AB1186: Bill Text

LRB-4911/1

CTS:lmk:rs

2005 - 2006 LEGISLATURE

2005 Assembly BILL 1186

April 21, 2006 - Introduced by Representatives Ainsworth, Albers, Ballweg, Davis, Freese, Gielow, Gunderson, Hahn, Hines, Kestell, Krawczyk, Lehman, LeMahieu, Loeffelholz, McCormick, Musser, Nass, Nerison, Ott, Owens, Petrowski, 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 Rules.

AB1186,2,9 An Act to amend 11.29 (1), 11.29 (4), 11.38 (1) (a) 1., 11.38 (2) (b), 11.38 (8) (a), 11.38 (8) (b), 13.94 (4) (a) 1., 15.155 (4) (b), 25.17 (3) (dg) 1., 28.02 (4) (b) 5., 30.40 (9), 32.22 (12) (a) (intro.), 36.56 (1), 46.037 (1), 49.45 (21) (d), 49.455 (4) (d) 1., 49.455 (4) (d) 2., 50.90 (2), 59.43 (2) (ag) 1., 62.237 (1) (b), 66.0425 (6), 66.0807 (1), 66.0825 (3) (f), 71.63 (6) (b) 4., 77.51 (10), 77.53 (17r) (f), 91.19 (6), 93.01 (2), 93.06 (4), 93.06 (5), 93.06 (6) (a) to (c), 94.67 (5) (a) (intro.), 96.01 (8), 96.08 (3) (b), 97.32 (1), 97.32 (3), 99.02 (2) (d), 100.201 (1) (b) 2., 100.201 (1) (f) 2., 103.46 (2), 108.02 (2) (dm), 111.01 (2), 126.01 (18), 126.11 (3) (b), 126.26 (2) (b), 126.41 (2) (b), 126.56 (3) (b), 126.56 (9) (h), 126.57 (1) (b) 2., 126.58 (1) (c) 2., 126.59 (1) (c), 126.61 (1) (c) 2., 133.07 (1), 133.09, 134.04 (1), 136.01 (1), 177.015, 178.42 (3) (a), 178.42 (3) (b), 180.0103 (8), 180.0401 (2) (a) 7., 180.0401 (3) (a), 180.1506 (2) (a) 7., 180.1506 (3) (a), 181.0401 (2) (a) 3., 181.0401 (2) (a) 7., 181.0401 (3) (a), 181.1150, 181.1506 (2) (a) 3., 181.1506 (2) (a) 7., 181.1506 (3) (a), 182.01 (3) (intro.), 182.017 (1), 182.025 (1), 183.0103 (2) (a), 183.0103 (2) (b), 183.0103 (2) (c), 183.0103 (4) (a), 196.01 (10), 196.02 (2), 196.09 (1), 196.11 (2), 196.20 (3), 196.205 (1m), 196.205 (2), 196.26 (4) (a), 196.28 (4), 196.37 (4), 196.50 (2) (b), 196.605 (1), 196.807 (1) (a), 199.03 (12), 201.01 (3) (d), 223.105 (1) (b), 231.35 (2) (b), 234.59 (1) (d) 3., 234.622 (7), 421.301 (28), 445.01 (8), 445.12 (3) (a), 551.22 (12), 560.16 (1) (c) (intro.), 560.17 (1) (b), 560.9801 (1) (b), 560.9801 (3) (a) 7., 560.9804 (2) (e), 600.03 (37m), 609.01 (2), 616.09 (1) (c) 1., 706.05 (2m) (b) 2., 815.18 (2) (c), 893.28 (2), 946.69 (1) (c) and 990.01 (14); and to create chapter 193 of the statutes; relating to: unincorporated cooperative associations, granting rule-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