BILL ANALYSIS Ó
AB 816
Page 1
Date of Hearing: April 27, 2015
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Matthew Dababneh, Chair
AB 816
(Bonta) - As Amended April 13, 2015
SUBJECT: Cooperative corporations: worker cooperatives
SUMMARY: Renames the Consumer Cooperative Corporation Law to
the General Cooperative Corporation Law. Specifically, this
bill:
1)Defines "worker cooperative" or "employment cooperative" as a
corporation formed that includes a class of worker-members who
are natural persons whose patronage consists of labor
contributed to, personal services performed for, or other work
performed for the corporation. Election to be organized as a
worker cooperative or an employment cooperative does not
create a presumption that workers are employees of the
corporation for any purposes.
2)Requires at least 51% of the workers shall be worker-members
or eligible for membership within 2 years of becoming a
worker.
3)Authorizes a worker cooperative to suspend a worker-member
without prior notice if the worker-member is given notice and
the opportunity to be heard or to provide a written response
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within 5 days after the suspension.
4)Authorizes a worker cooperative to apportion and distribute
its net earnings and losses at the time and in the manner
specified in the articles of incorporation or bylaws.
5)Requires a worker cooperative to only make patronage
distributions to the worker-member class.
6)Defines the patrons of a worker cooperative as worker-members
and authorizes their patronage to be measured by work
performed or personal services contributed, including wages
earned, number of hours worked, number of jobs created, or
some combinations of these measures.
7)Allows a worker cooperative to create an indivisible reserves
account that shall not be distributed to the members.
a) Funds in the indivisible reserves account can be used as
capital for the worker cooperative.
8)Allows a worker cooperative to call a special meeting with 20%
or more of the worker-members.
9)Defines a "capital account cooperative" as a worker
cooperative in which the entire net book value is reflected in
member capital accounts, one for each member and an
unallocated capital account, if any.
10)Defines a "collective board worker cooperative" as a worker
cooperative in which there is only one class of members
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consisting of worker-members, all of whom are members of the
board.
a) The collective board worker cooperative is not required
to hold an annual meeting of the members.
11)Defines "worker-member" as a member who is a natural person
and also a patron of a worker cooperative.
12)Defines "non-worker-member" as a member of a worker
cooperative who is not a worker member.
13)Provides non-worker-member voting power in a worker
cooperative shall be provided in the articles or bylaws and is
limited to approval rights only over a merger, sale of major
assets, reorganization, or dissolution. Approval rights shall
not include the right to propose any action.
14) Allows a worker cooperative to create an indivisible
reserves account that shall not be distributed to members.
Funds in the indivisible reserves account shall, in a manner
provided in the articles or bylaws, or by the board, be used
as capital for the cooperative.
15)Provides that a worker cooperative that has not revoked its
election to be governed as a worker cooperative shall not
consolidate or merge with another corporation other than
another worker cooperative. Two or more worker cooperatives
may merge or consolidate in a manner consistent with this
chapter.
16)Requires a worker cooperative to provide notice of a meeting
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not less than 48 hours before the meeting if the meeting
involves only worker-members.
17)Exempts a membership or share interest in a collective board
worker cooperative from the definition of security.
18)Increases the investment limitation for Consumer Cooperatives
under California's Corporate Securities Law of 1968 exemption
from qualification from $300 to $1,000.
19)Excludes shares or memberships issued by worker cooperative
from qualification, provided that the aggregate investment of
any shareholder or member does not exceed $5,000.
20)Makes finding and declarations.
EXISTING LAW:
1)Establishes the Consumer Cooperative Cooperation Law which
allows corporations to form as a cooperative corporation.
(Corporations Code, Section 12200 et seq.)
2)Provides that it is unlawful for any person to offer or sell
any security in this state, unless such offering or sale has
been qualified by the commissioner, as specified, or unless
the offering or sale is covered by an express exemption. Caps
the maximum aggregate investment that may be made by a
shareholder in shares or by a member in memberships in a
consumer cooperative corporation. As long as this cap is not
exceeded, sales of those shares or memberships are exempt from
state securities permitting laws. The cap of $300 was placed
in California law, effective January 1, 1984. (Corporations
Code, Section 25110)
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FISCAL EFFECT: Unknown.
COMMENTS:
The findings and declarations in the bill states:
"A worker cooperative has the purpose of creating and
maintaining sustainable jobs and generating wealth in order to
improve the quality of life of its worker-members, dignify human
work, allow workers' democratic self-management, and promote
community and local development.
The purpose of this act is to amend the Consumer Cooperative
Corporation Law to clarify that the law applies to cooperatives
in general, not just consumer cooperatives, and to create more
visibility for worker cooperatives. This act is intended to
provide a definition of worker cooperative for purposes of this
act, and not for purposes of other laws."
Cooperatives:
AB 816 makes substantive and historical changes to the
California Consumer Cooperative Corporation Law. The
Legislature, in 1982 created the Consumer Cooperative Law which
provides a framework for establishing and operating
cooperatives. California cooperatives can trace their history
back to 1844, when a group of cotton mill weavers in England
organized, called themselves the Rochdale Society. The Rochdale
Society adopted several principles that have become the basis of
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most cooperatives. These principles include: open membership;
one member, one vote; cash-only trading at market prices;
patronage refunds proportional to each member's use of the
cooperative's services; and limited return of interest on
contributed capital.
Cooperatives are enterprises in which individuals or businesses
organize to furnish themselves services that the members need.
They seek to provide services more efficiently and at lower cost
compared to paying third parties or to each member's performing
the service individually. Unlike corporations, in cooperatives,
ownership and control are equal among members. Cooperatives
operate according to the democratic principle of one member, one
vote. Unlike business corporations, cooperatives do not seek to
generate profit but rather seek to save money for their members.
Similarly, members do not seek or obtain increased capital
value but rather cost savings and efficiency. In contrast to
stock in a corporation, membership in a cooperative is not a
saleable commodity. Cooperatives exist in many forms such as
agricultural, financial institutions, housing, utility, consumer
to name a few.
Cooperatives generally share the following principles:
Democratic Governance - Cooperatives generally have a one
member, one vote rule. This is different from traditional
business models, which often weight each owner's vote by the
amount of that person's stake in the business. However, some
cooperatives have an elected board of directors to oversee the
day-to-day operations of the business, leaving strategic
decisions to members as a whole.
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Consensus Building - While each member has one vote,
cooperatives encourage members to work with one another in
their decision-making progress. If members want the
cooperative to take a certain action, they must collaborate
and gather most, if not, all members to agree.
Community-Centric - Most cooperatives have members from the
same area. Because members live where they work, they are more
likely to invest there. As cooperatives become a significant
part of a community, they have less incentive to leave.
Member Satisfaction Superior to Capital - Cooperatives must
earn a profit in order to survive as a business. However,
member wellbeing is valued above earning more money. Many
cooperatives have rules that keep the workplace fair, and
preserve the workers' due process rights and safety.
Self-Determination - Members are more likely to invest their
time and energy in the cooperative because they have input in
its decisions and would share any wealth that comes from it.
While traditional business models limit decision-making to its
senior leadership, cooperatives give each member a stake in
its future.
Training - Cooperatives usually have an apprenticeship program
or other training that prepares new members to participate in
the business. For cooperatives to survive, they must recruit,
train, and continually develop their members.
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Open Membership - Cooperatives generally allow any person to
join regardless of gender, race, religion, political, or
social status. To become a member, many cooperatives require
an entry-level training program, an initial capital
investment, and final approval by the membership.
Although worker cooperatives are currently regulated and created
under the Consumer Cooperative Corporation Law, AB 816 attempts
to create a new framework specific to worker cooperatives within
the existing Consumer Cooperative Corporation Law.
The chart below lays out the differences between existing law
and AB 816:
-----------------------------------------------------------------
| |Existing CA Law |AB 816 |
| | | |
| | | |
|---------------------+---------------------+---------------------|
|Name |Consumer Cooperative |General Cooperative |
| |Corporation Law |Corporations Law |
| | | |
| | | |
|---------------------+---------------------+---------------------|
|Intentions |This part is |This part is |
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| |intended to |intended to apply to |
| |primarily apply to |the organization and |
| |the organization and |operation of |
| |operation of |cooperatives, |
| |consumer |including but not |
| |cooperatives. It is |limited to consumer |
| |also applicable to |cooperatives, worker |
| |other cooperatives |cooperatives and |
| |including but not |cooperatives formed |
| |limited to, |for the purpose of |
| |cooperatives formed |recycling or |
| |for the purpose of |treating hazardous |
| |recycling or |wastes, which elect |
| |treating hazardous |to incorporate under |
| |wastes, which elect |it. |
| |to incorporate under | |
| |it. | |
| | | |
| | | |
|---------------------+---------------------+---------------------|
|Securities |Qualification |Increases the |
|Requirements |requirements exempt |exemption amount to |
| |the shares or |$1,000. In |
| |memberships in a |addition, the |
| |cooperative |investment of the |
| |corporation if the |worker member class |
| |investment does not |in a worker |
| |exceed $300 |cooperative are |
| | |exempt from |
| | |registration up to |
| | |$5,000. |
| | | |
| | | |
|---------------------+---------------------+---------------------|
|Definition of |N/A |A worker cooperative |
|worker-cooperative | |is a corporation |
| | |formed under this |
| | |part which includes |
| | |a class of |
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| | |worker-members who |
| | |are natural persons |
| | |whose patronage |
| | |consists of labor |
| | |contributed to, |
| | |personal services |
| | |performed for, or |
| | |other work performed |
| | |for the corporation. |
| | | Election to be |
| | |organized as a |
| | |worker cooperative |
| | |or an employment |
| | |cooperative does not |
| | |create a presumption |
| | |that workers are |
| | |employees of this |
| | |corporation for any |
| | |purposes. Requires |
| | |at least 51% of the |
| | |workers shall be |
| | |worker members or |
| | |eligible for |
| | |membership within 2 |
| | |years of becoming a |
| | |worker. |
| | | |
| | | |
|---------------------+---------------------+---------------------|
|Definition of |N/A |Worker member means |
|worker-member | |a member who is a |
| | |natural person and |
| | |also a patron of a |
| | |worker cooperative. |
| | | |
| | | |
|---------------------+---------------------+---------------------|
|Definition of |N/A |Non-worker member |
|non-worker member | |means a member of a |
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| | |worker cooperative |
| | |who is not a worker |
| | |member. |
| | | |
| | | |
|---------------------+---------------------+---------------------|
|Articles of |N/A |Corporation must |
|Incorporation | |state whether it is |
| | |a worker cooperative |
| | | |
| | | |
|---------------------+---------------------+---------------------|
|Collective Board |N/A |Defined as only one |
|Worker Cooperative | |class of members |
| | |which is the worker |
| | |member class and all |
| | |worker members are |
| | |on the board. |
| | | |
| | | |
| | |While most |
| | |cooperatives are |
| | |required to meet on |
| | |an annual basis- |
| | |this requirement |
| | |does not apply to a |
| | |collective board |
| | |worker cooperative. |
| | |Provides an |
| | |exclusion from |
| | |definition of |
| | |security for |
| | |managing members. |
| | | |
| | | |
|---------------------+---------------------+---------------------|
|Patronage |If a corporation is |If the corporation |
| |organized to provide |is organized as a |
| |goods or services to |worker cooperative, |
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| |its member, the |the corporation's |
| |corporation's |patrons are its |
| |patrons are those |worker-members. The |
| |who purchase those |corporation may be |
| |types of goods from, |measured by work |
| |or use those type |performed or |
| |services of, the |personal services |
| |corporation. |contributed, |
| | |including wages |
| | |earned, number of |
| | |hours worked, number |
| | |of jobs created, or |
| | |some combination of |
| | |these measures. |
| | | |
| | | |
|---------------------+---------------------+---------------------|
|Capital Account |N/A |Defined as a worker |
|Cooperative | |cooperative whose |
| | |entire net book |
| | |value is reflected |
| | |in member capital |
| | |accounts, one for |
| | |each member, and an |
| | |unallocated capital |
| | |account. Each |
| | |member only has one |
| | |vote in any matter |
| | |requiring voting by |
| | |a member. |
| | | |
| | | |
|---------------------+---------------------+---------------------|
|Voting Power |Defined as the power |Provides non worker |
| |to vote for the |member voting power |
| |election of |in a worker |
| |directors at the |cooperative shall be |
| |time any |provided in the |
| |determination of |articles or bylaw |
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| |voting power is made |and is limited to |
| |and does not include |approval rights only |
| |the right to vote |over a merger, sale |
| |upon the happening |of major assets, |
| |of some condition or |reorganization, or |
| |event that has yet |dissolution. |
| |occurred. |Approval rights |
| | |shall not include |
| | |the right to propose |
| | |any action. |
| | | |
| | | |
|---------------------+---------------------+---------------------|
|Member Meeting |Requires written |Reduces the |
|Notification |notification at |time-frame to at |
| |least 10 days in |least 48 hours |
| |advance of a meeting |before the meeting |
| | |if the meeting |
| | |involves only worker |
| | |members. |
| | | |
| | | |
|---------------------+---------------------+---------------------|
|Expelling or |Requires 15 day |Allows a worker |
|suspending members |prior notice of the |cooperative to |
| |expulsion, |suspend a worker |
| |suspension or |member without prior |
| |termination and the |notice if the worker |
| |reasons and allows |member is given |
| |an opportunity for |notice and the |
| |the member to |opportunity to be |
| |respond at least 5 |heard within 5 days |
| |days prior to the |after the |
| |expulsion, |suspension. |
| |suspension, or | |
| |termination. | |
| | | |
| | | |
|---------------------+---------------------+---------------------|
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|Merger |N/A |Prohibits a worker |
| | |cooperative from |
| | |consolidate or merge |
| | |with another |
| | |corporation other |
| | |than another worker |
| | |cooperative. Two or |
| | |more worker |
| | |cooperatives may |
| | |merge or |
| | |consolidate. |
| | | |
| | | |
|---------------------+---------------------+---------------------|
|Indivisible Reserves |N/A |Allows a worker |
|Account | |cooperative to |
| | |create an |
| | |indivisible reserves |
| | |account that shall |
| | |not be distributed |
| | |to its members. |
| | |Allows the account |
| | |to be used as |
| | |capital for the |
| | |cooperative. |
| | | |
| | | |
|---------------------+---------------------+---------------------|
|Special Meetings |Allows a special |A special meeting of |
| |meeting to be called |a worker cooperative |
| |by the board if at |may be called only |
| |least 5% or more of |by 20% or more of |
| |the members call it. |the worker-members. |
| | | |
| | | |
| | | |
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Need for the bill:
According to the Author,
"California's existing cooperative law is the Consumer
Cooperative Corporations statute. Although worker cooperatives
may form under that statute, it contains no provisions specific
to the formation and governance of worker cooperatives. The
existing statute does not include labor in its definition of
patronage, it does not provide for member capital accounts, and
its lengthy notice requirement for member meetings does not suit
worker cooperatives. Further, the current $300 securities
exemption for members is too small to allow worker cooperatives
to raise capital for their business."
Background:
A worker cooperative is a business democratically owned and
governed by its worker-owners. A worker cooperative is distinct
from other kinds of cooperatives (consumer, producer, housing,
financial, etc.) in that its members are its workers. Worker
cooperatives are well established throughout Europe and Latin
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America but they are less common in the United States. The U.S.
Federation of Worker Cooperatives estimates that there are
currently about 350 worker cooperatives in the United States,
employing over 5,000 people and account for $500 million in
annual revenue. According to the U.S. Federation of Worker
Cooperatives, California has approximately 50 established worker
cooperatives.
The US Federation of Worker Cooperatives determines whether a
cooperative is a worker cooperative based on basic standards for
worker cooperatives established in the World Declaration on
Cooperative Worker Ownership (also known as the Oslo
Declaration) at a meeting in Oslo, Norway in 2003 of the
International Organization of Industrial, Artisanal and Service
Producers' Cooperatives (CICOPA).
Almost any business can be organized as a worker cooperative.
Examples include restaurants, bakeries and retail stores. Some
well-known worker cooperatives are Equal Exchange headquartered
in Massachusetts, a fair trade importer of chocolate and coffee
and MONDRAGON Corporation located in Spain, one of the world's
largest worker cooperatives that employs over 80,000 workers.
Other States:
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Eleven other states have enacted worker cooperative specific
statutes. These states include: Alabama, Connecticut, Delaware,
Maine, Massachusetts, Oregon, Vermont, New York, Washington,
Pennsylvania and Colorado.
Related Legislation:
SB 577 (Hueso) Authorizes three new securities permitting
exemptions, as specified, and increases, from $300 to $1,000,
the maximum allowable aggregate investment of any shareholder in
shares of a consumer cooperative corporation or member in
memberships of a consumer cooperative corporation. Pending in
Senate Judiciary Committee.
Previous Legislation:
AB 1161 (Skinner) 2011 Legislative Year. This measure would
have renamed the Cooperative Corporation Law, as well as, make
other significant changes. Died in the Assembly Banking and
Finance Committee.
AB 2525 (Bonta) 2014 Legislation Year. This bill would have
created a special purpose limited liability company. Died in
the Assembly Banking and Finance Committee.
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Amendments:
A number of amendments are recommended below in order to
maintain some consistency through the cooperative law. Some of
the amendments are technical while others provide clarification
of the author's intent.
1)On page 3, line 7, add after development "in this state."
2)On page 5, line 20, insert "Worker" is a natural person
contributing labor or services."
3)On page 5, line 20, insert, "Candidate" means a worker who is
being considered for membership, as defined in the
corporation's articles or bylaws.
4)On page 6, line 33, delete "eligible" and insert "candidates"
5)On page 10, delete lines 12-17
6)On page 12, delete lines 28 & 29 and insert "in a worker
cooperative with more than four worker-members, a special
meeting may only be called by the greater of 3 worker-members
or 5% of the worker-members. For a worker cooperative with
fewer than 4 members, special meetings may be called by 5% of
the worker-members."
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7)On page 13, on line 24, add after members, insert, "provided
that such notice is delivered personally."
8)On page 18, delete lines 1-6 and insert, "Subdivision (a)
shall not apply to any amounts in the indivisible reserve
account. Any amount in the indivisible reserve account shall,
upon dissolution, be allocated to a cooperative development
organization designated in the articles of incorporation or
the bylaws."
9)On page 21, line 9, delete "Financial Institutions" and insert
"Business Oversight"
10)On page 21, line 17, delete "which" and insert "that"
11)On page 21, line 33, delete "Financial Institutions" and
insert "Business Oversight"
12)Take out Sections 26 & 27 in the measure
13)On page 28, line 20, delete "In the case of a worker"
14)On page 28, delete lines 21-25
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15)On page 28, line 26, delete "be qualified or filed as a sale
of securities under this title."
REGISTERED SUPPORT / OPPOSITION:
Support
Ease Bay Community Law Center (Co-Sponsor)
Roots of Change
2 Individuals
Opposition
2 Individuals
Analysis Prepared by:Kathleen O'Malley / B. & F. / (916)
319-3081
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