorized by the number of directors that would be required to approve the action
at a board meeting at which all directors were present and if the action is evidenced
by one or more written statements as described above.
Board authority over UCA property
The bill allows the board to sell, lease, transfer, or otherwise dispose of all or
substantially all of the UCA's property in the usual and regular course of the UCA's
business. In addition, the board may sell, lease, transfer, or otherwise dispose of all
or substantially all of the UCA's property not in the usual and regular course of the
UCA's business if the UCA's accountant has given the board an opinion that the UCA
cannot continue as an ongoing business and is under financial duress, the board has
given notice to the members of the impending or potential disposition prior to the
disposition, and the board has determined that failure to proceed with the
disposition would be adverse to the interests of the members and the UCA.
Under the bill, the board may grant a security interest in all or substantially
all of the UCA's property whether or not in the usual and regular course of the UCA's
business and may transfer any or all of the UCA's property to a business entity all
the ownership interests of which are owned by the UCA. In addition, for purposes
of debt financing, the board may transfer any or all of the UCA's property to a special
purpose entity owned or controlled by the UCA for an asset securitization.
Officers
The bill requires the board to elect a chairperson and one or more
vice-chairpersons and to elect or appoint a records officer and a financial officer (or
a combined records and financial officer). The chairperson and first
vice-chairperson must each be a director and a member. The board may employ a
chief executive officer to manage the day-to-day affairs and business of the UCA and
may elect additional officers as the articles or bylaws authorize or require.
Audit committee
The bill requires the board to establish an audit committee, consisting of
members who will ensure an independent review of the UCA's finances, to review the
financial information and accounting reports of the UCA. The board must present
audited financial statements to the members unless the articles or bylaws permit
unaudited financial statements, the financial statements clearly state that they are
not audited, and the financial statements described the difference between the
financial statements and audited financial statements that are prepared according
to generally accepted accounting processes.
Other committees
The board, by resolution, may establish other committees having the authority
of the board in the management of the business of the UCA. The board may also
establish a special litigation committee, consisting of one or more independent
directors or other independent persons, to consider the legal rights of and remedies
available to the UCA and whether those rights should be enforced and those
remedies should be pursued. The bill specifies that a special litigation committee is
not subject at all times to the direction and control of the board. Under the bill, the
establishment of a committee does not alone satisfy certain requirements relating
to the standard of conduct of directors. The bill also states that certain duties of
directors are also applicable to committee members and, with certain exceptions,
allows the articles or bylaws to eliminate or limit the liability of committee members
to the UCA or its members for violation of these duties.
Conduct of directors
Under the bill, a director must discharge the duties of the office of director in
good faith, in a manner the director reasonably believes to be in the best interests
of the UCA, and with the care an ordinarily prudent person in a like position would
exercise under similar circumstances. A director who so performs his or her duties
may not be held liable by reason of being or having been a director. The bill allows
a director to rely on information, opinions, reports, or statements, including financial
statements and other financial data, if prepared or presented by certain specified
persons, unless the director has knowledge that makes the reliance unwarranted.
The specified persons include certain officers or employees of the cooperative;
counsel, public accountants, or other persons as to matters that the director
reasonably believes are within the person's professional or expert competence; and
certain committees of the board on which the director does not serve. In addition,
under the bill, a director who is present at a meeting of the board when an action is
approved by the board is presumed to have assented to the action approved, unless
the director is prohibited by a conflict of interest from voting on the action, objects
at the beginning of the meeting to the transaction of business because the meeting
is not lawfully called or convened and fails to participate in the meeting after the
objection, or votes against the action at the meeting.
The bill also voids certain contracts and transactions entered into by a UCA if
specified conflicts of interest exist. Thus, with certain exceptions, a contract or
transaction between a UCA and a director; a director's spouse, parent, child, or
sibling; the spouse of a director's child or sibling; or a sibling of a director's spouse
is void. With certain exceptions, the bill similarly voids any contract or transaction
between a UCA and a business entity of which a director is a governor, director,
manager, officer, or legal representative or has a material financial interest; a
director's spouse, parent, child, or sibling is a governor, director, manager, officer, or
legal representative or has a material financial interest; the spouse of a director's
child or sibling is a governor, director, manager, officer, or legal representative or has
a material financial interest; or a sibling of the director's spouse is a governor,
director, manager, officer, or legal representative or has a material financial interest.