BILL ANALYSIS �
AB 1255
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ASSEMBLY THIRD READING
AB 1255 (Pan)
As Amended March 18, 2013
Majority vote
BANKING & FINANCE 12-0
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|Ayes:|Dickinson, Morrell, |
| |Achadjian, Blumenfield, |
| |Bonta, Chau, Gatto, |
| |Hagman, Linder, Perea, |
| |Torres, Weber |
| | |
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SUMMARY : Expands the Consumer Cooperative Corporation Law to allow
consumer cooperatives to include in the articles of incorporations
provisions related to preferred, nonvoting shares. Specifically,
this bill provides that if expressed in the articles of
incorporation that a consumer cooperative can set forth, the classes
of preferred, nonvoting shares, if any, and whether the directors
may set the number, the series, and the rights, preferences,
privileges, restrictions, and conditions attaching to each class.
EXISTING LAW :
1)Establishes the California Consumer Cooperative Law under
Corporations Code, Section 12200 through 12704.
2)Requires consumer cooperative corporations to set forth the
following in their articles of incorporation:
a) The name of the corporation;
b) The following statement: "This corporation is a cooperative
corporation organized under the Consumer Cooperative
Corporation Law. The purpose of this corporation is to engage
in any lawful act or activity for which a corporation may be
organized under such law."
c) The name and street address in this state of the
corporation's initial agent for service of process;
d) The initial street address of the corporation;
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e) The initial mailing address of the corporation, if
different from the initial street address; and,
f) Whether the voting power or the proprietary interests of the
members are equal or unequal. If the voting power or
proprietary interests of the members are unequal, the articles
shall state either: i) the general rule or rules by which the
voting power and proprietary interests of the members shall be
determined; or, ii) that such rule or rules shall be prescribed
in the corporation's bylaws. Equal voting power means voting
power apportioned on the basis of one vote for each member.
Equal proprietary rights means property rights apportioned on
the basis of one proprietary unit for each member.
(Corporations Code, Section 12310)
3)Allows consumer cooperative cooperation's to set forth any or all
of the following provisions which become effective when expressly
provided in the articles:
a) A provision limiting the duration of the corporation's
existence to a specified date.
b) A provision providing for the distribution of the remaining
assets of the corporation, after payment or adequate provision
for all of its debts and liabilities, to a charitable trust.
Nothing contained in 3) above shall affect the enforceability, as
between the parties thereto, of any lawful agreement not otherwise
contrary to public policy.
The articles of incorporation may set forth any or all of the
following provisions:
a) The names and addresses of the persons appointed to act as
initial directors.
b) Provisions concerning the transfer of memberships.
c) The classes of members, if any, and if there are two or more
classes, the rights, privileges, preferences, restrictions and
conditions attaching to each class.
d) Any other provision, not in conflict with law, for the
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management of the activities and for the conduct of the affairs
of the corporation, including any provision which is required
or permitted by this part to be stated in the bylaws.
e) A provision conferring upon members the right to determine
the consideration for which memberships shall be issued.
(Corporations Code, Section 12313)
FISCAL EFFECT : None
COMMENTS : A cooperative is a locally owned business owned and
managed by its members. The structure is to pool resources to
satisfy a common need while providing goods and services as
economically and efficiently as possible. Owners can have a voice
in what is sold to them, as well as in the overall organization of
their particular co-op. Owners get the most buying power for their
money and the money stays in the community, contributing to its
economic strength.
There are roughly 30,000 consumer cooperatives in the United States
employing more than two million and bringing in $654 billion in
revenue. There are co-ops that sell bicycles, furniture, camping
equipment, appliances, carpeting, clothing, crafts and books. There
are cooperative wholesalers, like those in the grocery, natural
foods and hardware businesses. There are cooperatives that
disseminate news and cooperatives for artists. There are
cooperative electric and telephone utilities. There are thousands
of farm co-ops, along with co-ops that provide financing to those
farm co-ops. There are subscriber-owned cable TV systems and
parent-run day-care centers. There are cooperatively organized
employee-owned companies, cooperative purchasing groups for fast
food franchises, and various kinds of cooperative housing. There
are co-ops that provide health care, such as health maintenance
organizations and community health clinics. There are cooperative
insurance companies. There are cooperative food stores, food buying
clubs and discount warehouses. There are even cooperative funeral
societies. The first cooperative was established in 1844.
The Consumer Cooperative Corporation Law also known as the co-op
law, became effective as of January 1, 1984, and applies to all
co-ops incorporating under it as well as (with certain limited
exceptions) to those co-ops incorporated under the repealed pre-1984
law related to co-ops. Generally, the "new" co-op law represents a
synthesis of provisions from the former co-op statutes and the
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current Nonprofit Mutual Benefit Corporation Law, in addition to
some completely new provisions.
While co-ops incorporated prior to 1984 are not required to amend
their articles of incorporation to take into account current co-op
law, those same co-ops may find at least some of their bylaw
provisions now in conflict with co-op law. Where there is a
conflict, co-op law generally supersedes the contrary bylaw
provisions for acts, transactions, etc., occurring after 1984.
Also, many co-ops have relatively brief bylaws that do not deal at
all with certain corporate "housekeeping" matters (e.g., how to
properly "notice" a meeting or retain unclaimed member equity
interests). Such gaps in the bylaws may well lead to legally
improper actions (or omissions) by a co-op.
Cooperatives incorporating under the California Consumer Cooperative
Corporation Law are not formed under the "nonprofit" statutes of the
California Corporations Code. Similarly, it is virtually impossible
for co-ops incorporated under the co-op law to attain tax-exempt
status, mainly due to the fact that coops are established to further
the mutual benefit of their members, not the general public.
California statute specifies that co-ops are democratically
controlled and are not organized to make a profit for themselves, as
such, or for their members, as such, but primarily for their members
as patrons. This is important to note because it may be questioned
whether what this bill proposes falls in line with the premise of a
co-op. Each member of a cooperative, no matter how many shares or
memberships she or he has purchased, is generally entitled to only
one vote. The primary objective of a cooperative is to provide
benefits to its members, rather than a return on members' capital
investment.
Cooperatives are not required to obtain a "permit" from the
Department of Corporations for the sale of memberships or shares up
to $300 per member, co-ops may issue unlimited shares of stock (or
memberships) to any single member to help generate capital. Under
California law, co-ops have to file their articles of incorporation
with the Secretary of State (SOS).
A co-op may amend its articles of incorporation in any way so long
as the articles, as amended, contain only those provisions that
would be lawful as of the time the provisions are filed with the
SOS. Although co-op law mandates certain provisions in a co-op's
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articles, these provisions do not have to be adopted by a co-op that
was incorporated before the current co-op law went into effect.
This bill amends the code section pertaining to what a consumer
cooperative may lay out in their articles of corporation. While the
changes made in 1984 helped, it caused cooperatives established
pre-1984 and post-1984 to be regulated differently.
According to the author, this bill is needed to "eliminate confusion
about the law and to enable Consumer Cooperatives to self-finance
through the issuance of non-voting, preferred shares to their
members." The author goes on to state, "Modern consumer
cooperatives need the ability to self-finance through the sale and
issuance of preferred non-voting to its member. Modern consumer
cooperatives need a uniform statutory scheme, which does not
discriminate between cooperatives formed before or after 1984 in its
application."
California Consumer Cooperatives would like the ability to issue
non-voting, preferred shares to their members for the purpose of
self-financing improvements and expansions. These Cooperatives'
ability to self-finance has been denied by the SOS based on
confusion with how the SOS's Office interprets the Consumer
Cooperative Statute. In addition, Consumer Cooperatives
incorporated before 1984 and after 1984 are governed by different
rules in regards to issuing preferred shares which creates further
confusions.
The post 1984 changes to the Consumer Cooperative Law have made it
more difficult for cooperatives to self-finance through the sale and
issuance of preferred non-voting shares to their members. This is
because, while cooperatives routinely separate voting rights from
proprietary rights, non-cooperative businesses keep ownership
interests and voting rights linked together by a voting structure
which votes ownership units. Virtually all consumer cooperatives
are governed by a one-member, one-vote structure, regardless of the
level of investment, or ownership units a particular member has in a
cooperative.
Analysis Prepared by : Kathleen O'Malley / B. & F. / (916)
319-3081
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FN: 0000310