BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 816|
|Office of Senate Floor Analyses | |
|(916) 651-1520 Fax: (916) | |
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THIRD READING
Bill No: AB 816
Author: Bonta (D), et al.
Amended: 7/6/15 in Senate
Vote: 21
SENATE BANKING & F.I. COMMITTEE: 7-0, 7/1/15
AYES: Block, Vidak, Galgiani, Hall, Hueso, Lara, Morrell
ASSEMBLY FLOOR: 55-17, 5/22/15 - See last page for vote
SUBJECT: Cooperative corporations: worker cooperatives
SOURCE: East Bay Community Law Center
Sustainable Economies Law Center
DIGEST: This bill renames the Consumer Cooperative Corporation
Law as the Cooperative Corporation Law; authorizes the creation
of worker cooperatives, as specified; and increases, from $300
to $1000, the maximum aggregate investment that may be made by a
shareholder in shares or a member in memberships of a
cooperative corporation.
ANALYSIS:
Existing law:
1)Establishes the Consumer Cooperative Corporation Law
(Corporations Code Section 12200 et seq.), as specified.
2)Caps the maximum aggregate investment that may be made by a
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shareholder in shares or by a member in memberships of a
cooperative corporation at $300 (Corporations Code Section
25100). As long as this cap is not exceeded, sales of those
shares or memberships are exempt from state securities
permitting laws.
This bill:
1)Increases, from $300 to $1,000, the maximum aggregate
investment that may be made by a shareholder in shares or by a
member in memberships of a cooperative corporation.
2)Renames the Consumer Cooperative Corporation Law as the
Cooperative Corporation Law, and authorizes the creation of
worker cooperatives under that law, as follows:
a) Defines a "worker cooperative" or "employment
cooperative" as a corporation that includes a class of
worker-members who are natural persons, whose patronage
consists of labor contributed to or other work performed
for the corporation.
b) Defines a "worker-member" as a member of a worker
cooperative who is a natural person and also a patron of
that worker cooperative, and provides that worker
memberships cannot be divided into partial memberships.
c) Defines "community investor" as a person who is not a
worker-member and who holds a share or other proprietary
interest in a worker cooperative. Community investor
voting power is limited to approval rights over a merger,
sale of major assets, reorganization, or dissolution.
d) Provides that if a corporation is organized as a worker
cooperative, the corporation's patrons are its
worker-members, and that patronage may be measured by work
performed, including, but not limited to, wages earned,
number of hours worked, number of jobs created, or some
combination of those measures.
e) Authorizes a worker cooperative to establish itself as a
capital account cooperative in its articles or bylaws. The
articles or bylaws of a capital account cooperative may
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authorize assignment of a portion of retained earnings and
net losses to an unallocated capital account. Earnings
assigned to the unallocated capital account may be used for
any and all corporate purposes, as determined by the
cooperative's board of directors. The articles or bylaws
of a capital account cooperative may permit the periodic
redemption of written notices of allocation and capital
stock and provide for recall and redemption of membership
shares upon termination of membership in the cooperative.
f) Provides that election to be organized as a worker
cooperative or an employment cooperative does not create a
presumption that workers are employees of the corporation.
However, at least 51% of the workers must be worker-members
or candidates.
g) Prohibits a worker cooperative from consolidating or
merging with another corporation other than another worker
cooperative.
h) Provides special notice rules for worker cooperatives
that hold meetings to authorize actions of their
cooperatives, when the meetings are meetings of only
worker-members. In these cases, notice of the meeting must
be made not less than 48 hours before the meeting, if the
notice is delivered personally to every worker-member.
Background
Worker cooperatives are businesses that are owned by their
workers and governed by their worker-owners. The United States
Federation of Worker Cooperatives estimates that there are
approximately 350 worker cooperatives in the United States,
employing over 5,000 people and accounting for $500 million in
annual revenue. Sixty percent of all worker cooperatives have
formed since 2000, and 31% have formed since 2010, according to
the Democracy at Work Institute.
Comments
Authority to establish worker cooperatives. California's
existing Consumer Cooperative Corporation Law does not prohibit
the creation of worker cooperatives, but does not contain any
provisions specific to the formation and governance of those
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cooperatives. The lack of language specific to worker
cooperatives is viewed as problematic by this bill's sponsors.
AB 816 authorizes the creation of worker cooperatives and adds
language to the Cooperative Corporation Law specific to the
formation and governance of worker cooperatives. Among this
bill's key provisions: it adds labor to the definition of
patronage; limits worker cooperatives to a single class of
patron member called worker-members; allows worker cooperatives
to create a collective board of directors, on which each
worker-member sits; exempts collective board worker cooperatives
from having to hold meetings of their members; and defines
capital account cooperatives, whose entire net book value is
reflected in their member capital accounts. The sponsors
believe that these are important distinctions that better
reflect the needs of worker cooperatives than the existing
Consumer Cooperative Corporation Law.
To date, according to this bill's sponsors, 11 other states have
enacted statutes explicitly authorizing the formation of worker
cooperatives, including Alabama, Connecticut, Delaware, Maine,
Massachusetts, New York, Oregon, Vermont, Washington,
Pennsylvania, and Colorado.
Increase in maximum dollar value of shares and memberships in
consumer cooperative corporations. Existing California law 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. It would equal $695
in inflation-adjusted dollars today.
AB 816 increases the cap from $300 to $1,000, to give
cooperative corporations greater ability to raise funds from
their members, without running afoul of California's securities
laws. By allowing cooperatives to solicit needed financing from
their own members, rather than from non-member, professional
investors who will want to control the direction of the
co-operative, the sponsors are seeking to give co-operatives
greater ability to raise capital in ways that align with their
values and structures.
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Prior/Related Legislation
AB 2525 (Bonta, 2014 ) would have established the Limited
Liability Worker Cooperative Act to provide for the organization
and operation of worker cooperative companies. The bill died in
the Assembly Banking and Finance Committee.
AB 1161 (Skinner, 2011) would have renamed the Consumer
Cooperative Corporation Law as the Cooperative Corporation Law
and authorized the establishment of worker cooperatives. The
bill died in the Assembly Banking and Finance Committee.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:NoLocal: No
SUPPORT: (Verified7/9/15)
East Bay Community Law Center (co-source)
Sustainable Economies Law Center (co-source)
California Center for Cooperative Development
Design Action Collective
DIG Cooperative
Network of Bay Area Worker Cooperatives
New Hope Farms
Praxis Peace Institute
Prospera Community Development
Rainbow Grocery
Roots of Change
Sarana Community Acupuncture
TeamWorks Development
Three Stone Hearth Community-Supported Kitchen
Four individuals
OPPOSITION: (Verified7/9/15)
Two individuals
ARGUMENTS IN SUPPORT: The Sustainable Economies Law Center and
East Bay Community Law Center assert that worker-owned
businesses have unique potential to grow local economies,
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because worker cooperatives generate high-quality local jobs and
prevent outsourcing, and because worker-owners reinvest their
wages and profits locally. Participation in worker ownership
builds business skills in communities that are historically
underrepresented in the business community, and increases
overall civic engagement. By distributing business surpluses
among workers rather than sending them to corporate
headquarters, worker cooperatives create jobs and promote
community stabilization. Finally, worker cooperatives can aid
small- and family-owned businesses with their succession
strategies. According to the sponsors, a California worker
cooperative law will facilitate the sale of businesses from
retiring owners to their workers, potentially saving thousands
of jobs in the state over the next decade.
Rainbow Grocery, DIG Cooperative, New Hope Farms, and the Design
Action Collective are currently incorporated under the consumer
cooperative corporation statute, because there was no way to
legally form as worker cooperatives when they incorporated. The
language of the existing statute does not accurately portray the
organization and structure of a worker-owned cooperative. A
worker cooperative specific statute would provide clarity and
guidance for businesses wishing to operate as worker
cooperatives.
ARGUMENTS IN OPPOSITION: The opponents assert that AB 816
will undermine worker cooperatives, because it contains language
that is non-conforming with existing worker cooperative statutes
set by the federal government and implemented in other states.
In addition, the cooperative idea is still in its infancy and
needs time to grow.
Opponents also believe that AB 816 undermines workplace
democracy by allowing a differential in voting power. This
removes the whole idea behind today's worker cooperative of one
person, one vote. By destroying the one person, one vote
structure, AB 816 fails to conform with Internal Revenue Service
tax statutes. Differentials in voting will make every entity an
Employee Stock Option Plan for which incorporation laws exist;
these entities will be taxed differently than today's worker
cooperatives, which will add a burden on worker owners.
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Furthermore, because some worker cooperatives, especially union
cooperatives, may seek to take over faltering businesses that
may be of size, prohibitions on employee owner contributions
will make such acquisitions almost impossible. AB 816 opens the
public sale of shares, which worker cooperatives do not do.
Finally, AB 816 obliterates worker owner guidelines on meetings,
notifications, terminations, relationships between and among
different decision-making structures, regardless of the size of
the worker cooperative.
ASSEMBLY FLOOR: 55-17, 5/22/15
AYES: Achadjian, Baker, Bloom, Bonilla, Bonta, Brown, Burke,
Calderon, Campos, Chau, Chiu, Chu, Cooley, Cooper, Dababneh,
Dahle, Daly, Dodd, Eggman, Frazier, Cristina Garcia, Eduardo
Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray, Roger
Hernández, Holden, Irwin, Jones-Sawyer, Lackey, Levine,
Linder, Lopez, Low, Maienschein, Mathis, McCarty, Medina,
Mullin, Perea, Quirk, Rendon, Ridley-Thomas, Rodriguez, Salas,
Santiago, Mark Stone, Thurmond, Ting, Williams, Wood, Atkins
NOES: Travis Allen, Bigelow, Chang, Chávez, Beth Gaines,
Gallagher, Grove, Hadley, Harper, Jones, Kim, Mayes,
Obernolte, Patterson, Steinorth, Wagner, Wilk
NO VOTE RECORDED: Alejo, Brough, Melendez, Nazarian, O'Donnell,
Olsen, Waldron, Weber
Prepared by:Eileen Newhall / B. & F.I. / (916) 651-4102
7/10/15 15:55:32
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