BILL ANALYSIS �
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|SENATE RULES COMMITTEE | AB 1255|
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THIRD READING
Bill No: AB 1255
Author: Pan (D), et al.
Amended: 7/9/13 in Senate
Vote: 21
SENATE BANKING & FINANCIAL INSTITUTIONS COMM. : 6-0, 7/3/13
AYES: Correa, Berryhill, Beall, Hill, Hueso, Roth
NO VOTE RECORDED: Calderon, Torres, Walters
ASSEMBLY FLOOR : 72-0, 5/16/13 - See last page for vote
SUBJECT : Corporations: consumer cooperatives
SOURCE : Sacramento Natural Foods Cooperative
DIGEST : This bill authorizes a consumer cooperative
corporation to (1) provide for preferred memberships and/or
non-voting memberships in its articles of incorporation or
bylaws; (2) divide a membership class into one or more series;
and (3) authorize the board of directors to fix the rights,
privileges, preferences, restrictions, and conditions attaching
to any wholly unissued class or series of memberships. Also,
makes conforming changes to the laws governing consumer
cooperative corporations.
ANALYSIS : Existing law provides for the Consumer Cooperative
Corporation Law which equates the terms "shareholder" and
"member," and thus also equates the terms "shares" and
"memberships." Where this analysis uses the term membership,
the term share can be substituted with no change in meaning, and
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vice versa.
This bill:
1.Defines the terms "preferred memberships" and "series" within
the Consumer Cooperative Corporation Law.
2.Adds the following to the list of topics that may be set forth
in the articles of incorporation or bylaws of a consumer
cooperative corporation:
A. A provision authorizing the board of directors, within
any limits or restrictions stated, to fix the rights,
privileges, preferences, restrictions and conditions
attaching to any wholly unissued class of memberships
authorized in the bylaws or the articles.
B. If the bylaws or articles authorize a class of
memberships to be divisible into series, a provision
authorizing the board of directors to fix the rights,
privileges, preferences, restrictions, and conditions
attaching to any wholly unissued series of a membership
class that is authorized to be divisible into series, and a
provision fixing the number of memberships in such series
and the designation of such series.
1.Provides that, if the articles or bylaws of a consumer
cooperative corporation authorize at least one class of voting
memberships, a corporation may also authorize and issue
additional classes of memberships, preferred or otherwise,
that are divisible into series and/or are non-voting.
2.Makes a variety of conforming changes to existing provisions
of the Consumer Cooperative Corporation Law, consistent with
the changes above.
Background
The problem this bill would solve has existed as part of
California law since 1984 (the last time the laws governing
consumer cooperatives were amended). According to the bill's
sponsor, it has not come up previously, because member financing
has not been a necessary part of consumer cooperative financing
until recently. The food industry has consolidated and become
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increasingly competitive over the past 10 to 15 years,
especially in the "healthy, organic, alternative" food category.
Food cooperatives are challenged to compete with the shopping
experience offered by stores such as Whole Foods, and have
sought to make significant capital investments to stay
competitive.
Virtually all consumer cooperatives began through investment by
cooperative members in capital shares issued by the
cooperatives. However, for cooperatives to remain vital and to
grow, they need to be able to offer their members the
opportunity to make further, voluntary capital investments.
Consumer cooperatives would typically prefer to raise needed
money from their members, rather than via borrowing from
alternative sources of capital such as banks or credit unions.
Selling additional shares to their membership allows
cooperatives to raise money via equity investments from their
members, rather than by taking on debt. Member investments also
spur member patronage. Because the financial success of each
cooperative depends on member patronage, members who have made a
capital investment in a cooperative are more likely to patronize
and support their cooperative, rather than shopping elsewhere.
Preferred, non-voting shares provide a mechanism for use by
cooperatives that want to raise additional funds from their
members. The shares are non-voting, to preserve the cooperative
principle of "one member, one vote." Under that principle, no
shareholder/member may have more than one vote, regardless of
the number of shares/memberships that person holds.
Consumer cooperatives organized under California law as it
existed prior to 1984 were governed by the General Corporation
Law, and were thus expressly authorized to divide classes of
memberships into series and issue preferred non-voting
memberships. The 1982 revisions to the consumer cooperatives
law (operative in 1984) separated the Consumer Cooperative
Corporation Law from the General Corporation Law. For reasons
that are unclear, the new law did not expressly authorize a
cooperative to divide a membership class into series, nor did it
expressly authorize a board of directors to fix the rights of
wholly unissued classes or series in a cooperative's articles of
incorporation or bylaws. Although the 1982 amendments improved
many features of the old law, they also created significant
confusion. According to this bill's sponsor, it can be
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confusing to figure out which law(s) apply to consumer
cooperatives formed prior to 1984, and which apply to consumer
cooperatives formed after 1984.
Comments
Because the existing Consumer Cooperative Corporation Law is
silent on the ability of consumer cooperatives to divide
membership classes into series and to authorize a board of
directors to fix the rights, privileges, preferences,
restrictions, and conditions attaching to any wholly unissued
class or series of membership, the Secretary of State's Office
has declined to file articles of incorporation for cooperatives
that include those provisions. According to this bill's
sponsor, the changes proposed in this bill are necessary for the
Secretary of State's Office to file consumer cooperative article
provisions submitted by consumer cooperatives created after
1984, when they divide membership classes into series and/or
authorize a board of directors to fix the rights, privileges,
preferences, restrictions and conditions attaching to any wholly
unissued class or series of memberships.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No Local:
No
SUPPORT : (Verified 7/9/13)
Sacramento Natural Foods Cooperative (source)
BriarPatch Co-op
Chico Natural Foods Cooperative
Co-opportunity Consumers Cooperative
Davis Food Co-op
National Cooperative Grocers Association
North Coast Cooperative
Ocean Beach People's Food Co-op
Quincy Natural Foods Co-op
Twin Pines Cooperative Foundation
Ukiah Natural Foods Co-op
ARGUMENTS IN SUPPORT : According to this bill's sponsor, the
Sacramento Natural Foods Cooperative, and other proponents, "AB
1255 will help our membership make sound investments in their
local economy and support our mission of providing families with
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healthy, sustainable food."
ASSEMBLY FLOOR : 72-0, 5/16/13
AYES: Achadjian, Alejo, Ammiano, Atkins, Bigelow, Bloom,
Blumenfield, Bocanegra, Bonilla, Bonta, Bradford, Brown,
Buchanan, Ian Calderon, Campos, Chau, Ch�vez, Chesbro, Conway,
Cooley, Dahle, Daly, Dickinson, Eggman, Fong, Fox, Frazier,
Beth Gaines, Garcia, Gatto, Gomez, Gordon, Gorell, Gray,
Hagman, Hall, Harkey, Roger Hern�ndez, Jones, Jones-Sawyer,
Levine, Linder, Logue, Lowenthal, Maienschein, Mansoor,
Medina, Mitchell, Mullin, Muratsuchi, Nazarian, Nestande,
Olsen, Pan, Patterson, Perea, V. Manuel P�rez, Quirk,
Quirk-Silva, Rendon, Salas, Skinner, Ting, Torres, Wagner,
Waldron, Weber, Wieckowski, Wilk, Williams, Yamada, John A.
P�rez
NO VOTE RECORDED: Allen, Donnelly, Grove, Holden, Melendez,
Morrell, Stone, Vacancy
MW:nl 7/9/13 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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