Amended in Assembly April 10, 2014

California Legislature—2013–14 Regular Session

Assembly Bill No. 2525

Introduced by Assembly Members Bonta and Levine

February 21, 2014

An act to amend Sections 12311 begin insert , 17701.01, end insert and 25100 of, to amend the heading of Title 2.6 (commencing with Section 17701.01) of, to add the heading of Division 1 (commencing with Section 17701.01) to, and to add Division 2 (commencing with Section 17801.01) to, Title 2.6 of, the Corporations Code, relating to worker cooperative companies.

LEGISLATIVE COUNSEL’S DIGEST

AB 2525, as amended, Bonta. Limited Liability Worker Cooperative Act.

Existing law, the California Revised Uniform Limited Liability Company Act, governs the formation and operation of limited liability companies. Existing law authorizes a limited liability company to engage in any lawful business activity, except as specified, but prohibits construing the act to permit a limited liability company to render professional services, as defined. Existing law provides for the filing of specified records and further provides that an individual who signs such a record affirms under penalty of perjury that the information in the record is accurate.

Existing law, the Consumer Cooperative Corporation Law, provides for the organization and operation of primarily consumer cooperatives, and is also applicable to other cooperatives. Existing law provides for, among other things, information to be included in a cooperative corporation’s by laws, the definition of terms for purposes of that law, and requirements as to voting rights of members and time periods for sending notice of meetings at which members are entitled to vote. Existing law requires a cooperative corporation to include in its name the word “cooperative.”

This bill would establish the Limited Liability Worker Cooperative Act, which would provide for the organization and operation of worker cooperative companies. The bill would authorize a worker cooperative company to be formed for any lawful purpose provided that it is organized and conducts its business primarily for the mutual benefit of its members as patrons of the worker cooperative company. The bill would authorize a worker cooperative company to engage in any lawful business activity, except as specified, but would prohibit construing the act to permit a worker cooperative company to render professional services, as defined. begin insert The bill would provide for, among other things, information to be included in a worker cooperative company’s articles of organization and operating agreement, requirements as to voting rights of members, and time periods for sending notice of meetings at which members are entitled to vote and would require an individual who signs specified records to affirm under penalty of perjury that the information in the record is accurate. end insert The bill would authorize certain classes of membership in the worker cooperative company, including a worker-member class. The bill would provide that members of the worker cooperative company have equal votes, but would authorize the worker-member class to have ultimate decisionmaking authority. The bill would authorize members of a class to vote separately on any matter. The bill would authorize a worker cooperative company to include in its name the word “cooperative.” begin insert The bill would authorize a worker cooperative company to set aside portion of its profits before distribution, as specified. end insert The bill would define certain terms for its purposes. begin delete The bill would specify that the provisions of the California Revised Uniform Limited Liability Act apply to worker cooperative companies, except as provided. end delete Because this bill would expand the scope of the crime of perjury, the bill would impose a state-mandated local program.

begin insert

Existing law authorizes the majority of the members of a limited liability company to vote to dissolve, merge, or sell the limited liability company, or to convert the limited liability company to another business entity.

end insert begin insert

This bill would require 2⁄3 of the worker-members of a worker cooperative company to vote to dissolve, merge, or sell the worker cooperative company, or to convert the worker cooperative company to a business entity other than a worker cooperative company.

end insert

Existing law, the Corporate Securities Law of 1968, provides for the regulation of the issuance of corporate securities, requires the qualification of an offer or sale of securities, and provides for exemptions from qualification.

This bill would exempt the issuance of a membership by a begin insert limited liability end insert worker cooperative company, as specified, from certain securities requirements.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: yes.

The people of the State of California do enact as follows:

SECTION 1.  

Section 12311 of the Corporations Code is
amended to read:

12311.  

(a) The names of all corporations formed under this
part shall include “cooperative.” No corporation shall be formed
under this part unless there is affixed or prefixed to its name some
word or abbreviation which will indicate that it is a corporation,
as distinguished from a natural person, a firm, or an unincorporated
association.

(b) No person shall adopt or use the word “cooperative” or any
abbreviation or derivation thereof, or any word similar thereto, as
part of the name or designation under which it does business in
this state, unless incorporated as provided in this part or organized
as a worker cooperative company under Division 2 (commencing
with Section 17801.01) of Title 2.6, or unless incorporated as a
nonprofit cooperative association under Chapter 1 (commencing
with Section 54001) of Division 20 of the Food and Agricultural
Code, as a stock cooperative, as defined in Section 11003.2 of the
Business and Professions Code, as a limited-equity housing
cooperative, as defined in Section 817 of the Civil Code, as a credit
union or organization owned for the mutual benefit of credit unions,
or under some other law of this state enabling it to do so. However,
the foregoing prohibition shall be inapplicable to any credit union
or organization owned for the mutual benefit of credit unions, any
housing cooperative, the financing of which is insured, guaranteed,
or provided, in whole or in part, by a public or statutorily chartered
entity pursuant to a program created for housing cooperatives, a
nonprofit corporation, a majority of whose membership is
composed of cooperative corporations, or an academic institution
that serves cooperative corporations.

(c) A domestic or foreign corporation or association which did
business in this state under a name or designation including the
word “cooperative” prior to September 19, 1939, and which
conducts business on a cooperative basis substantially as set forth
in this part, may continue to do business under that name or
designation.

(d) Any person, firm, individual, partnership, trust, domestic
corporation, foreign corporation, or association which did business
in this state under a name or designation including the word
“cooperative” prior to September 19, 1939, but which does not
conduct business on a cooperative basis as contemplated by Section
12201 of this part, may continue to do business under that name
or designation if the words “not organized under the law relating
to cooperative corporations” are always placed immediately after
the name or designation wherever it is used.

(e) Any foreign corporation, organized under and complying
with the cooperative law of the state or other jurisdiction of its
creation, may use the term “cooperative” in this state if it has
complied with the laws of this state applicable to foreign
corporations, insofar as those laws are applicable to it, and if it is
doing business on a cooperative basis as contemplated by Section
12201.

SEC. 2.  

The heading of Title 2.6 (commencing with Section
17701.01) of the Corporations Code is amended to read:

 

Title 2.6.  LIMITED LIABILITY COMPANIES

 

SEC. 3.  

The heading of Division 1 (commencing with Section
17701.01) is added to Title 2.6 of the Corporations Code, to read:

 

Division 1.  California Revised Uniform Limited
Liability Company Act

 

begin delete

SEC. 4.  

Division 2 (commencing with Section 17801.01) is added
to Title 2.6 of the Corporations Code, to read:

 

Division 2.  Limited Liability Worker
Cooperative Act

 

Article 1.  General Provisions

 

17801.01.  

(a) The Legislature finds and declares that the
formation of employee-owned businesses and the participation of
employees in the management of businesses in this state will
promote the stabilization of local economies, anchor business
activity, and increase productivity. The Legislature further finds
that the encouragement of employee-owned businesses will
increase and broaden community investments in this state and
encourage new capital formation through employee ownership.

(b) This division may be cited as the Limited Liability Worker
Cooperative Act.

(c) (1) A worker cooperative company may be formed under
this division for any lawful purpose provided that it is organized
and conducts its business primarily for the mutual benefit of its
members as patrons of the worker cooperative company.

(2) The earnings, savings, or benefits of the company shall be
used for the general welfare of the members or shall be
proportionately and equitably distributed to some or all of its
members or its patrons, based upon their patronage of the company,
in the form of cash, property, evidences of indebtedness, capital
credits, memberships, or services.

(3) Worker cooperative companies 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.

17801.02.  

(a) Except as provided in this section, the definitions
of Section 17701.02 shall apply to this division.

(b) For purposes of this division, the following definitions apply:

(1) “Class” refers to those memberships that: (A) are identified
in the articles of organization or operating agreement as being a
different type of membership; or (B) have the same rights with
respect to voting, dissolution, redemption, distributions, and
transfer. For the purpose of this subdivision, rights shall be
considered the same if they are determined by a formula applied
uniformly.

(2) “Distribution” shall mean both dividend distribution and
patronage distribution.

(3) “Member” has the same meaning as in subdivision (p) of
Section 17701.02. A member may also be a patron of the worker
cooperative company.

(4) “Patron” means any of the following:

(A) A member who provides personal services to, purchases
goods from, or uses the services of the worker cooperative
company.

(B) A person who uses the worker cooperative company to
market, process, or handle their products or services.

(5) “Patronage” means the amount of value created by a member
measured as provided in the articles of organization or operating
agreement of the worker cooperative company. Value may include
personal services contributed, number of hours worked, job
creation, or any other measure as provided in the articles of
organization or operating agreement.

(6) “Patronage distribution” means any transfer of cash or
property made to a patron of the worker cooperative company, the
amount of which is computed with reference to the patron’s
patronage of the worker cooperative company.

(7) “Worker” means a natural person who provides labor to the
worker cooperative company in exchange for compensation.

(8) “Worker cooperative company,” means an entity formed
under this division or an entity that becomes subject to this division.
A worker cooperative company is majority-controlled by its
worker-members.

(9) “Worker-member” means a worker who is a member of the
worker cooperative company and whose patronage includes
providing labor to the worker cooperative company.

17801.03.  

(a) A worker cooperative company is an entity
distinct from its members.

(b) A worker cooperative company may have any lawful
purpose, regardless of whether for profit, except the banking
business, the business of issuing policies of insurance and assuming
insurance risks, or the trust company business. A worker
cooperative company may render services that may be lawfully
rendered only pursuant to a license, certificate, or registration
authorized by the Business and Professions Code, the Chiropractic
Act, the Osteopathic Act, or the Yacht and Ship Brokers Act, if
the applicable provisions of the Business and Professions Code,
the Chiropractic Act, the Osteopathic Act, or the Yacht and Ship
Brokers Act authorize a worker cooperative company to hold that
license, certificate, or registration.

(c) A worker cooperative company has perpetual duration.

(d) Nothing in this division shall be construed to permit a worker
cooperative company to render professional services, as defined
in subdivision (a) of Section 13401 and in Section 13401.3, in this
state.

17801.04.  

(a) Each member of the worker cooperative
company shall have an equal vote in their membership class, but
the worker-member class shall have ultimate decisionmaking
authority.

(b) Notwithstanding subdivision (r) of Section 17704.07,
members of a specified class or group of members may vote
separately or with all or any class or group of members on any
matter.

(c) If the proprietary interests of the members are unequal, the
worker cooperative company must state this in its articles.

17801.05.  

The Secretary of State shall provide on its Internet
Web site information and sample documents for forming a worker
cooperative company.

17801.06.  

The provisions of Division 1 (commencing with
Section 17701.01) shall apply to a worker cooperative company,
except where a provision is in conflict with, or inconsistent with
the provisions of this division.

end delete

begin insert

begin insert SEC. 4. end insert   

end insert

begin insert Section 17701.01 of the end insert begin insert Corporations Code end insert begin insert is amended
to read: end insert

17701.01.  

This begin delete title end delete begin insert division end insert may be cited as the California
Revised Uniform Limited Liability Company Act.

begin insert

begin insert SEC. 5. end insert   

end insert

begin insert Division 2 (commencing with Section 17801.01) is
added to Title 2.6 of the end insert begin insert Corporations Code end insert begin insert , to read: end insert

begin insert

 

Division  begin insert 2. end insert   Limited Liability Worker Cooperative
Act

 

Article begin insert 1. end insert   General Provisions

 

begin insert 17801.01. end insert   

(a) The Legislature finds and declares that the
formation of employee-owned businesses and the participation of
employees in the management of businesses in this state will
promote the stabilization of local economies, anchor business
activity, and increase productivity. The Legislature further finds
that the encouragement of employee-owned businesses will
increase and broaden community investments in this state and
encourage new capital formation through employee ownership.

(b) This division may be cited as the Limited Liability Worker
Cooperative Act.

(c) (1) A worker cooperative company may be formed under
this division for any lawful purpose provided that it is organized
and conducts its business primarily for the mutual benefit of its
members as patrons of the worker cooperative company.

(2) The earnings, savings, or benefits of the worker cooperative
company shall be used for the general welfare of the members or
shall be proportionately and equitably distributed to some or all
of its members or its patrons, based upon their patronage of the
worker cooperative company.

begin insert 17801.02. end insert   

In this division:

(a) “Acknowledged” means that an instrument is either of the
following:

(1) Formally acknowledged as provided in Article 3
(commencing with Section 1180) of Chapter 4 of Title 4 of Part 4
of Division 2 of the Civil Code.

(2) Executed to include substantially the following wording
preceding the signature:

“It is hereby declared that I am the person who executed this
instrument which execution is my act and deed.”

Any certificate of acknowledgment taken without this state before
a notary public or a judge or clerk of a court of record having an
official seal need not be further authenticated.

(b) “Articles of organization” means the articles required by
Section 17802.01. The term includes the articles of organization
as amended or restated.

(c) “Class” refers to those memberships that: (A) are identified
in the articles of organization or operating agreement as being a
different type of membership; or (B) have the same rights with
respect to voting, dissolution, redemption, distributions, and
transfer. For the purpose of this subdivision, rights shall be
considered the same if they are determined by a formula applied
uniformly.

(d) “Contribution” means any benefit provided by a person to
a worker cooperative company:

(1) In order to become a member upon formation of the worker
cooperative company and in accordance with an agreement
between or among the persons that have agreed to become the
initial members of the worker cooperative company.

(2) In order to become a member after formation of the worker
cooperative company and in accordance with an agreement
between the person and the worker cooperative company.

(3) In the person’s capacity as a member and in accordance
with the operating agreement or an agreement between the member
and the worker cooperative company.

(e) “Debtor in bankruptcy” means a person that is the subject
of either of the following:

(1) An order for relief under Title 11 of the United States Code
or a successor statute of general application.

(2) A comparable order under federal, state, or foreign law
governing bankruptcy or insolvency, an assignment for the benefit
of creditors, or an order appointing a trustee, receiver, or
liquidator of the person or of all or substantially all of the person’s
property.

(f) “Designated office” means the office that a worker
cooperative company is required to designate and maintain under
Section 17801.13.

(g) “Distribution,” except as otherwise provided in subdivision
(g) of Section 17804.05, means a transfer of money or other
property from a worker cooperative company to another person
on account of a transferable interest or on account of a member’s
patronage of the company. The term distribution shall apply to
“dividend distributions” and “patronage distributions.”

(h) “Dividend distribution” means a distribution based on a
member’s transferable interest, but does not include patronage
distributions. Dividend distributions shall not exceed 15 percent
of a member’s transferable interest in any fiscal year.

(i) “Domestic” means organized under the laws of this state
when used in relation to any worker cooperative company, other
business entity, or person other than a natural person.

(j) “Effective,” with respect to a record required or permitted
to be delivered to the Secretary of State for filing under this
division, means effective under subdivision (c) of Section 17802.05.

(k) (1) “Electronic transmission by the worker cooperative
company” means a communication delivered by any of the
following means:

(A) Facsimile telecommunication or electronic mail when
directed to the facsimile number or electronic mail address,
respectively, for that recipient on record with the worker
cooperative company.

(B) Posting on an electronic message board or network that the
worker cooperative company has designated for those
communications, together with a separate notice to the recipient
of the posting, which transmission shall be validly delivered upon
the later of the posting or delivery of the separate notice thereof.

(C) Other means of electronic communication to which both of
the following apply:

(i) The communication is delivered to a recipient who has
provided an unrevoked consent to the use of those means of
transmission.

(ii) The communication creates a record that is capable of
retention, retrieval, and review, and that may thereafter be
rendered into clearly legible tangible form. However, an electronic
transmission by a worker cooperative company to an individual
member is not authorized unless, in addition to satisfying the
requirements of this section, the transmission satisfies the
requirements applicable to consumer consent to electronic records
as set forth in the federal Electronic Signatures in Global and
National Commerce Act (15 U.S.C. Sec. 7001(c)(1)).

(2) “Electronic transmission to the worker cooperative
company” means a communication delivered by any of the
following means:

(A) Facsimile telecommunication or electronic mail when
directed to the facsimile number or electronic mail address,
respectively, that the worker cooperative company has provided
from time to time to members or managers for sending
communications to the worker cooperative company.

(B) Posting on an electronic message board or network that the
worker cooperative company has designated for those
communications, which transmission shall be validly delivered
upon the posting.

(C) Other means of electronic communication to which both of
the following apply:

(i) The worker cooperative company has placed in effect
reasonable measures to verify that the sender is the member or
manager, in person or by proxy, purporting to send the
transmission.

(ii) The communication creates a record that is capable of
retention, retrieval, and review, and that may thereafter be
rendered into clearly legible tangible form.

(l) “Financial rights” means the right to participate in
allocations and distributions as provided in Section 17804.04 but
does not include voting rights or the right or obligation, if any, to
do business with the cooperative.

(m) “Limited liability worker cooperative company,” “worker
cooperative company,” or “cooperative company” means an entity
formed under this division or an entity that becomes subject to this
division pursuant to Article 12 (commencing with Section
17812.01). A worker cooperative company is majority-controlled
by its class of worker-members.

(n) “Majority of the managers” unless otherwise provided in
the operating agreement, means more than 50 percent of the
managers of the worker cooperative company.

(o) “Majority of the members” unless otherwise provided in
the operating agreement, means more than 50 percent of the
members of the worker cooperative company.

(p) “Majority of the worker-members” means, unless otherwise
provided in the operating agreement, more than 50 percent of the
worker-members.

(q) “Manager” means a person that under the operating
agreement of a manager-managed worker cooperative company
is responsible, alone or in concert with others, for performing the
management functions stated in subdivision (c) of Section
17804.07.

(r) “Manager-managed worker cooperative company” means
a worker cooperative company that qualifies under subdivision
(a) of Section 17804.07.

(s) “Meeting of all the members” means a meeting in which all
member classes may vote and participate.

(t) “Meeting of the worker-members” means a meeting in which
only the worker-member class may vote or participate.

(u) “Member” means a person that has become a member of a
worker cooperative company under Section 17804.01 and has not
dissociated under Section 17806.02.

(v) “Member-managed worker cooperative company” means
a worker cooperative company that is not a manager-managed
worker cooperative company.

(w) “Membership interest” means a member’s rights in the
worker cooperative company, including the member’s transferable
interest, any right to vote or participate in management, and any
right to information concerning the business and affairs of the
worker cooperative company provided by this division, and the
right or obligation to do business with the worker cooperative
company.

(x) “Nonworker member” means a member of the worker
cooperative company who is not a worker-member.

(y) “Operating agreement” means the agreement, whether or
not referred to as an operating agreement and whether oral, in a
record, implied, or in any combination thereof, of all the members
of a worker cooperative company, including a sole member,
concerning the matters described in subdivision (a) of Section
17801.10. The term “operating agreement” may include, without
more, an agreement of all members to organize a worker
cooperative company pursuant to this division. An operating
agreement of a worker cooperative company having only one
member shall not be unenforceable by reason of there being only
one person who is a party to the operating agreement. The term
includes the agreement as amended or restated.

(z) “Organization” means, whether domestic or foreign, a
partnership whether general or limited, worker cooperative
company, association, corporation, professional corporation,
professional association, nonprofit corporation, business trust, or
statutory business trust having a governing statute.

(aa) “Organizer” means a person that acts under Section
17802.01 to form a worker cooperative company.

(ab) “Patron” means a person who provides labor to, purchases
goods from, or uses the services of, the worker cooperative
company.

(ac) “Patron member” means a member that is permitted or
required to conduct patronage with the worker cooperative
company to receive the member’s interest.

(ad) “Patronage” means the amount of value created by a
member measured as provided in the articles of organization or
operating agreement of the worker cooperative company. Value
may include personal services contributed, number of hours
worked, job creation, or any other measure as provided in the
articles of organization or operating agreement. The amount of
value shall not be calculated with reference to a member’s
transferable interest.

(ae) “Patronage distribution” means any transfer of cash or
property made to a patron of the worker cooperative company,
the amount of which is computed with reference to the patron’s
patronage of the worker cooperative company.

(af) “Person” means an individual, partnership, limited
partnership, trust, estate, association, corporation, cooperative
corporation, limited liability company, worker cooperative
company, or other entity, whether domestic or foreign. Nothing in
this subdivision shall be construed to confer any rights under the
California Constitution or the United States Constitution.

(ag) “Principal office” means the principal executive office of
a worker cooperative company, whether or not the office is located
in this state.

(ah) “Record” means information that is inscribed on a tangible
medium or that is stored in an electronic or other medium and is
retrievable in perceivable form.

(ai) “State” means a state of the United States, the District of
Columbia, Puerto Rico, the United States Virgin Islands, or any
territory or insular possession subject to the jurisdiction of the
United States.

(aj) “Transfer” includes an assignment, conveyance, deed, bill
of sale, lease, mortgage, security interest, encumbrance, gift, and
transfer by operation of law.

(ak) “Transferable interest” means the right, as originally
associated with a person’s capacity as a member, to receive
distributions from a worker cooperative company in accordance
with the operating agreement, whether or not the person remains
a member or continues to own any part of the right.

(al) “Transferee” means a person to which all or part of a
transferable interest has been transferred, whether or not the
transferor is a member.

(am) “Vote” includes authorization by written consent or
consent given by electronic transmission to the worker cooperative
company.

(an) “Voting member” means a member that, under this division
or articles or operating agreement, has a right to vote on matters
subject to vote by members under this division or articles or
operating agreement.

(ao) “Worker” means a natural person who provides labor to
the worker cooperative company with the expectation of receiving
compensation, a share of the profits, or both.

(ap) “Worker-member” means a worker who is a patron
member of the worker cooperative company and whose patronage
includes providing labor to the worker cooperative company.

begin insert 17801.04. end insert   

(a) A worker cooperative company is an entity
distinct from its members.

(b) A worker cooperative company may have any lawful purpose,
except the banking business, the business of issuing policies of
insurance and assuming insurance risks, or the trust company
business, provided that it is organized and conducts its business
primarily for the mutual benefit of its members as patrons of the
company. Worker cooperative companies 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.

(c) A worker cooperative company may render services that
may be lawfully rendered only pursuant to a license, certificate,
or registration authorized by the Business and Professions Code,
the Chiropractic Act, the Osteopathic Act, or the Yacht and Ship
Brokers Act, if the applicable provisions of the Business and
Professions Code, the Chiropractic Act, the Osteopathic Act, or
the Yacht and Ship Brokers Act authorize a worker cooperative
company to hold that license, certificate, or registration.

(d) A worker cooperative company has perpetual duration.

(e) Notwithstanding subdivision (c) and as specifically provided
in this subdivision, a worker cooperative company may operate
as a health care service plan licensed pursuant to Chapter 2.2
(commencing with Section 1340) of Division 2 of the Health and
Safety Code if the worker cooperative company is a subsidiary of
a health care service plan licensed pursuant to those provisions
and the worker cooperative company is established to serve an
existing line of business of the parent health care service plan.
Notwithstanding any other law, the tort or contract liability of a
worker cooperative company created to operate as a health care
service plan under this subdivision and its members is not limited
or restricted in any manner because of the worker cooperative
company status of the health care service plan.

(f) Nothing in this division shall be construed to permit a
domestic worker cooperative company to render professional
services, as defined in subdivision (a) of Section 13401 and in
Section 13401.3, in this state.

begin insert 17801.05. end insert   

Subject to any limitations contained in the articles
of organization and to compliance with this division and any other
applicable laws, a worker cooperative company organized under
this division shall have all the powers of a natural person in
carrying out its business activities, including, without limitation,
the power to:

(a) Transact its business, carry on its operations, qualify to do
business, and have and exercise the powers granted by this division
in any state, territory, district, possession, or dependency of the
United States, and in any foreign country.

(b) Sue, be sued, complain, and defend any action, arbitration,
or proceeding, whether judicial, administrative, or otherwise, in
its own name.

(c) Adopt, use, and at will alter a company seal. However,
failure to affix a seal does not affect the validity of any instrument.

(d) Make contracts and guarantees, incur liabilities, act as
surety, or borrow money.

(e) Sell, lease, exchange, transfer, convey, mortgage, pledge,
or otherwise dispose of all or any part of its property and assets.

(f) Purchase, take, receive, lease, or otherwise acquire, own,
hold, improve, use, or otherwise deal in and with any interest in
real or personal property, wherever located.

(g) Lend money to and otherwise assist its members and
employees.

(h) Issue notes, bonds, and other obligations and secure any of
them by mortgage or deed of trust or security interest of any or
all of its assets.

(i) Purchase, take, receive, subscribe for, or otherwise acquire,
own, hold, vote, use, employ, sell, mortgage, loan, pledge, or
otherwise dispose of and otherwise use and deal in and with stock
or other interests in and obligations of any person, or direct or
indirect obligations of the United States or of any government,
state, territory, governmental district, or municipality, or of any
instrumentality of any of them.

(j) Invest its surplus funds, lend money from time to time in any
manner which may be appropriate to enable it to carry on the
operations or fulfill the purposes set forth in its articles of
organization, or take and hold real property and personal property
as security for the payment of funds so loaned or invested.

(k) Be a promoter, stockholder, partner, member, manager,
associate, or agent of any person.

(l) Indemnify or hold harmless any person.

(m) Purchase and maintain insurance.

(n) Issue, purchase, redeem, receive, take, or otherwise acquire,
own, hold, sell, lend, exchange, transfer, or otherwise dispose of,
pledge, use, and otherwise deal in and with its own bonds,
debentures, and other securities.

(o) Pay pensions and establish and carry out pension, profit
sharing, bonus, share purchase, option, savings, thrift, and other
retirement, incentive, and benefit plans, trusts, and provisions for
all or any of the current or former members, managers, officers,
or employees of the worker cooperative company or any of its
subsidiary or affiliated entities, or to indemnify and purchase and
maintain insurance on behalf of any fiduciary of those plans, trusts,
or provisions.

(p) Make donations, regardless of specific benefit to the worker
cooperative company, to the public welfare or for community,
civic, religious, charitable, scientific, literary, educational, or
similar purposes.

(q) Make payments or donations or do any other act, not
inconsistent with this division or any other applicable law, that
furthers the business and affairs of the worker cooperative
company.

(r) Pay compensation, and pay additional compensation, to any
or all managers, officers, members, and employees on account of
services previously rendered to the worker cooperative company,
whether or not an agreement to pay that compensation was made
before the services were rendered.

(s) Insure for its benefit the life of any of its members, managers,
officers, or employees, insure the life of any member for the
purpose of acquiring at his or her death the interest owned by the
member, and continue the insurance after the relationship
terminates.

(t) Carry out every other act not inconsistent with law that is
appropriate to promote and attain the purposes set forth in its
articles of organization.

begin insert 17801.06. end insert   

The law of this state governs all of the following:

(a) The internal affairs of a worker cooperative company.

(b) The liability of a member as member and a manager as
manager for the debts, obligations, or other liabilities of a worker
cooperative company.

(c) The authority of the members and agents of a worker
cooperative company.

begin insert 17801.07. end insert   

(a) It is the policy of this division and this state to
give maximum effect to the principles of freedom of contract and
to the enforceability of operating agreements.

(b) Unless displaced by particular provisions of this division,
the principles of law and equity supplement this division.

(c) Rules that statutes in derogation of the common law are to
be strictly construed shall have no application to this division.

(d) Unless the context otherwise requires, as used in this
division, the singular shall include the plural and the plural may
refer to only the singular. The use of any gender shall be applicable
to all genders.

begin insert 17801.08. end insert   

(a) The name of a limited liability worker
cooperative company shall contain the words “limited liability
worker cooperative company,” “worker cooperative company,”
“limited worker cooperative,” or “cooperative.” and may be
abbreviated as “L.L.W.C.C.” or “LLWCC.” “Limited” may be
abbreviated as “Ltd.” “Cooperative” may be abbreviated as
“Co-op” or “Coop.” “Company” may be abbreviated as “Co.”

(b) Unless authorized by subdivision (c), the name of a worker
cooperative company shall not be a name that the Secretary of
State determines is likely to mislead the public and shall be
distinguishable in the records of the Secretary of State from all of
the following:

(1) The name of any worker cooperative company, limited
liability company, authorized to transact business in this state.

(2) Each name reserved under Section 17801.09.

(c) A worker cooperative company may apply to the Secretary
of State for authorization to use a name that does not comply with
subdivision (b). The Secretary of State shall authorize use of the
name applied for if, as to each noncomplying name, either of the
following applies:

(1) The present user, registrant, or owner of the noncomplying
name consents in a signed record to the use and submits an
undertaking in a form satisfactory to the Secretary of State to
change the noncomplying name to a name that complies with
subdivision (b) and is distinguishable in the records of the
Secretary of State from the name applied for.

(2) The applicant delivers to the Secretary of State a certified
copy of the final judgment of a court establishing the applicant’s
right to use in this state the name applied for.

(d) The name shall not include the words “bank,” “trust,”
“trustee,” “incorporated,” “inc.,” “corporation,” or “corp.” and
shall not include the words “insurer” or “insurance company”
or any other words suggesting that it is in the business of issuing
policies of insurance and assuming insurance risks.

begin insert 17801.09. end insert   

(a) A person may reserve the exclusive use of the
name of a worker cooperative company by delivering an
application to the Secretary of State. The application shall state
the name and address of the applicant and the name proposed to
be reserved. If the Secretary of State finds that the name applied
for is available, it shall be reserved for the applicant’s exclusive
use for up to 60 days. The Secretary of State shall not issue
certificates reserving the same name for two or more consecutive
60-day periods to the same applicant or for the use or benefit of
the same person; nor shall consecutive reservations be made by
or for the use or benefit of the same person for a name so similar
as to fall within the prohibitions of subdivision (b) of Section
17801.08.

(b) The owner of a name reserved for a worker cooperative
company may transfer the reservation to another person by
delivering to the Secretary of State for filing a signed notice of the
transfer which states the name and address of the transferee.

begin insert 17801.10. end insert   

(a) Except as otherwise provided in this section,
the operating agreement governs all of the following:

(1) Relations among the members as members and between the
members and the worker cooperative company.

(2) The rights and duties under this division of a person in the
capacity of manager.

(3) The activities of the worker cooperative company and the
conduct of those activities.

(4) The means and conditions for amending the operating
agreement.

(b) To the extent the operating agreement does not otherwise
provide for a matter described in subdivision (a), this division
governs the matter.

(c) An operating agreement shall not do any of the following:

(1) Vary a worker cooperative company’s capacity under Section
17801.05 to sue and be sued in its own name.

(2) Vary the law applicable under Section 17801.06.

(3) Vary the power of the court under Section 17802.04.

(4) Subject to subdivisions (d) to (g), inclusive, eliminate the
duty of loyalty, the duty of care, or any other fiduciary duty.

(5) Subject to subdivisions (d) to (g), inclusive, eliminate the
contractual obligation of good faith and fair dealing under
subdivision (d) of Section 17804.09.

(6) Unreasonably restrict the duties and rights stated in Section
17804.10.

(7) Vary the power of a court to decree dissolution in the
circumstances specified in subdivision (a) of Section 17807.03 or
the provisions for avoidance of dissolution in subdivision (c) of
Section 17807.03.

(8) Except as stated herein, vary the requirements of Sections
17807.04 to 17807.08, inclusive.

(9) Unreasonably restrict the right of a member to maintain an
action under Article 8 (commencing with Section 17808.01).

(10) Restrict the right to approve a merger, conversion, or
domestication under Section 17809.14 to a member that will have
personal liability with respect to a surviving, converted, or
domesticated organization.

(11) Except as otherwise provided in subdivision (b) of Section
17801.12, restrict the rights under this division of a person other
than a member or manager.

(12) Vary any provision under Article 9 (commencing with
Section 17809.01).

(13) Vary any provision under Article 10 (commencing with
Section 17810.01).

(14) Eliminate the duty of loyalty under subdivision (b) of
Section 17804.09, but the operating agreement may do any of the
following:

(A) Identify specific types or categories of activities that do not
violate the duty of loyalty, if not manifestly unreasonable.

(B) Specify the number or percentage of members that may
authorize or ratify, after full disclosure to all members of all
material facts, a specific act or transaction that otherwise would
violate the duty of loyalty.

(15) Unreasonably reduce the duty of care under subdivision
(c) of Section 17804.09.

(16) Eliminate the obligation of good faith and fair dealing
under subdivision (d) of Section 17804.09, but the operating
agreement may prescribe the standards by which the performance
of the obligation is to be measured, if the standards are not
manifestly unreasonable.

(d) Except as provided in subdivision (c) and subdivisions (e)
to (g), inclusive, the effects of the provisions of this division may
be varied as among the members or as between the members and
the worker cooperative company by the operating agreement;
provided, however, that the provisions of Sections 17801.13,
17803.01, 17804.07, and 17804.08 shall only be varied by a written
operating agreement. Notwithstanding the first sentence of this
subdivision and in addition to the matters specified in subdivision
(c), the operating agreement shall not do either of the following:

(1) Vary the definitions of Section 17801.02, except as
specifically provided therein.

(2) Vary a member’s rights under Sections 17803.01 and
17804.10.

(e) The fiduciary duties of a manager to the worker cooperative
company and to the members of the worker cooperative company
shall only be modified in a written operating agreement with the
informed consent of the members. Assenting to the operating
agreement pursuant to subdivision (b) of Section 17801.11 shall
not constitute informed consent.

(f) To the extent the operating agreement of a member-managed
worker cooperative company expressly relieves a member of a
responsibility that the member would otherwise have under this
division and imposes the responsibility on one or more other
members, the operating agreement may, to the benefit of the
member that the operating agreement relieves of the responsibility,
also eliminate or limit any fiduciary duty that would have pertained
to the responsibility.

(g) The operating agreement may alter or eliminate the
indemnification for a member or manager provided by subdivision
(a) of Section 17804.08 and may eliminate or limit a member or
manager’s liability to the worker cooperative company and
members for money damages, except for the following:

(1) Breach of the duty of loyalty.

(2) A financial benefit received by the member or manager to
which the member or manager is not entitled.

(3) A member’s liability for excess distributions under Section
17804.06.

(4) Intentional infliction of harm on the worker cooperative
company or a member.

(5) An intentional violation of criminal law.

begin insert 17801.11. end insert   

(a) A worker cooperative company is bound by and
may enforce the operating agreement.

(b) A person that becomes a member of a worker cooperative
company is deemed to assent to the operating agreement.

(c) Two or more persons intending to become the initial
members of a worker cooperative company may make an agreement
providing that upon the formation of the worker cooperative
company the agreement will become the operating agreement.
One person intending to become the initial member of a worker
cooperative company may assent to terms providing that upon the
formation of the worker cooperative company the terms will
become the operating agreement.

begin insert 17801.12. end insert   

(a) An operating agreement may specify that its
amendment requires the approval of a person that is not a party
to the operating agreement or the satisfaction of a condition. An
amendment is ineffective if its adoption does not include the
required approval or satisfy the specified condition.

(b) The obligations of a worker cooperative company and its
members to a person in the person’s capacity as a transferee or
dissociated member are governed by the operating agreement.
Subject only to any court order issued under paragraph (2) of
subdivision (b) of Section 17805.03 to effectuate a charging order,
an amendment to the operating agreement made after a person
becomes a transferee or dissociated member is effective with
regard to any debt, obligation, or other liability of the worker
cooperative company or its members to the person in the person’s
capacity as a transferee or dissociated member.

(c) If a record that has been delivered by a worker cooperative
company to the Secretary of State for filing and has become
effective under this division contains a provision that would be
ineffective under subdivision (c) of Section 17801.10 if contained
in the operating agreement, the provision is likewise ineffective in
the record.

(d) Subject to subdivision (c), if a record that has been delivered
by a worker cooperative company to the Secretary of State for
filing and has become effective under this division conflicts with
a provision of the operating agreement both of the following apply:

(1) The operating agreement prevails as to members, dissociated
members, transferees, and managers.

(2) The record prevails as to other persons to the extent they
reasonably rely on the record.

begin insert 17801.13. end insert   

(a) A worker cooperative company shall designate
and continuously maintain in this state both of the following:

(1) An office, which need not be a place of its activity in this
state.

(2) An agent for service of process.

(b) An agent for service of process of a worker cooperative
company shall be an individual who is a resident of this state or
a corporation that has complied with Section 1505 and whose
capacity to act as an agent has not terminated. If a worker
cooperative company designates a corporation as its agent for
service of process in an instrument filed with the Secretary of State,
no address for that agent for service of process shall be set forth
in that instrument.

(c) Each worker cooperative company shall maintain in writing
or in any other form capable of being converted into clearly legible
tangible form at the office referred to in subdivision (a) all of the
following:

(1) A current list of the full name and last known business or
residence address of each member and of each holder of a
transferable interest in the worker cooperative company set forth
in alphabetical order, together with the contribution and the share
in profits and losses of each member and holder of a transferable
interest.

(2) If the worker cooperative company is a manager-managed
worker cooperative company, a current list of the full name and
business or residence address of each manager.

(3) A copy of the articles of organization and all amendments
thereto, together with any powers of attorney pursuant to which
the articles of organization or any amendments thereto were
executed.

(4) Copies of the worker cooperative company’s federal, state,
and local income tax or information returns and reports, if any,
for the six most recent fiscal years.

(5) A copy of the worker cooperative company’s operating
agreement, if in writing, and any amendments thereto, together
with any powers of attorney pursuant to which any written
operating agreement or any amendments thereto were executed.

(6) Copies of the financial statement of the worker cooperative
company, if any, for the six most recent fiscal years.

(7) The books and records of the worker cooperative company
as they relate to the internal affairs of the worker cooperative
company for at least the current and past four fiscal years.

(d) Upon request of an assessor, a worker cooperative company
owning, claiming, possessing, or controlling property in this state
subject to local assessment shall make available at the worker
cooperative company’s principal office in this state or at the office
required to be kept pursuant to subdivision (a) or at a place
mutually acceptable to the assessor and the worker cooperative
company a true copy of the business records relevant to the
amount, cost, and value of all property that the worker cooperative
company owns, claims, possesses, or controls within the county.

begin insert 17801.14. end insert   

(a) A worker cooperative company may change its
designated office, its principal office, its agent for service of
process, the address of its agent for service of process, its mailing
address by delivering to the Secretary of State for filing a statement
of information as set forth in Section 17802.09.

(b) A statement of information is effective when filed by the
Secretary of State.

begin insert 17801.15. end insert   

(a) To resign as an agent for service of process of
a worker cooperative company, the agent shall deliver to the
Secretary of State for filing a signed and acknowledged statement
of resignation containing the worker cooperative company name,
the Secretary of State’s file number, the name of resigning agent
for service of process, and a statement that the agent is resigning.

(b) The Secretary of State shall file a statement of resignation
delivered under subdivision (a) and mail or otherwise provide or
deliver a copy to the designated office of the worker cooperative
company.

(c) Upon filing of the statement of resignation, the authority of
the agent to act in that capacity shall cease.

(d) If an individual who has been designated agent for service
of process dies or resigns or no longer resides in the state, or if
the corporate agent for that purpose resigns, dissolves, withdraws
from the state, forfeits its right to transact intrastate business in
this state, has its corporate rights, powers, and privileges
suspended, or ceases to exist, the worker cooperative company
shall promptly file an initial or amended statement of information
as set forth in Section 17802.09.

begin insert 17801.16. end insert   

(a) In addition to Chapter 4 (commencing with
Section 413.10) of Title 5 of Part 2 of the Code of Civil Procedure,
process may be served upon worker cooperative companies as
provided in this section.

(b) Personal service of a copy of any process against the worker
cooperative company by delivery (1) to any individual designated
by it as agent, or (2) if the designated agent is a corporation, to
any person named in the latest certificate of the corporate agent
filed pursuant to Section 1505 at the office of the corporate agent,
shall constitute valid service on the worker cooperative company.
No change in the address of the agent for service of process or
appointment of a new agent for service of process shall be effective
until an amendment to the statement described in Section 17801.14
is filed.

(c) If an agent for service of process has resigned and has not
been replaced or if the designated agent cannot with reasonable
diligence be found at the address designated for personal delivery
of the process, and it is shown by affidavit to the satisfaction of
the court that process against a worker cooperative company
cannot be served with reasonable diligence upon the designated
agent by hand in the manner provided in Section 415.10,
subdivision (a) of Section 415.20, or subdivision (a) of Section
415.30 of the Code of Civil Procedure, the court may make an
order that the service shall be made upon a worker cooperative
company by delivering by hand to the Secretary of State, or to any
person employed in the Secretary of State’s office in the capacity
of assistant or deputy, one copy of the process for each defendant
to be served, together with a copy of the order authorizing the
service. Service in this manner shall be deemed complete on the
10th day after delivery of the process to the Secretary of State.

(d) Upon receipt of the copy of process and the fee therefor, the
Secretary of State shall give notice of the service of the process to
the worker cooperative company at its principal office, by
forwarding to that office, by registered mail with request for return
receipt, the copy of the process.

(e) The Secretary of State shall keep a record of all process
served upon the Secretary of State under this division and shall
record therein the time of service and the action taken by the
Secretary of State. A certificate under the Secretary of State’s
official seal, certifying to the receipt of process, the giving of notice
to the worker cooperative company, and the forwarding of the
process pursuant to this section, shall be competent and prima
facie evidence of the service of process.

begin insert 17801.17. end insert   

(a) A member may, in a written operating agreement
or other writing, consent to be subject to the nonexclusive
jurisdiction of the courts of a specified jurisdiction and the courts
of this state, or the exclusive jurisdiction of the courts of this state.

(b) If a member desires to use the arbitration process, that
member may, in a written operating agreement or other writing,
consent to be nonexclusively subject to arbitration in a specified
state or states and this state, or to be exclusively subject to
arbitration in this state.

(c) Along with this consent to the jurisdiction of courts or
arbitration, a member may consent to be served with legal process
in the manner prescribed in the operating agreement or other
writing.

 

Article begin insert 2. end insert   Formation: Articles of Organization and Other Filings

 

begin insert 17802.01. end insert   

(a) One or more persons may act as organizers to
form a worker cooperative company by signing and delivering to
the Secretary of State for filing articles of organization on a form
prescribed by the Secretary of State.

(b) The articles of organization shall state all of the following:

(1) A statement that the purpose of the worker cooperative
company is to engage in any lawful act or activity for which a
worker cooperative company may be organized under this division.

(2) The name of the worker cooperative company, which shall
comply with Section 17801.08.

(3) The street address of the initial designated office and the
mailing address of the worker cooperative company if different
from the street address of the initial designated office.

(4) The name and street address of the initial agent for service
of process of the worker cooperative company who meets the
qualifications specified in subdivision (c) of Section 17801.13. If
a corporate agent is designated, only the name of the agent shall
be set forth.

(5) If the worker cooperative company is to be
manager-managed, the articles of organization shall contain a
statement to that effect.

(6) If the worker cooperative company is to be managed by only
one manager, the articles of organization shall contain a statement
to that effect.

(7) If the financial rights of the members are unequal, the
articles of organization shall contain a statement to that effect.

(c) Subject to subdivision (c) of Section 17801.12, articles of
organization may also contain any other provision not inconsistent
with law other than those provisions required by subdivision (b).

(d) A worker cooperative company is formed when the Secretary
of State has filed the articles of organization.

(e) Except in a proceeding by this state to dissolve a worker
cooperative company, the filing of the articles of organization by
the Secretary of State is conclusive proof that the organizer
satisfied all conditions to the formation of a worker cooperative
company.

(f) The Secretary of State may cancel the filing of the articles
of organization if a check or other remittance accepted in payment
of the filing fee is not paid upon presentation. Upon receiving
written notification that the item presented for payment has not
been honored for payment, the Secretary of State shall give a first
written notice of the applicability of this subdivision to the agent
for service of process or to the person submitting the instrument.
Thereafter, if the amount has not been paid by cashier’s check or
equivalent, the Secretary of State shall give a second written notice
of cancellation and the cancellation shall thereupon be effective.
The second notice shall be given 20 days or more after the first
notice, and 90 days or less after the original filing.

(g) The Secretary of State shall include with the instructional
materials, provided in conjunction with the form for filing the
articles of organization under subdivision (a), a notice that filing
the registration will obligate the worker cooperative company to
pay an annual tax for that taxable year to the Franchise Tax Board
pursuant to Section 17941 of the Revenue and Taxation Code. That
notice shall be updated annually to specify the dollar amount of
the tax.

(h) The Secretary of State shall provide on its Internet Web site
information and sample documents for forming a worker
cooperative company.

begin insert 17802.02. end insert   

(a) The articles of organization may be amended
or restated at any time.

(b) To amend its articles of organization, a worker cooperative
company shall deliver to the Secretary of State for filing a
certificate of amendment, on a form prescribed by the Secretary
of State, stating all of the following:

(1) The present name of the worker cooperative company.

(2) The Secretary of State’s file number for the worker
cooperative company.

(3) The changes the amendment makes to the articles of
organization as most recently amended or restated.

(c) To restate its articles of organization, a worker cooperative
company shall deliver to the Secretary of State for filing a
restatement, on a form prescribed by the Secretary of State, stating,
as applicable, the following:

(1) The present name of the worker cooperative company and
the Secretary of State’s file number for the worker cooperative
company.

(2) The changes the restatement makes to the articles of
organization as most recently amended or restated.

(d) Subject to subdivision (c) of Section 17801.12 and
subdivision (c) of Section 17802.05, an amendment to or
restatement of the articles of organization is effective when filed
by the Secretary of State and shall be duly executed by at least one
manager of a manager-managed worker cooperative company or
at least one member of a member-managed worker cooperative
company unless a greater number is provided in the articles of
organization.

(e) If a member of a member-managed worker cooperative
company, or a manager of a manager-managed worker cooperative
company, knows that any information in filed articles of
organization was inaccurate when the articles were filed or has
become inaccurate owing to changed circumstances, the member
or manager shall promptly do the following:

(1) Cause the articles to be amended.

(2) If appropriate, deliver to the Secretary of State for filing a
statement of information under Section 17801.14 or a certificate
of correction under Section 17802.06.

(f) A worker cooperative company shall not amend its articles
of organization pursuant to subdivision (b) or restate its articles
of organization pursuant to subdivision (c) in order to change its
designated office, its mailing address, its agent for service of
process, or the address of its agent for service of process. To
change that information, the worker cooperative company shall
deliver to the Secretary of State for filing a statement of information
under Section 17801.14.

begin insert 17802.03. end insert   

(a) A record delivered to the Secretary of State for
filing pursuant to this division shall be signed as follows:

(1) Except as otherwise provided in paragraphs (2) and (3), a
record signed on behalf of a worker cooperative company shall
be signed by a person authorized by the worker cooperative
company.

(2) A worker cooperative company’s initial articles of
organization shall be signed by at least one person acting as an
organizer.

(3) A record filed on behalf of a dissolved worker cooperative
company that has no members shall be signed by the person
winding up the worker cooperative company’s activities or a
person appointed under Section 17807.04 to wind up those
activities.

(4) A certificate of cancellation under Section 17807.02 shall
be signed by each organizer that signed the initial articles of
organization, but a personal representative of a deceased or
incompetent organizer may sign in the place of the decedent or
incompetent.

(b) Any record filed under this division may be signed by an
agent.

(c) A worker cooperative company may record in the office of
the county recorder of any county in this state, and county
recorders, on request, shall record a certified copy of the worker
cooperative company articles of organization and any exhibit or
attachment, or any amendment or correction thereto, that has been
filed in the office of the Secretary of State. The recording shall
create a conclusive presumption in favor of any bona fide
purchaser or encumbrancer for value of the worker cooperative
company real property located in the county in which the certified
copy has been recorded, of the statements contained therein.

(d) If the Secretary of State determines that an instrument
submitted for filing or otherwise submitted does not conform to
the law and returns it to the person submitting it, the instrument
may be resubmitted accompanied by a written opinion of a member
of the State Bar of California submitting the instrument or
representing the person submitting it, to the effect that the specific
provisions of the instrument objected to by the Secretary of State
do conform to law and stating the points and authorities upon
which the opinion is based. The Secretary of State shall rely, with
respect to any disputed point of law, other than the application of
Sections 17801.08 and 17801.09, upon that written opinion in
determining whether the instrument conforms to law. The date of
filing in that case shall be the date the instrument is received on
resubmission.

begin insert 17802.04. end insert   

(a) If a person required by this division to sign a
record or deliver a record to the Secretary of State for filing under
this division does not do so, any other person that is aggrieved
may petition the superior court to order any of the following:

(1) The person to sign the record.

(2) The person to deliver the record to the Secretary of State
for filing.

(3) The Secretary of State to file the record unsigned.

(b) If a petitioner under subdivision (a) is not the worker
cooperative company to which the record pertains, the petitioner
shall make the worker cooperative company a party to the action.

begin insert 17802.05. end insert   

(a) A record authorized or required to be delivered
to the Secretary of State for filing under this division shall be
captioned to describe the record’s purpose, be in a medium
permitted by the Secretary of State, and be delivered to the
Secretary of State. If the filing fees have been paid, unless the
Secretary of State determines that a record does not comply with
applicable laws, the Secretary of State shall file the record.

(b) Upon request and payment of the requisite fee, the Secretary
of State shall send to the requester a certified copy of a requested
record.

(c) Except for original articles of organization and except as
otherwise provided in Sections 17801.14 and 17802.06, a record
delivered to the Secretary of State for filing under this division
may specify a delayed effective date. Subject to Section 17802.06,
a record filed by the Secretary of State is effective as follows:

(1) If the record does not specify a delayed effective date, on
the date the record is filed as evidenced by the Secretary of State’s
endorsement of the date on the record.

(2) If the record specifies a delayed effective date, on the date
specified in the record. A delayed effective date specified in the
record shall not be more than 90 days after the date the record is
filed.

(d) In the case of a delayed effective date, the instrument may
be prevented from becoming effective by a certificate stating that
by appropriate action it has been revoked and is null and void.
This certificate shall be executed in the same manner as the
original instrument and shall be filed before the delayed effective
date.

(e) In the case of a merger agreement or certificate of merger,
a certificate revoking the earlier filing need only be executed on
behalf of one of the constituent parties to the merger. If no
revocation certificate is filed, the instrument becomes effective on
the date specified.

begin insert 17802.06. end insert   

(a) A worker cooperative company may deliver to
the Secretary of State for filing a certificate of correction on a
form prescribed by the Secretary of State to correct a record
previously delivered by the worker cooperative company to the
Secretary of State and filed by the Secretary of State, if at the time
of filing the record contained inaccurate information or was
defectively signed.

(b) A certificate of correction under subdivision (a) may not
state a delayed effective date and shall do all of the following:

(1) State the present name of the worker cooperative company
and the Secretary of State’s file number.

(2) Describe the title to the document to be corrected, including
its filing date.

(3) Set forth the name of each party to the document to be
corrected.

(4) Specify the inaccurate information and the reason it is
inaccurate or the manner in which the signing was defective.

(5) Correct the defective signature or inaccurate information.

(c) When filed by the Secretary of State, a certificate of
correction under subdivision (a) is effective retroactively as of the
effective date of the record the certificate corrects, but the
statement is effective when filed as to persons that previously relied
on the uncorrected record and would be adversely affected by the
retroactive effect.

begin insert 17802.07. end insert   

(a) If a record delivered to the Secretary of State
for filing under this division and filed by the Secretary of State
contains inaccurate information, a person that suffers a loss by
reliance on the information may recover damages for the loss from
the following:

(1) A person that signed the record, or caused another to sign
it on the person’s behalf, and knew the information to be inaccurate
at the time the record was signed.

(2) Subject to subdivision (b), a member of a member-managed
worker cooperative company or the manager of a
manager-managed worker cooperative company, if all of the
following apply:

(A) The record was delivered for filing on behalf of the worker
cooperative company.

(B) The member or manager had notice of the inaccuracy for
a reasonably sufficient time before the information was relied upon
so that, before the reliance, the member or manager reasonably
could have done all of the following:

(i) Effected an amendment under Section 17802.02.

(ii) Filed a petition under Section 17802.04.

(iii) Delivered to the Secretary of State for filing a statement of
information under Section 17801.14 or a certificate of correction
under Section 17802.06.

(b) To the extent that the operating agreement of a
member-managed worker cooperative company expressly relieves
a member of responsibility for maintaining the accuracy of
information contained in records delivered on behalf of the worker
cooperative company to the Secretary of State for filing under this
division and imposes that responsibility on one or more other
members, the liability stated in paragraph (2) of subdivision (a)
applies to those other members and not to the member that the
operating agreement relieves of the responsibility.

(c) An individual who signs a record authorized or required to
be filed under this division affirms under penalty of perjury that
the information stated in the record is accurate.

begin insert 17802.09. end insert   

(a) A worker cooperative company shall deliver to
the Secretary of State for filing within 90 days after the filing of
its original articles of organization and biennially thereafter during
the applicable filing period, on a form prescribed by the Secretary
of State, a statement of information containing:

(1) The name of the worker cooperative company and the
Secretary of State’s file number.

(2) The name and street address of the agent in this state for
service of process required to be maintained pursuant to Section
17801.13. If a corporate agent is designated, only the name of the
agent shall be set forth.

(3) The street address of its office required to be maintained
pursuant to Section 17801.13.

(4) The mailing address of the worker cooperative company, if
different from the street address of its office required to be
maintained pursuant to Section 17801.13.

(5) The name and complete business or residence addresses of
any manager or managers and the chief executive officer, if any,
appointed or elected in accordance with the articles of organization
or operating agreement or, if no manager has been so elected or
appointed, the name and business or residence address of each
member.

(6) If the worker cooperative company chooses to receive
renewal notices and any other notifications from the Secretary of
State by electronic mail instead of by United States mail, the worker
cooperative company shall include a valid electronic mail address
for the worker cooperative company, or for the worker cooperative
company’s designee to receive those notices.

(7) The general type of business that constitutes the principal
business activity or the worker cooperative company, such as, for
example, manufacture of aircraft, wholesale liquor distributor, or
retail department store.

(b) If there has been no change in the information contained in
the last filed statement of information of the worker cooperative
company on file in the office of Secretary of State, the worker
cooperative company may, in lieu of filing the statement of
information required by subdivision (a), advise the Secretary of
State, on a form prescribed by the Secretary of State, that no
changes in the required information have occurred during the
applicable filing period.

(c) For purposes of this section, the applicable filing period for
a worker cooperative company shall be the calendar month during
which its original articles of organization was filed and the
immediately preceding five calendar months. The Secretary of
State shall provide a notice to each worker cooperative company
to comply with this section approximately three months prior to
the close of the applicable filing period. The notice shall state the
due date for compliance and shall be sent to the last mailing
address of the worker cooperative company according to the
records of the Secretary of State, or if none, to the street address
of the principal office, or, in the case of a domestic worker
cooperative company, the office required to be maintained pursuant
to Section 17801.13, or to the last electronic mail address
according to the records of the Secretary of State if the worker
cooperative company has elected to receive notices from the
Secretary of State by electronic mail. The failure of the worker
cooperative company to receive the notice shall not exempt the
worker cooperative company from complying with this section.

(d) Whenever any of the information required by subdivision
(a) changes, other than the name and address of the agent for
service of process, the worker cooperative company may file a
current statement containing all the information required by
subdivision (a). When changing its agent for service of process or
when the address of the agent changes, the worker cooperative
company shall file a current statement containing all the
information required by subdivision (a). Whenever any statement
is filed pursuant to this section, that statement supersedes any
previously filed statement pursuant to this section, the statement
in the original articles of organization, and the statement in any
previously filed amended or restated articles of organization that
have been filed.

(e) If a statement of information delivered to the Secretary of
State for filing under this section does not contain the information
required by subdivision (a), the Secretary of State shall promptly
return the statement of information to the reporting worker
cooperative company for correction.

(f) The Secretary of State may destroy or otherwise dispose of
any statement filed pursuant to this section after it has been
superseded by the filing of a new statement.

begin insert 17802.10. end insert   

An instrument shall be deemed filed, and the date
of filing endorsed thereon, upon receipt by the Secretary of State
of any instrument accompanied by the fee prescribed in Article 3
(commencing with Section 12180) of Chapter 3 of Part 2 of
Division 3 of Title 2 of the Government Code. The date of filing
shall be the date the instrument is received by the Secretary of
State unless the instrument provides that it is to be withheld from
filing for a period of time not to exceed 90 days or unless, in the
judgment of the Secretary of State, the filing is intended to be
coordinated with the filing of some other document that cannot be
filed. The Secretary of State shall file a document as of any
requested future date not more than 90 days after its receipt,
including a Saturday, Sunday, or legal holiday, if that document
is received in the office of the Secretary of State at least one
business day prior to the requested date of filing. Upon receipt
and after filing of any document under this division, the Secretary
of State may microfilm or reproduce by other techniques any filings
or documents and destroy the original filing or document. The
microfilm or other reproduction of any document under this
section, or corresponding provision under prior law, shall be
admissible in any court of law.

 

Article begin insert 3. end insert   Relations of Members and Managers to Persons
Dealing with a Worker Cooperative Company

 

begin insert 17803.01. end insert   

(a) Unless the articles of organization indicate the
worker cooperative company is a manager-managed worker
cooperative company, every worker-member is an agent of the
worker cooperative company for the purpose of its business or
affairs, and the act of any worker-member, including, but not
limited to, the execution in the name of the worker cooperative
company of any instrument, for the apparent purpose of carrying
on in the usual way the business or affairs of the worker
cooperative company of which that person is a worker-member,
binds the worker cooperative company in the particular matter,
unless the worker-member so acting has, in fact, no authority to
act for the worker cooperative company in the particular matter
and the person with whom the worker-member is dealing has actual
knowledge of the fact that the worker-member has no such
authority.

(b) If the articles of organization indicate that the worker
cooperative company is a manager-managed worker cooperative
company, each of the following applies:

(1) No member acting solely in the capacity of a member is an
agent of the worker cooperative company nor can any member
bind or execute any instrument on behalf of the worker cooperative
company.

(2) Every manager is an agent of the worker cooperative
company for the purpose of its business or affairs, and the act of
any manager, including, but not limited to, the execution in the
name of the worker cooperative company of any instrument for
apparently carrying on in the usual way the business or affairs of
the worker cooperative company of which the person is a manager,
binds the worker cooperative company, unless the manager so
acting has, in fact, no authority to act for the worker cooperative
company in the particular matter and the person with whom the
manager is dealing has actual knowledge of the fact that the
manager has no such authority.

(c) No act of a manager or member in contravention of a
restriction on authority shall bind the worker cooperative company
to persons having actual knowledge of the restriction.

(d) Notwithstanding the provisions of subdivision (c), any note,
mortgage, evidence of indebtedness, contract, certificate, statement,
conveyance, or other instrument in writing, and any assignment
or endorsement thereof, executed or entered into between any
worker cooperative company and any other person, when signed
by at least two managers, or by one manager in the case of a
worker cooperative company whose articles of organization state
that it is managed by only one manager, is not invalidated as to
the worker cooperative company by any lack of authority of the
signing managers or manager in the absence of actual knowledge
on the part of the other person that the signing managers or
manager had no authority to execute the same.

begin insert 17803.04. end insert   

(a) All of the following apply to debts, obligations,
or other liabilities of a worker cooperative company, whether
arising in contract, tort, or otherwise:

(1) They are solely the debts, obligations, or other liabilities of
the worker cooperative company to which the debts, obligations,
or other liabilities relate.

(2) They do not become the debts, obligations, or other liabilities
of a member or manager solely by reason of the member acting
as a member or manager acting as a manager for the worker
cooperative company.

(b) A member of a worker cooperative company shall be subject
to liability under the common law governing alter ego liability,
and shall also be personally liable under a judgment of a court or
for any debt, obligation, or liability of the worker cooperative
company, whether that liability or obligation arises in contract,
tort, or otherwise, under the same or similar circumstances and
to the same extent as a shareholder of a corporation may be
personally liable for any debt, obligation, or liability of the
corporation; except that the failure to hold meetings of members
or managers or the failure to observe formalities pertaining to the
calling or conduct of meetings shall not be considered a factor
tending to establish that a member or the members have alter ego
or personal liability for any debt, obligation, or liability of the
worker cooperative company where the articles of organization
or operating agreement do not expressly require the holding of
meetings of members or managers.

(c) Nothing in this section shall be construed to affect the
liability of a member of a worker cooperative company to third
parties for the member’s participation in tortious conduct, or
pursuant to the terms of a written guarantee or other contractual
obligation entered into by the member, other than an operating
agreement.

(d) A worker cooperative company shall carry insurance or
provide an undertaking to the same extent and in the same amount
as is required by any law, rule, or regulation of this state that
would be applicable to the worker cooperative company were it
a corporation organized and existing or duly qualified for the
transaction of intrastate business under the General Corporation
Law.

(e) Notwithstanding subdivision (a), a member of a worker
cooperative company may agree to be obligated personally for
any or all of the debts, obligations, and liabilities of the worker
cooperative company as long as the agreement to be so obligated
is set forth in the articles of organization or in a written operating
agreement that specifically references this subdivision.

 

Article begin insert 4. end insert   Relations of Members to Each Other and to the
Worker Cooperative Company

 

begin insert 17804.01. end insert   

(a) A worker cooperative company shall consist of
at least three worker-members, but it is permitted to have fewer
than three worker-members for a maximum of 12 months during
any 36-month period. If, at the expiration of that time period, the
worker cooperative company has fewer than three
worker-members, the Attorney General may, on application to the
Secretary of State, on his or her own motion, or upon application
of a worker-member, suspend the company. The company shall be
reinstated upon showing that it has three or more worker-members.

(b) If a worker cooperative company is to have more than one
member upon formation, those persons become members as agreed
by the persons before the formation of the worker cooperative
company. The organizer acts on behalf of the persons in forming
the worker cooperative company and may be, but need not be, one
of the persons.

(c) After formation of a worker cooperative company, a person
becomes a member as follows:

(1) As provided in the operating agreement.

(2) As the result of a transaction effective under Article 9
(commencing with Section 17809.01).

(3) With the consent of all the members.

(4) If, within 90 consecutive days after the worker cooperative
company ceases to have any members, the last person to have been
a member, or the legal representative of that person, designates
a person to become a member, and the designated person consents
to become a member.

(d) A person shall not become a member without acquiring a
transferable interest and without making, or being obligated to
make, a contribution to the worker cooperative company unless
the articles or the operating agreement permit.

begin insert 17804.02. end insert   

(a) The worker cooperative company’s members
shall include a class of worker-members, to which the following
rules apply:

(1) Only workers in the worker cooperative company are eligible
for membership in the worker-member class.

(2) Qualification requirements and the process for accepting
and terminating all members shall be reflected in the worker
cooperative company’s articles or operating agreement. Upon
resignation, termination, or death, the worker’s membership in
the cooperative shall immediately cease.

(3) Worker-membership shall be available to all workers in a
worker cooperative company, excluding temporary workers.

(4) The worker cooperative company may have a candidacy
period for all workers on the track to worker-membership, which
shall not exceed three years.

(5) A decision to terminate a worker-member requires a
minimum of 51-percent vote of the quorum of the worker-member
class or a delegated decisionmaking body, as provided in the
worker cooperative company’s articles or operating agreement.
If the decision to terminate a worker-member was made by a group
comprising less than the entire worker-member class, the
terminated worker-member has the right to appeal the decision to
the entire worker-member class, or a delegated decisionmaking
body. Upon termination, resignation, or death, a worker-member’s
account shall be returned to the worker-member in the manner
prescribed by the articles or operating agreement. If a member is
terminated by expulsion, the amount a member receives upon
termination shall be no less than the members’ capital
contributions and allocated patronage distributions. If no manner
is prescribed, the account shall be converted to debt and repaid
over a maximum of five years with interest accruing at the discount
rate, as set by the Federal Reserve Bank of San Francisco.

(b) In a typical year, at least a simple majority of all the workers
in a worker cooperative company shall be worker-members, and
the majority of the labor or hours shall be contributed by the
worker-members.

(c) (1) Except as provided in paragraph (2), the activities and
affairs of the worker cooperative company shall be conducted,
and all company powers shall be exercised by or under the ultimate
direction of the worker-member class, including representatives
elected pursuant to subdivision (d). Subject to the provisions of
paragraph (2), at no point shall other classes of members created
in the articles or operating agreement have greater voting power,
collectively, than the worker-member class when voting as a
combined membership is called for, except for the election of
representatives in accordance with subdivision (d).

(2) The worker-member class may grant other member classes
voting power over decisions that are outside the ordinary course
of the cooperative’s activities or that affect the membership,
ownership, or voting interests of other classes in a manner that is
different from or disproportionate to their effect on the interests
of the worker-member class.

(d) The worker-member class may delegate authority to a
manager, managers, board of managers, or other elected
decisionmaking body or individuals (the representatives). The
worker-member class may allocate the power to elect the
representatives among the various classes of members, provided,
however, that at least the majority of those representatives shall
be elected by, and subject to removal by, the worker-member class.

begin insert 17804.03. end insert   

(a) A contribution may consist of tangible or
intangible property or other benefit to a worker cooperative
company, including money, services performed, promissory notes,
other agreements to contribute money or property, and contracts
for services to be performed.

(b) A person’s obligation to make a contribution to a worker
cooperative company is not excused by the person’s death,
disability, or other inability to perform personally. If a person
does not make a required contribution, the person or the person’s
estate is obligated to contribute money equal to the value of the
part of the contribution that has not been made, at the option of
the worker cooperative company.

(c) The obligation of a member to make a contribution to a
worker cooperative company may be compromised only by consent
of all of the worker-members. A conditional obligation of a member
to make a contribution to a worker cooperative company shall not
be enforced unless the conditions of the obligation have been
satisfied or waived as to or by that member. Conditional
obligations include contributions payable upon a discretionary
call of a worker cooperative company before the time the call
occurs.

(d) A creditor of a worker cooperative company that extends
credit or otherwise acts in reliance on an obligation described in
subdivision (b) may enforce the obligation.

(e) Nothing in this section shall be construed to affect the rights
of third-party creditors of the worker cooperative company to seek
equitable remedies or any rights existing under the Uniform
Fraudulent Transfer Act (Chapter 1 (commencing with Section
3439) of Title 2 of Part 2 of Division 4 of the Civil Code).

begin insert 17804.04. end insert   

(a) Unless the articles or operating agreement
otherwise provide and subject to this section, the worker-member
class, or its delegated decisionmaking body, may authorize, and
the worker cooperative company may make, distributions to
members.

(b) (1) The articles or operating agreement may provide for
allocating profits of a worker cooperative company among
members, among persons that are not members but conduct
business with the cooperative, to an unallocated account, or to
any combination thereof. Unless the articles or operating
agreement otherwise provide, losses of the cooperative shall be
allocated in the same proportion as profits.

(2) Unless the articles or operating agreement otherwise
provide, all profits and losses of a worker cooperative company
shall be allocated to patron members.

(3) If a worker cooperative company has nonpatron members,
the articles or operating agreement shall not allow the allocation
of profits to nonpatron members to exceed 49 percent of profits in
any given fiscal year, and profit allocations to nonpatron members
may not exceed the limitations of subdivision (d). For purposes of
this section, the following rules apply:

(A) Amounts paid or due on contracts for the delivery to the
worker cooperative company by patron members of products,
goods, or services shall not be considered to be profit allocations
to patron members.

(B) Amounts paid, due, or allocated to nonpatron members as
a stated fixed return on equity are not considered amounts
allocated to investor members.

(c) (1) Unless prohibited by the articles or operating agreement,
in determining the profits for allocation under subdivisions (d) to
(g), inclusive, the worker-member class, or its delegated
decisionmaking body, may first deduct and set aside a part of the
profits to create or accumulate the following:

(A) An unallocated account.

(B) Reasonable capital reserves for specific purposes, including
expansion and replacement of capital assets; education, training,
and cooperative development; creation and distribution of
information concerning principles of cooperation; and community
responsibility.

(C) An indivisible reserves account that is prohibited from being
distributed to the members. The cooperative may only distribute
or allocate nonpatronage-sourced income to the indivisible
reserves account. Funds in the indivisible reserves account shall,
in a manner determined by the operating agreement, the
worker-member class, or its delegate, be used as capital for the
cooperative. Upon dissolution, the indivisible reserves account
shall be allocated to an International Co-operative
Alliance-approved national federation or a designated regional
body in this state.

(2) Subject to subdivisions (d) to (g), inclusive, and the articles
or operating agreement, the worker-member class, or its delegate,
shall allocate the amount remaining after any deduction or setting
aside of profits for capital reserves under paragraph (1) to the
following:

(A) Patron members, in the ratio of each member’s patronage
to the total patronage of all patron members during the period for
which the allocations are to be made.

(B) Nonpatron members, according to the terms of their
membership class.

(3) For purposes of allocation of profits and losses or specific
items of profits or losses of a cooperative to members, the articles
or operating agreement may establish allocation units or methods
based on separate classes of patron and nonpatron members.

(d) Any distributions made by a worker cooperative company
before its dissolution and winding up shall be among the members
in accordance with the articles or operating agreement, provided
that at least 51 percent of the distributions shall be made to the
patron members on the basis of value of patronage transactions.
If the articles or the operating agreement does not otherwise
provide, all distributions shall be on the basis of the value, as
stated in the required records when the worker cooperative
company decides to make the distribution, of patronage that the
worker cooperative company has received from each patron
member, except to the extent necessary to comply with any transfer
effective under Section 17805.02 and any charging order in effect
under Section 17805.03.

(e) A person has a right to a distribution before the dissolution
and winding up of a worker cooperative company only if the worker
cooperative company decides to make an interim distribution.
Unless the articles of organization or written operating agreement
provides otherwise, a person’s dissociation does not entitle the
person to a distribution, and, beginning on the date of dissociation,
the dissociated person shall have only the right of a transferee of
a transferable interest with respect to that person’s interest in the
worker cooperative company, and then only with respect to
distributions, if any, to which a transferee is entitled under the
operating agreement. If the dissociation is in violation of the
operating agreement, the worker cooperative company shall have
the right to offset any damages for the breach of the operating
agreement from the amounts, if any, otherwise distributable to the
dissociated person with respect to that person’s interest in the
worker cooperative company.

(f) (1) Unless the articles or operating agreement otherwise
provide, distributions to members may be made in any form,
including money, capital credits, allocated patronage equities,
revolving fund certificates, and the worker cooperative company’s
own or other securities.

(2) A person does not have a right to demand or receive a
distribution from a worker cooperative company in any form other
than money. A worker cooperative company may distribute an
asset in kind if each part of the asset is fungible with each other
part and each person receives a percentage of the asset equal in
value to the person’s share of distributions.

(g) If a member or transferee becomes entitled to receive a
distribution, the member or transferee has the status of, and is
entitled to all remedies available to, a creditor of the worker
cooperative company with respect to the distribution.

begin insert 17804.05. end insert   

(a) A worker cooperative company shall not make
a distribution if after the distribution either of the following
applies:

(1) The worker cooperative company would not be able to pay
its debts as they become due in the ordinary course of the worker
cooperative company’s activities.

(2) The worker cooperative company’s total assets would be
less than the sum of its total liabilities plus the amount that would
be needed, if the worker cooperative company were to be dissolved,
wound up, and terminated at the time of the distribution, to satisfy
the preferential rights upon dissolution, winding up, and
termination of members whose preferential rights are superior to
those of persons receiving the distribution.

(b) A worker cooperative company may base a determination
that a distribution is not prohibited under subdivision (a) on
financial statements prepared on the basis of accounting practices
and principles that are reasonable in the circumstances or on a
fair valuation or other method that is reasonable under the
circumstances.

(c) Except as otherwise provided in subdivision (f), the effect
of a distribution under subdivision (a) is measured as follows:

(1) In the case of a distribution by purchase, redemption, or
other acquisition of a transferable interest in the worker
cooperative company, as of the date money or other property is
transferred or debt incurred by the worker cooperative company.

(2) In all other cases, as of the date the distribution is
authorized, if the payment occurs within 120 days after that date,
or the payment is made, if the payment occurs more than 120 days
after the distribution is authorized.

(d) A worker cooperative company’s indebtedness to a member
incurred by reason of a distribution made in accordance with this
section is at parity with the worker cooperative company’s
indebtedness to its general, unsecured creditors.

(e) A worker cooperative company’s indebtedness, including
indebtedness issued in connection with or as part of a distribution,
is not a liability for purposes of subdivision (a) if the terms of the
indebtedness provide that payment of principal and interest are
made only to the extent that a distribution could be made to
members under this section.

(f) If indebtedness is issued as a distribution, each payment of
principal or interest on the indebtedness is treated as a distribution,
the effect of which is measured on the date the payment is made.

(g) In subdivision (f) of Section 17801.02, “distribution” does
not include amounts constituting reasonable compensation for
present or past services or reasonable payments made in the
ordinary course of business under a bona fide retirement plan or
other benefits program.

begin insert 17804.06. end insert   

(a) Except as otherwise provided in subdivision (b),
if a member of a member-managed worker cooperative company
or manager of a manager-managed worker cooperative company
consents to a distribution made in violation of Section 17804.05,
the member or manager is personally liable to the worker
cooperative company for the amount of the distribution that
exceeds the amount that could have been distributed without the
violation of Section 17804.05.

(b) To the extent the operating agreement of a member-managed
worker cooperative company expressly relieves a member of the
authority and responsibility to consent to distributions and imposes
that authority and responsibility on one or more other members,
the liability stated in subdivision (a) applies to the other members
and not the member that the operating agreement relieves of
authority and responsibility.

(c) A person that receives a distribution knowing that the
distribution to that person was made in violation of Section
17804.05 is personally liable to the worker cooperative company
but only to the extent that the distribution received by the person
exceeded the amount that could have been properly paid under
Section 17804.05.

(d) A person against which an action is commenced because
the person is liable under subdivision (a) may do all of the
following:

(1) Implead any other person that is subject to liability under
subdivision (a) and seek to compel contribution from the person.

(2) Implead any person that received a distribution in violation
of subdivision (c) and seek to compel contribution from the person
in the amount the person received in violation of subdivision (c).

(e) An action under this section is barred if not commenced
within four years after the distribution.

begin insert 17804.07. end insert   

(a) A worker cooperative company is a
member-managed worker cooperative company unless the articles
of organization and the operating agreement do either of the
following:

(1) Expressly provide that:

(A) The worker cooperative company is or will be
“manager-managed.”

(B) The worker cooperative company is or will be “managed
by managers.”

(C) Management of the worker cooperative company is or will
be “vested in managers.”

(2) Include words of similar import.

(b) In a member-managed worker cooperative company, the
following rules apply:

(1) The management and conduct of the worker cooperative
company are vested in the worker-members, unless provided
otherwise in the articles or operating agreement.

(2) Except as provided in subdivision (r), each worker-member
has equal rights in the management and conduct of the worker
cooperative company’s activities including equal voting rights.

(3) A difference arising among members as to a matter in the
ordinary course of the activities of the worker cooperative company
shall be decided by a majority of the worker-members of the worker
cooperative company which the difference among the members
has arisen.

(4) An act outside the ordinary course of the activities of the
worker cooperative company may be undertaken only with the
consent of two-thirds of the worker-member class, or if the articles
or operating agreement permit other classes voting rights on a
decision subject to this paragraph, two-thirds of the members
eligible to vote.

(c) In a manager-managed worker cooperative company, the
following rules apply:

(1) Except as otherwise expressly provided in this division, any
matter relating to the activities of the worker cooperative company
is decided exclusively by the managers.

(2) Each manager has equal rights in the management and
conduct of the activities of the worker cooperative company.

(3) A difference arising among managers as to a matter in the
ordinary course of the activities of the worker cooperative company
may be decided by a majority of the managers of the worker
cooperative company.

(4) Subject to subdivision (r), the consent of two-thirds of the
worker-member class of the worker cooperative company is
required to do any of the following:

(A) Sell, lease, exchange, or otherwise dispose of all, or
substantially all, of the worker cooperative company’s property,
with or without the goodwill, outside the ordinary course of the
worker cooperative company’s activities.

(B) Approve a merger or conversion under Article 9
(commencing with Section 17809.01).

(C) Undertake any other act outside the ordinary course of the
worker cooperative company’s activities.

(D) Amend the operating agreement.

(5) A manager may be chosen at any time by the consent of a
majority of the worker-members and remains a manager until a
successor has been chosen, unless the manager at an earlier time
resigns, is removed, or dies, or, in the case of a manager that is
not an individual, terminates. A manager may be removed at any
time by the consent of a majority of the worker-members without
notice or cause.

(6) A person need not be a member to be a manager, but the
dissociation of a member that is also a manager removes the
person as a manager. If a person that is both a manager and a
member ceases to be a manager, that cessation does not by itself
dissociate the person as a member.

(7) A person’s ceasing to be a manager does not discharge any
debt, obligation, or other liability to the worker cooperative
company or members which the person incurred while a manager.

(d) The dissolution of a worker cooperative company does not
affect the applicability of this section. However, a person that
wrongfully causes dissolution of the worker cooperative company
loses the right to participate in management as a member and a
manager.

(e) This division does not entitle a member to remuneration for
services performed for a member-managed worker cooperative
company, except for reasonable compensation for services
rendered in winding up the activities of a worker cooperative
company.

(f) (1) A worker cooperative company shall hold an annual
membership meeting and may hold any other meetings as
frequently as decided by the worker-member class and reflected
in the articles or operating agreement.

(2) Meetings of members may be held at any place, by electronic
video screen communication or by electronic transmission by and
to the worker cooperative company pursuant to paragraphs (1)
and (2) of subdivision (i) of Section 17801.02, either within or
without this state, selected by the person or persons calling the
meeting or as may be stated in or fixed in accordance with the
articles of organization or a written operating agreement. If no
other place is stated or so fixed, all meetings shall be held at the
principal office of the worker cooperative company. Unless
prohibited by the articles of organization of the worker cooperative
company, if authorized by the operating agreement, members not
physically present in person or by proxy at a meeting of members
may, by electronic transmission by and to the worker cooperative
company pursuant to paragraphs (1) and (2) of subdivision (i) of
Section 17801.02 or by electronic video screen communication,
participate in a meeting of members, be deemed present in person
or by proxy, and vote at a meeting of members whether that
meeting is to be held at a designated place or in whole or in part
by means of electronic transmission by and to the worker
cooperative company or by electronic video screen communication,
in accordance with subdivision (l).

(g) A meeting of the members may be called by any manager
or by any worker member unless the articles or operating
agreement provide otherwise.

(h) (1) Whenever worker-members are required or permitted
to take any action at a meeting, a written notice of the meeting
shall be given not less than 48 hours nor more than 60 days before
the date of the meeting to each member entitled to vote at the
meeting. Whenever nonworker members are required or permitted
to take any action at a meeting, a written notice of the meeting
shall be given not less than 10 days nor more than 60 days before
the date of the meeting to each member entitled to vote at the
meeting. The notice shall state the place, date, and hour of the
meeting, the means of electronic transmission by and to the worker
cooperative company or electronic video screen communication,
if any, and the general nature of the business to be transacted. No
other business may be transacted at that meeting.

(2) Any report or any notice of a members’ meeting shall be
given personally, by electronic transmission by the worker
cooperative company, or by mail or other means of written
communication, addressed to the member at the address of the
member appearing on the books of the worker cooperative
company or given by the member to the worker cooperative
company for the purpose of notice, or, if no address appears or is
given, at the place where the principal office of the worker
cooperative company is located or by publication at least once in
a newspaper of general circulation in the county in which the
principal office is located. The notice or report shall be deemed
to have been given at the time when delivered personally, delivered
by electronic transmission by the worker cooperative company,
deposited in the mail, or sent by other means of written
communication. An affidavit of mailing or delivered by electronic
transmission by the worker cooperative company of any notice or
report in accordance with this article, executed by a manager,
shall be prima facie evidence of the giving of the notice or report.

(3) If any notice or report addressed to the member at the
address of the member appearing on the books of the worker
cooperative company is returned to the worker cooperative
company by the United States Postal Service marked to indicate
that the United States Postal Service is unable to deliver the notice
or report to the member at the address, all future notices or reports
shall be deemed to have been duly given without further mailing
if they are available for the member at the principal office of the
worker cooperative company for a period of one year from the
date of the giving of the notice or report to all other members.

(4) Notice given by electronic transmission by the worker
cooperative company under this subdivision shall be valid only if
it complies with paragraph (1) of subdivision (i) of Section
17801.02.

Notwithstanding this condition, notice shall not be given by
electronic transmission by the worker cooperative company under
this subdivision after either of the following has occurred:

(A) The worker cooperative company is unable to deliver two
consecutive notices to the member by that means.

(B) The inability to so deliver the notices to the member becomes
known to the secretary, any assistant secretary, the transfer agent,
or any other person responsible for the giving of the notice.

(5) Upon written request to a manager by any person entitled
to call a meeting of members, the manager shall immediately cause
notice to be given to the members entitled to vote that a meeting
will be held at a time requested by the person calling the meeting,
not less than 48 hours nor more than 60 days after the receipt of
the request if the meeting involves only the worker-member class
or not less than 10 days nor more than 60 days after the receipt
of the request if the meeting involves classes other than the
worker-member class. If the notice is not given within 20 days
after receipt of the request, the person entitled to call the meeting
may give the notice or, upon the application of that person, the
superior court of the county in which the principal office of the
worker cooperative company is located, or if the principal office
is not in this state, the county in which the worker cooperative
company’s address in this state is located, shall summarily order
the giving of the notice, after notice to the worker cooperative
company affording it an opportunity to be heard. The procedure
provided in subdivision (c) of Section 305 shall apply to the
application. The court may issue any order as may be appropriate,
including, without limitation, an order designating the time and
place of the meeting, the record date for determination of members
entitled to vote, and the form of notice.

(i) When a members’ meeting is adjourned to another time or
place, unless the articles of organization or a written operating
agreement otherwise require and except as provided in this
subdivision, notice need not be given of the adjourned meeting if
the time and place thereof or the means of electronic transmission
by and to the worker cooperative company or electronic video
screen communication, if any, are announced at the meeting at
which the adjournment is taken. At the adjourned meeting, the
worker cooperative company may transact any business that may
have been transacted at the original meeting. If the adjournment
is for more than 45 days, or if after the adjournment a new record
date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each member of record entitled to vote
at the meeting.

(j) The actions taken at any meeting of members, however called
and noticed, and wherever held, have the same validity as if taken
at a meeting duly held after regular call and notice, if a quorum
is present either in person or by proxy, and if, either before or
after the meeting, each of the members entitled to vote, not present
in person or by proxy, provides a waiver of notice or consents to
the holding of the meeting or approves the minutes of the meeting
in writing. All waivers, consents, and approvals shall be filed with
the worker cooperative company records or made a part of the
minutes of the meeting after conversion to the form in which those
records or minutes are kept. Attendance of a person at a meeting
shall constitute a waiver of notice of the meeting, except when the
person objects, at the beginning of the meeting, to the transaction
of any business because the meeting is not lawfully called or
convened. Attendance at a meeting is not a waiver of any right to
object to the consideration of matters required by this division to
be included in the notice but not so included, if the objection is
expressly made at the meeting. Neither the business to be
transacted nor the purpose of any meeting of members need be
specified in any written waiver of notice, unless otherwise provided
in the articles of organization or operating agreement, except as
provided in subdivision (l).

(k) Members may participate in a meeting of the worker
cooperative company through the use of conference telephones or
electronic video screen communication, as long as all members
participating in the meeting can hear one another, or by electronic
transmission by and to the worker cooperative company pursuant
to paragraphs (1) and (2) of subdivision (i) of Section 17801.02.
Participation in a meeting pursuant to this provision constitutes
presence in person at that meeting.

(l) Any action approved at a meeting, other than by unanimous
approval of those entitled to vote, shall be valid only if the general
nature of the proposal so approved was stated in the notice of
meeting or in any written waiver of notice.

(m) (1) At least 20 percent of the worker-members represented
in person or by proxy shall constitute a quorum at a meeting of
worker-members, unless otherwise provided in the articles or
operating agreement. If a worker cooperative company is
authorized to conduct a meeting with a quorum of less than 51
percent of the worker-members, matters that may be voted upon
at such meeting shall be listed in the notice of the meeting. At least
20 percent of all members represented in person or by proxy shall
constitute a quorum at a meeting of all of the members, unless
otherwise provided in the articles or operating agreement. If a
worker cooperative company is authorized to conduct a meeting
with a quorum of less than 51 percent of the entire membership,
matters that may be voted upon at the meeting shall be listed in
the notice of the meeting.

(2) The members present at a duly called or held meeting at
which a quorum is present may continue to transact business until
adjournment, notwithstanding the loss of a quorum, if any action
taken after loss of a quorum, other than adjournment, is approved
by the requisite percentage of interests of members specified in
this division or in the articles of organization or a written operating
agreement.

(3) In the absence of a quorum, any meeting of members may
be adjourned from time to time by the vote of a majority of the
interests represented either in person or by proxy, but no other
business may be transacted, except as provided in paragraph (2).

(n) (1) Any action that may be taken at any meeting of the
members may be taken without a meeting if a consent in writing,
setting forth the action so taken, is signed and delivered to the
worker cooperative company within 60 days of the record date for
that action by members having not less than the minimum number
of votes that would be necessary to authorize or take that action
at a meeting at which all members entitled to vote thereon were
present and voted.

(2) Unless the consents of all members entitled to vote have
been solicited in writing, (A) notice of any member approval of an
amendment to the articles of organization or operating agreement,
a dissolution of the worker cooperative company as provided in
Section 17807.01, or a merger of the worker cooperative company
as provided in Section 17809.10, without a meeting by less than
unanimous written consent shall be given at least 10 days before
the consummation of the action authorized by the approval, and
(B) prompt notice shall be given of the taking of any other action
approved by members without a meeting by less than unanimous
written consent, to those members entitled to vote who have not
consented in writing.

(3) Any member giving a written consent, or the member’s
proxyholder, may revoke the consent personally or by proxy by a
writing received by the worker cooperative company prior to the
time that written consents of members having the minimum number
of votes that would be required to authorize the proposed action
have been filed with the worker cooperative company, but may not
do so thereafter. This revocation is effective upon its receipt at the
office of the worker cooperative company required to be
maintained pursuant to Section 17801.13.

(o) The use of proxies in connection with this section shall be
governed in the same manner as in the case of corporations formed
under the General Corporation Law, Division 1 (commencing with
Section 100) of Title 1.

(p) In order that the worker cooperative company may determine
the members of record entitled to notices of any meeting or to vote,
or entitled to receive any distribution or to exercise any rights in
respect of any other lawful action, a manager, or members
representing more than 10 percent of the interests of members,
may fix, in advance, a record date, that is not more than 60 days
nor less than 10 days prior to the date of the meeting and not more
than 60 days prior to any other action. If no record date is fixed
the following shall apply:

(1) The record date for determining members entitled to notice
of or to vote at a meeting of members shall be at the close of
business on the business day next preceding the day on which
notice is given or, if notice is waived, at the close of business on
the business day next preceding the day on which the meeting is
held.

(2) The record date for determining members entitled to give
consent to worker cooperative company action in writing without
a meeting shall be the day on which the first written consent is
given.

(3) The record date for determining members for any other
purpose shall be at the close of business on the day on which the
managers adopt the resolution relating thereto, or the 60th day
prior to the date of the other action, whichever is later.

(4) The determination of members of record entitled to notice
of or to vote at a meeting of members shall apply to any
adjournment of the meeting unless a manager or the members who
called the meeting fix a new record date for the adjourned meeting,
but the manager or the members who called the meeting shall fix
a new record date if the meeting is adjourned for more than 45
days from the date set for the original meeting.

(q) A meeting of the members may be conducted, in whole or
in part, by electronic transmission by and to the worker cooperative
company or by electronic video screen communication if both of
the following requirements are met:

(1) The worker cooperative company implements reasonable
measures to provide members, in person or by proxy, a reasonable
opportunity to participate in the meeting and to vote on matters
submitted to the members, including an opportunity to read or
hear the proceedings of the meeting substantially concurrently
with those proceedings.

(2) When any member votes or takes other action at the meeting
by means of electronic transmission to the worker cooperative
company or electronic video screen communication, a record of
that vote or action shall be maintained by the worker cooperative
company.

(r) Voting by membership class is always permitted, but the
articles of organization or a written operating agreement may
provide to all or certain identified members of a specified class
or group of members the right to vote separately or with all or any
class or group of members on any matter. Voting by membership
class shall be on a one member, one vote basis. If no voting
provision is contained in the articles of organization or written
operating agreement, each of the following shall apply:

(1) Any amendment to the articles of organization or operating
agreement shall require a two-thirds majority of the
worker-member class.

(2) In all other matters in which a vote is required, except as
otherwise provided in this division, a vote of a majority of the
worker-members shall be sufficient.

(s) Notwithstanding any provision to the contrary in the articles
or operating agreement, in no event shall the articles of
organization be amended by a vote of less than a two-thirds vote
of the worker-members.

(t) Notwithstanding any provision to the contrary in the articles
or operating agreement and subject to subdivision (r),
worker-members shall have the right to vote on a dissolution of
the worker cooperative company as provided in subdivision (b) of
Section 17807.01 and on a merger of the worker cooperative
company as provided in Section 17809.12.

(u) A written operating agreement may provide for the
appointment of officers, including, but not limited to, a chairperson
or a president, or both a chairperson and a president, a secretary,
a chief financial officer, and any other officers with the titles,
powers, and duties as shall be specified in the articles of
organization or operating agreement or as determined by the
managers or members. An officer may, but does not need to, be a
member or manager of the worker cooperative company, and any
number of offices may be held by the same person.

(v) Officers, if any, shall be appointed in accordance with the
written operating agreement or, if no such provision is made in
the operating agreement, any officers shall be appointed by the
managers and shall serve at the pleasure of the managers, subject
to the rights, if any, of an officer under any contract of employment.
Any officer may resign at any time upon written notice to the
worker cooperative company without prejudice to the rights, if
any, of the worker cooperative under any contract to which the
officer is a party.

(w) Subject to the provisions of the articles of organization, any
note, mortgage, evidence of indebtedness, contract, certificate,
statement, conveyance, or other instrument in writing, and any
assignment or endorsement thereof, executed or entered into
between any worker cooperative company and any other person,
when signed by the chairperson of the board, the president, or any
vice president and any secretary, any assistant secretary, the chief
financial officer, or any assistant treasurer of the worker
cooperative company, is not invalidated as to the worker
cooperative company by any lack of authority of the signing officers
in the absence of actual knowledge on the part of the other person
that the signing officers had no authority to execute the same.

begin insert 17804.08. end insert   

(a) A worker cooperative company shall reimburse
for any payment made and indemnify for any debt, obligation, or
other liability incurred by a member of a member-managed worker
cooperative company or the manager of a manager-managed
worker cooperative company in the course of the member’s or
manager’s activities on behalf of the worker cooperative company,
if, in making the payment or incurring the debt, obligation, or
other liability, the member or manager complied with the duties
stated in Section 17804.09.

(b) A worker cooperative company may purchase and maintain
insurance on behalf of a member or manager of the worker
cooperative company against liability asserted against or incurred
by the member or manager in that capacity or arising from that
status even if, under subdivision (g) of Section 17801.10, the
operating agreement could not eliminate or limit the person’s
liability to the worker cooperative company for the conduct giving
rise to the liability.

begin insert 17804.09. end insert   

(a) The fiduciary duties that a member owes to a
member-managed worker cooperative company and the other
members of the worker cooperative company are the duties of
loyalty and care under subdivisions (b) and (c).

(b) A member’s duty of loyalty to a worker cooperative company
and the other members is limited to the following:

(1) To account to a worker cooperative company and hold as
trustee for it any property, profit, or benefit derived by the member
in the conduct and winding up of the activities of a worker
cooperative company or derived from a use by the member of a
worker cooperative company property, including the appropriation
of a worker cooperative company opportunity.

(2) To refrain from dealing with a worker cooperative company
in the conduct or winding up of the activities of a worker
cooperative company as or on behalf of a party having an interest
adverse to a worker cooperative company.

(3) To refrain from competing with a worker cooperative
company in the conduct or winding up of the activities of the
worker cooperative company.

(c) A member’s duty of care to a worker cooperative company
and the other members in the conduct and winding up of the
activities of the worker cooperative company is limited to
refraining from engaging in grossly negligent or reckless conduct,
intentional misconduct, or a knowing violation of law.

(d) A member shall discharge the duties to a worker cooperative
company and the other members under this division or under the
operating agreement and exercise any rights consistent with the
obligation of good faith and fair dealing.

(e) A member does not violate a duty or obligation under this
article or under the operating agreement merely because the
member’s conduct furthers the member’s own interest.

(f) In a manager-managed worker cooperative company, all of
the following rules apply:

(1) Subdivisions (a), (b), (c), and (e) apply to the manager or
managers and not the members.

(2) Subdivision (d) applies to the members and managers.

(3) Except as otherwise provided, a member does not have any
fiduciary duty to the worker cooperative company or to any other
member solely by reason of being a member.

begin insert 17804.10. end insert   

(a) Upon the request of a member or holder of a
transferable interest, for purposes reasonably related to the interest
of that person as a member or a holder of a transferable interest,
a manager or, if the worker cooperative company is
member-managed, a member in possession of the requested
information, shall promptly deliver, in writing, to the member or
holder of a transferable interest, at the expense of the worker
cooperative company, a copy of the information required to be
maintained by paragraphs (1), (2), and (4) of subdivision (d) of
Section 17801.13, and any written operating agreement of the
worker cooperative company.

(b) Each member, manager, and holder of a transferable interest
has the right, upon reasonable request, for purposes reasonably
related to the interest of that person as a member, manager, or
holder of a transferable interest, to each of the following:

(1) To inspect and copy during normal business hours any of
the records required to be maintained pursuant to Section
17801.13.

(2) To obtain in writing from the worker cooperative company,
promptly after becoming available, a copy of the worker
cooperative company’s federal, state, and local income tax returns
for each year.

(c) In the case of a worker cooperative company with more than
35 members, each of the following shall apply:

(1) A manager shall cause an annual report to be sent to each
of the members not later than 120 days after the close of the fiscal
year. The report, which may be sent by electronic transmission by
the worker cooperative company (paragraph (1) of subdivision (i)
of Section 17801.02) shall contain a balance sheet as of the end
of the fiscal year and an income statement and a statement of
cashflows for the fiscal year.

(2) Members representing at least 5 percent of the voting
interests of members, or three or more members, may make a
written request to a manager for an income statement of the worker
cooperative company for the initial three-month, six-month, or
nine-month period of the current fiscal year ending more than 30
days prior to the date of the request, and a balance sheet of the
worker cooperative company as of the end of that period. The
statement shall be delivered or mailed to the members within 30
days thereafter.

(3) The financial statements referred to in this section shall be
accompanied by the report thereon, if any, of the independent
accountants engaged by the worker cooperative company or, if
there is no report, the certificate of the manager of the worker
cooperative company that the financial statements were prepared
without audit from the books and records of the worker cooperative
company.

(d) A manager shall promptly furnish to a member a copy of
any amendment to the articles of organization or operating
agreement executed by a manager pursuant to a power of attorney
from the member. The articles of organization or operating
agreement may be sent by electronic transmission by the worker
cooperative company.

(e) The worker cooperative company shall send or cause
information to be sent in writing to each member or holder of a
transferable interest within 90 days after the end of each taxable
year the information necessary to complete federal and state
income tax or information returns and, in the case of a worker
cooperative company with 35 or fewer members, a copy of the
worker cooperative company’s federal, state, and local income
tax or information returns for the year.

(f) In addition to the remedies provided in Sections 17812.06
and 17812.07 and any other remedies, a court of competent
jurisdiction may enforce the duty of making and mailing or
delivering the information and financial statements required by
this section and, for good cause shown, extend the time therefor.

(g) In any action under this section or under Section 17812.07,
if the court finds the failure of the worker cooperative company
to comply with the requirements of this section is without
justification, the court may award an amount sufficient to
reimburse the person bringing the action for the reasonable
expenses incurred by that person, including attorney’s fees, in
connection with the action or proceeding.

(h) Any waiver of the rights provided in this section shall be
unenforceable.

(i) Any request, inspection, or copying by a member or holder
of a transferable interest may be made by that person or by that
person’s agent or attorney.

(j) Upon complaint that a worker cooperative company is failing
to comply with the provisions of this section, or to afford to the
members rights given to them in the articles of organization or
operating agreement, the Attorney General may, in the name of
the people of the State of California, send to the office required to
be maintained pursuant to Section 17801.13, notice of the
complaint.

(k) If the answer of the worker cooperative company is not
received within 30 days of the date the notice was transmitted, or
if the answer is not satisfactory, and if the enforcement of the rights
of the aggrieved persons by private civil action, by class action,
or otherwise, would be so burdensome or expensive as to be
impracticable, the Attorney General may institute, maintain, or
intervene in any court of competent jurisdiction or before any
administrative agency for relief by way of injunction, the
dissolution of entities, the appointment of receivers, or any other
temporary, preliminary, provisional, or final remedies as may be
appropriate to protect the rights of members or to restore the
position of the members for the failure to comply with the
requirements of Section 17801.13 or the articles of organization
or the operating agreement. In any action, suit, or proceeding,
there may be joined as parties all persons and entities responsible
for or affected by the activity.

 

Article begin insert 5. end insert   Transferable Interests and Rights of Transferees and
Creditors

 

begin insert 17805.01. end insert   

A transferable interest is personal property.

begin insert 17805.02. end insert   

(a) With respect to a transfer, in whole or in part,
of a transferable interest, all of the following apply:

(1) A transfer is permissible.

(2) A transfer does not by itself cause a member’s dissociation
or a dissolution and winding up of the activities of a worker
cooperative company.

(3) Subject to Section 17805.04, a transfer does not entitle the
transferee to do any of the following:

(A) Participate in the management or conduct of the activities
of a worker cooperative company.

(B) Except as otherwise provided in subdivision (c), have access
to records or other information concerning the activities of a
worker cooperative company.

(b) (1) A member’s interest other than the member’s financial
rights in the cooperative is not transferable.

(2) The terms of any restriction on the transferability of financial
rights shall be set forth in the articles or operating agreement,
and conspicuously noted on any certificates evidencing a member’s
interest.

(3)  A transferee of a member’s financial rights, to the extent
the rights are transferred, has the right to share in the allocation
of profits or losses and to receive the distributions to the member
transferring the interest to the same extent as the transferring
member. However, unless the worker cooperative company decides
otherwise, a transferee does not have the right to become a patron
of the worker cooperative company simply by virtue of having
received the member’s financial rights.

(4) A transferee of a member’s financial rights does not become
a member upon transfer of the rights unless the transferee is
admitted as a member by the worker cooperative company.

(5) A worker cooperative company need not give effect to a
transfer under this section until the cooperative has notice of the
transfer.

(6) A transfer of a member’s financial rights in violation of a
restriction on transfer contained in the articles or operating
agreement is ineffective as to a person having notice of the
restriction at the time of transfer.

(7) A transferee has the right to receive, in accordance with the
transfer, distributions to which the transferor would otherwise be
entitled; provided, however, that the pledge or granting of a
security interest, lien, or other encumbrance in or against any or
all of the transferable interest of a transferor shall not cause the
transferor to cease to be a member or grant to the transferee or
to anyone else the power to exercise any rights or powers of a
member, including, without limitation, the right to receive
distributions to which the member is entitled.

(c) In a dissolution and winding up of a worker cooperative
company, a transferee is entitled to an account of the worker
cooperative company’s transactions only from the date of
dissolution.

(d) A transferable interest may be evidenced by a certificate of
the interest issued by the worker cooperative company in a record,
and, subject to this article, the interest represented by the
certificate may be transferred by a transfer of the certificate.

(e) A worker cooperative company need not give effect to a
transferee’s rights under this section until the worker cooperative
company has notice of the transfer.

(f) A transfer of a transferable interest in violation of a
restriction on transfer contained in the operating agreement is
ineffective as to a person having notice of the restriction at the
time of transfer.

(g) Except as otherwise provided in subdivision (b) of this
section and paragraph (2) of subdivision (d) of Section 17806.02,
when a member transfers a transferable interest, the transferor
retains the rights of a member, other than the interest in
distributions transferred, and retains all duties and obligations of
a member.

(h) When a member transfers a transferable interest to a person
that becomes a member with respect to the transferred interest,
the transferee is liable for the member’s obligations under Section
17804.03 and subdivision (c) of Section 17804.06 known to the
transferee when the transferee becomes a member.

begin insert 17805.03. end insert   

(a) On application by a judgment creditor of a
member or transferee, a court may enter a charging order against
the transferable interest of the judgment debtor for the unsatisfied
amount of the judgment. A charging order constitutes a lien on a
judgment debtor’s transferable interest and requires the worker
cooperative company to pay over to the person to which the
charging order was issued any distribution that would otherwise
be paid to the judgment debtor.

(b) To the extent necessary to effectuate the collection of
distributions pursuant to a charging order in effect under
subdivision (a), the court may do any of the following:

(1) Appoint a receiver of the distributions subject to the charging
order, with the power to make all inquiries the judgment debtor
might have made.

(2) Make all other orders necessary to give effect to the charging
order.

(3) Upon a showing that distributions under a charging order
will not pay the judgment debt within a reasonable time, foreclose
the lien and order the sale of the transferable interest. The
purchaser at the foreclosure sale obtains only the transferable
interest, does not thereby become a member, and is subject to
Section 17805.02.

(c) At any time before foreclosure under paragraph (3) of
subdivision (b), the member or transferee whose transferable
interest is subject to a charging order under subdivision (a) may
extinguish the charging order by satisfying the judgment and filing
a certified copy of the satisfaction with the court that issued the
charging order.

(d) At any time before foreclosure under paragraph (3) of
subdivision (b), a worker cooperative company or one or more
members whose transferable interests are not subject to the
charging order may pay to the judgment creditor the full amount
due under the judgment and thereby succeed to the rights of the
judgment creditor, including the charging order.

(e) This division does not deprive any member or transferee of
the benefit of any exemption laws applicable to the member’s or
transferee’s transferable interest.

(f) This section provides the exclusive remedy by which a person
seeking to enforce a judgment against a member or transferee
may, in the capacity of judgment creditor, satisfy the judgment
from the judgment debtor’s transferable interest.

begin insert 17805.04. end insert   

If a member dies, the deceased member’s personal
representative or other legal representative may exercise the rights
of a transferee provided in Section 17805.02 and, for the purposes
of settling the estate, the rights of a current member under Section
17804.10.

 

Article begin insert 6. end insert   Member’s Dissociation

 

begin insert 17806.01. end insert   

(a) A person has the power to dissociate as a
member at any time, rightfully or wrongfully, by withdrawing as
a member by express will pursuant to subdivision (a) of Section
17806.02.

(b) A person’s dissociation from a worker cooperative company
is wrongful only if either of the following apply to the dissociation:

(1) The dissociation is in breach of an express provision of the
operating agreement.

(2) The dissociation occurs before the termination of the worker
cooperative company and any of the following:

(A) The person withdraws as a member by express will.

(B) The person is expelled as a member by judicial order under
subdivision (e) of Section 17806.02.

(C) The person is dissociated under subdivision (g) of Section
17806.02 by becoming a debtor in bankruptcy.

(D) In the case of a person that is not a trust other than a
business trust, an estate, or an individual, the person is expelled
or otherwise dissociated as a member because it dissolved or
terminated.

(c) A person that wrongfully dissociates as a member is liable
to the worker cooperative company and to the other members for
any damages caused by the dissociation. The liability is in addition
to any other debt, obligation, or other liability of the member to
the worker cooperative company or the other members.

begin insert 17806.02. end insert   

A person is dissociated as a member from a worker
cooperative company when any of the following occur:

(a) The worker cooperative company has notice of the person’s
express will to withdraw as a member, but, if the person specified
a withdrawal date later than the date the worker cooperative
company had notice, on that later date.

(b) An event stated in the operating agreement as causing the
person’s dissociation to occur.

(c) The person is expelled as a member pursuant to the operating
agreement.

(d) The person is expelled as a member by the unanimous
consent of the other members because any of the following applies:

(1) It is unlawful to carry on the worker cooperative company’s
activities with the person as a member.

(2) There has been a transfer of all of the person’s transferable
interest in the worker cooperative company, other than either of
the following:

(A) A transfer for security purposes.

(B) A charging order in effect under Section 17805.03 that has
not been foreclosed.

(3) The person is a corporation and, within 90 days after the
worker cooperative company notifies the person that it will be
expelled as a member because the person has filed a certificate of
dissolution or the equivalent, its charter has been revoked, or its
right to conduct business has been suspended by the jurisdiction
of its incorporation and the certificate of dissolution has not been
revoked or its charter or right to conduct business has not been
reinstated.

(4) The person is a worker cooperative company or partnership
that has been dissolved and whose business is being wound up.

(e) On application by the worker cooperative company, the
person is expelled as a member by judicial order because the
person has done any of the following:

(1) Engaged, or is engaging, in wrongful conduct that has
adversely and materially affected, or will adversely and materially
affect, the worker cooperative company’s activities.

(2) Willfully or persistently committed, or is willfully and
persistently committing, a material breach of the operating
agreement or the person’s duties or obligations under Section
17804.09.

(3) Engaged, or is engaging, in conduct relating to the worker
cooperative company’s activities that makes it not reasonably
practicable to carry on the activities with the person as a member.

(f) In the case of a person who is an individual, if either of the
following applies:

(1) The person dies.

(2) In a member-managed worker cooperative company if either
of the following applies:

(A) A guardian or general conservator for the person is
appointed.

(B) There is a judicial order that the person has otherwise
become incapable of performing the person’s duties as a member
under this division or the operating agreement.

(g) In a member-managed worker cooperative company, the
person becomes a debtor in bankruptcy.

(h) In the case of a person that is a trust or is acting as a
member by virtue of being a trustee of a trust, the trust’s entire
transferable interest in the worker cooperative company is
distributed but not solely by reason of a substitution of a successor
trustee.

(i) In the case of a person that is an estate or is acting as a
member by virtue of being a personal representative of an estate,
the estate’s entire transferable interest in the worker cooperative
company is distributed but not solely by reason of a substitution
of a successor personal representative.

(j) In the case of a member that is not an individual, partnership,
worker cooperative company, corporation, trust, or estate, the
termination of the member.

(k) The worker cooperative company participates in a merger
under Article 9 (commencing with Section 17809.01), and either
of the following applies:

(1) The worker cooperative company is not the surviving entity.

(2) Otherwise as a result of the merger, the person ceases to be
a member.

(l) The worker cooperative company terminates.

begin insert 17806.03. end insert   

(a) When a person is dissociated as a member of a
worker cooperative company all of the following apply:

(1) The person’s right to participate as a member in the
management and conduct of the worker cooperative company’s
activities terminates.

(2) If the worker cooperative company is member-managed, the
person’ s fiduciary duties as a member end with regard to matters
arising and events occurring after the person’s dissociation.

(3) Subject to Section 17805.04 and Article 9 (commencing with
Section 17809.01), any transferable interest owned by the person
immediately before dissociation in the person’s capacity as a
member is owned by the person solely as a transferee.

(b) A person’s dissociation as a member of a worker cooperative
company does not of itself discharge the person from any debt,
obligation, or other liability to the worker cooperative company
or the other members that the person incurred while a member.

 

Article begin insert 7. end insert   Dissolution and Winding Up

 

begin insert 17807.01. end insert   

A worker cooperative company is dissolved, and its
activities shall be wound up, upon the happening of the first to
occur of the following:

(a) On the happening of an event set forth in a written operating
agreement or the articles of organization.

(b) Subject to subdivision (r) of Section 17804.07, by the vote
of a two-thirds majority of the worker-members of the worker
cooperative company or a greater percentage of the voting interests
of members as may be specified in the articles of organization, or
a written operating agreement.

(c) The passage of 90 consecutive days during which the worker
cooperative company has no members, except on the death of a
natural person who is the sole member of a worker cooperative
company, the status of the member, including a membership
interest, may pass to the heirs, successors, and assigns of the
member by will or applicable law. The heir, successor, or assign
of the member’s interest becomes a substituted member pursuant
to subdivision (d) of Section 17804.01, subject to administration
as provided by applicable law, without the permission or consent
of the heirs, successors, or assigns or, those administering the
estate of the deceased member.

(d) Entry of a decree of judicial dissolution pursuant to Section
17807.03.

begin insert 17807.02. end insert   

(a) Notwithstanding any other provision of this
division, if a domestic worker cooperative company has not
conducted any business, only a majority of the members, or, if
there are no members, the majority of the managers, if any, or if
no members or managers, the person or a majority of the persons
signing the articles of organization, may execute and acknowledge
a certificate of cancellation of articles of organization, on a form
prescribed by the Secretary of State, stating all of the following:

(1) The name of the domestic worker cooperative company and
the Secretary of State’s file number.

(2) That the certificate of cancellation is being filed within 12
months from the date the articles of organization was filed.

(3) That the worker cooperative company does not have any
debts or other liabilities, except as provided in paragraph (4).

(4) That a final franchise tax return, as described by Section
23332 of the Revenue and Taxation Code, or a final annual tax
return, as described by Section 17947 of the Revenue and Taxation
Code, has been or will be filed with the Franchise Tax Board, as
required under Part 10.2 (commencing with Section 18401) of
Division 2 of the Revenue and Taxation Code.

(5) That the known assets of the worker cooperative company
remaining after payment of, or adequately providing for, known
debts and liabilities have been distributed to the persons entitled
thereto or that the worker cooperative company acquired no known
assets, as the case may be.

(6) That the worker cooperative company has not conducted
any business from the time of the filing of the articles of
organization.

(7) That a majority of the managers or members voted, or, if
no managers or members, the person or a majority of the persons
signing the articles of organization, voted to dissolve the worker
cooperative company.

(8) If the worker cooperative company has received payments
for interests from investors, that those payments have been returned
to those investors.

(b) A certificate of cancellation executed and acknowledged
pursuant to subdivision (a) shall be filed with the Secretary of
State within 12 months from the date that the articles of
organization was filed. The Secretary of State shall notify the
Franchise Tax Board of the cancellation.

(c) Upon filing a certificate of cancellation pursuant to
subdivision (a), a worker cooperative company shall be canceled
and its powers, rights, and privileges shall cease.

begin insert 17807.03. end insert   

(a) Pursuant to an action filed by any manager or
by any member or members of a worker cooperative company, a
court of competent jurisdiction may decree the dissolution of a
worker cooperative company whenever any of the events specified
in subdivision (b) occurs.

(b) (1) It is not reasonably practicable to carry on the business
in conformity with the articles of organization or operating
agreement.

(2) Dissolution is reasonably necessary for the protection of
the rights or interests of the complaining members.

(3) The business of the worker cooperative company has been
abandoned.

(4) The management of the worker cooperative company is
deadlocked or subject to internal dissention.

(5) Those in control of the worker cooperative company have
been guilty of, or have knowingly countenanced persistent and
pervasive fraud, mismanagement, or abuse of authority.

(c) (1) In any suit for judicial dissolution, the other members
may avoid the dissolution of the worker cooperative company by
purchasing for cash the membership interests owned by the
members so initiating the proceeding, the “moving parties,” at
their fair market value. In fixing the value, the amount of any
damages resulting if the initiation of the dissolution is a breach
by any moving party or parties of an agreement with the
purchasing party or parties, including, without limitation, the
operating agreement, may be deducted from the amount payable
to the moving party or parties; provided, that no member who sues
for dissolution on the grounds set forth in paragraph (3), (4), or
(5) of subdivision (a) shall be liable for damages for breach of
contract in bringing that action.

(2) If the purchasing parties elect to purchase the membership
interests owned by the moving parties, are unable to agree with
the moving parties upon the fair market value of the membership
interests, and give bond with sufficient security to pay the estimated
reasonable expenses, including attorney’s fees, of the moving
parties if the expenses are recoverable under paragraph (3), the
court, upon application of the purchasing parties, either in the
pending action or in a proceeding initiated in the superior court
of the proper county by the purchasing parties, shall stay the
winding up and dissolution proceeding and shall proceed to
ascertain and fix the fair market value of the membership interests
owned by the moving parties.

(3) The court shall appoint three disinterested appraisers to
appraise the fair market value of the membership interests owned
by the moving parties, and shall make an order referring the matter
to the appraisers so appointed for the purpose of ascertaining that
value. The order shall prescribe the time and manner of producing
evidence, if evidence is required. The award of the appraisers or
a majority of them, when confirmed by the court, shall be final
and conclusive upon all parties. The court shall enter a decree
that shall provide in the alternative for winding up and dissolution
of the worker cooperative company, unless payment is made for
the membership interests within the time specified by the decree.
If the purchasing parties do not make payment for the membership
interests within the time specified, judgment shall be entered
against them and the surety or sureties on the bond for the amount
of the expenses, including attorney’s fees, of the moving parties.
Any member aggrieved by the action of the court may appeal
therefrom.

(4) If the purchasing parties desire to prevent the winding up
and dissolution of the worker cooperative company, they shall pay
to the moving parties the value of their membership interests
ascertained and decreed within the time specified pursuant to this
section, or, in the case of an appeal, as fixed on appeal. On
receiving that payment or the tender of payment, the moving parties
shall transfer their membership interests to the purchasing parties.

(5) For the purposes of this section, the valuation date shall be
the date upon which the action for judicial dissolution was
commenced. However, the court may, upon the hearing of a motion
by any party, and for good cause shown, designate some other
date as the valuation date.

(6) A dismissal of any suit for judicial dissolution by a manager,
member, or members shall not affect the other members’ rights to
avoid dissolution pursuant to this section.

begin insert 17807.04. end insert   

In the event of a dissolution of a worker cooperative
company all of the following apply:

(a) The managers who have not wrongfully dissolved the worker
cooperative company, or, if none, the members, or, if none, the
person or a majority of the persons signing the articles of
organization, may wind up the affairs of the worker cooperative
company, unless the dissolution occurs pursuant to Section
17807.03, in which event the winding up shall be conducted in
accordance with the decree of dissolution. The persons winding
up the affairs of the worker cooperative company shall give written
notice of the commencement of winding up by mail to all known
creditors and claimants whose addresses appear on the records
of the worker cooperative company.

(b) Upon the petition of any manager or of any member or
members, or three or more creditors of a worker cooperative
company, a court of competent jurisdiction may enter a decree
ordering the winding up of the worker cooperative company, if
that appears necessary for the protection of any parties in interest.
The decree shall designate the managers or members, or if good
cause is shown, another person or persons, who are to wind up
the affairs of the worker cooperative company.

(c) Except as otherwise provided in the articles of organization
or a written operating agreement, the persons winding up the
affairs of the worker cooperative company pursuant to this section
shall be entitled to reasonable compensation.

begin insert 17807.05. end insert   

(a) Except as otherwise provided in the articles of
organization or the written operating agreement, after determining
that all the known debts and liabilities of a worker cooperative
company in the process of winding up, including, without
limitation, debts and liabilities to members who are creditors of
the worker cooperative company, have been paid or adequately
provided for, the remaining assets shall be distributed among the
members according to their respective rights and preferences as
follows:

(1) To members in satisfaction of liabilities for distributions
pursuant to Sections 17804.04, 17804.05, and 17804.06.

(2) To members of the worker cooperative company for the
return of their contributions.

(3) To members in the proportions in which those members
share in distributions.

(b) If the winding up is by court proceeding or subject to court
supervision, the distribution shall not be made until after the
expiration of any period for the presentation of claims that has
been prescribed by order of the court.

(c) (1) The payment of a debt or liability, whether the
whereabouts of the creditor is known or unknown, has been
adequately provided for if the payment has been provided for by
either of the following means:

(A) Payment for the debt or liability has been assumed or
guaranteed in good faith by one or more financially responsible
persons or by the United States government or any agency of the
United States government, and the provision, including the
financial responsibility of the person, was determined in good faith
and with reasonable care by the members or managers of the
worker cooperative company to be adequate at the time of any
distribution of the assets pursuant to this section.

(B) The amount of the debt or liability has been deposited as
provided in Section 2008 of the General Corporation Law.

(2) This subdivision shall not prescribe the exclusive means of
making adequate provision for debts and liabilities.

begin insert 17807.06. end insert   

(a) A worker cooperative company that is dissolved
nevertheless continues to exist for the purpose of winding up its
affairs, prosecuting and defending actions by or against it in order
to collect and discharge obligations, disposing of and conveying
its property, and collecting and dividing its assets. A worker
cooperative company shall not continue business except so far as
necessary for its winding up.

(b) No action or proceeding to which a worker cooperative
company is a party abates by the dissolution of the worker
cooperative company or by reason of proceedings for its winding
up and dissolution.

(c) Any assets inadvertently or otherwise omitted from the
winding up continue in the dissolved worker cooperative company
for the benefit of the persons entitled to those assets upon
dissolution and on realization shall be distributed accordingly.

(d) After dissolution of the worker cooperative company, the
worker cooperative company is bound by both of the following:

(1) The act of a person authorized to wind up the affairs of the
worker cooperative company, if the act is appropriate for winding
up the activities of the worker cooperative company.

(2) The act of a person authorized to act on behalf of the worker
cooperative company, if the act would have bound the worker
cooperative company before dissolution, if the other party to the
transaction did not have notice of the dissolution.

begin insert 17807.07. end insert   

(a) (1) Causes of action against a dissolved worker
cooperative company, whether arising before or after the
dissolution of the worker cooperative company, may be enforced
against any of the following:

(A) Against the dissolved worker cooperative company to the
extent of its undistributed assets, including, without limitation, any
insurance assets held by the worker cooperative company that
may be available to satisfy claims.

(B) If any of the assets of the dissolved worker cooperative
company have been distributed to members, against members of
the dissolved worker cooperative company to the extent of the
worker cooperative company assets distributed to them upon
dissolution of the worker cooperative company.

Any member compelled to return distributed assets in an amount
that exceeds the sum of the member’s pro rata share of the claim
and the amount for which the member could otherwise be held
liable under Section 17804.05 or 17804.06 may seek contribution
for the excess from any other member or manager, up to the sum
of that other person’s pro rata share of the claim and that other
person’s liabilities under Section 17804.05 or 17804.06.

(2) Except as set forth in subdivision (c), all causes of action
against a member of a dissolved worker cooperative company
arising under this section are extinguished unless the claimant
commences a proceeding to enforce the cause of action against
that member of a dissolved worker cooperative company prior to
the earlier of the following:

(A) The expiration of the statute of limitations applicable to the
cause of action.

(B) Four years after the effective date of the dissolution of the
worker cooperative company.

(3) As a matter of procedure only, and not for purposes of
determining liability, members of the dissolved worker cooperative
company may be sued in the name of the worker cooperative
company upon any cause of action against the worker cooperative
company. This section does not affect the rights of the worker
cooperative company or its creditors under Sections 17804.05 and
17804.06, or the rights, if any, of creditors under the Uniform
Fraudulent Transfer Act, that may arise against the member of a
worker cooperative company.

(b) Summons or other process against a worker cooperative
company may be served by delivering a copy thereof to a manager,
member, officer, or person having charge of its assets or, if none
of these persons can be found, to any agent upon whom process
might be served at the time of dissolution. If none of those persons
can be found with due diligence and it is so shown by affidavit to
the satisfaction of the court, then the court may make an order
that summons or other process be served upon the dissolved worker
cooperative company by personally delivering a copy of the
summons or other process, together with a copy of the order, to
the Secretary of State or an assistant or Deputy Secretary of State.
Service in this manner is deemed complete on the 10th day after
delivery of the process to the Secretary of State. Upon receipt of
process and the fee therefor, the Secretary of State shall give notice
to the worker cooperative company as provided in Section
17801.16.

(c) Every worker cooperative company shall survive and
continue to exist indefinitely for the purpose of being sued in any
quiet title action. Any judgment rendered in that action shall bind
each and all of its members or other persons having any equity or
other interest in the worker cooperative company to the extent of
that interest and the action shall have the same force and effect
as an action brought under the provisions of Sections 410.50 and
410.60 of the Code of Civil Procedure. Service of summons or
other process in any action may be made as provided in Chapter
4 (commencing with Section 413.10) of Title 5 of Part 2 of the
Code of Civil Procedure or as provided in subdivision (b).

(d) For purposes of Article 4 (commencing with Section 19071)
of Chapter 4 of Part 10.2 of Division 2 of the Revenue and Taxation
Code, the liability described in this section shall be considered a
liability at law with respect to a dissolved worker cooperative
company.

begin insert 17807.08. end insert   

(a) (1) The managers shall cause to be filed in the
office of, and on a form prescribed by, the Secretary of State, a
certificate of dissolution upon the dissolution of the worker
cooperative company pursuant to Article 7 (commencing with
Section 17807.01), unless the event causing the dissolution is that
specified in subdivision (c) of Section 17807.01, in which case the
persons conducting the winding up of the worker cooperative
company’s affairs pursuant to Section 17807.04 shall have the
obligation to file the certificate of dissolution.

(2) The certificate of dissolution shall set forth all of the
following:

(A) The name of the worker cooperative company and the
Secretary of State’s file number.

(B) Any other information the persons filing the certificate of
dissolution determine to include.

(3) If a dissolution pursuant to subdivision (b) of Section
17807.01 is made by the vote of all of the members and a statement
to that effect is added to the certificate of cancellation of articles
of organization pursuant to subdivision (b), the separate filing of
a certificate of dissolution pursuant to this subdivision is not
required.

(b) (1) The persons who filed the certificate of dissolution shall
cause to be filed in the office of, and on a form prescribed by, the
Secretary of State, a certificate of cancellation of articles of
organization upon the completion of the winding up of the affairs
of the worker cooperative company pursuant to Section 17807.06,
unless the event causing the dissolution is that specified in
subdivision (c) of Section 17807.01, in that case the persons
conducting the winding up of the worker cooperative company’s
affairs pursuant to Section 17807.04 shall have the obligation to
file the certificate of cancellation of articles of organization.

(2) The certificate of cancellation of articles of organization
shall set forth all of the following:

(A) The name of the worker cooperative company and the
Secretary of State’s file number.

(B) That a final franchise tax return, as described by Section
23332 of the Revenue and Taxation Code, or a final annual tax
return, as described by Section 17947 of the Revenue and Taxation
Code, has been or will be filed with the Franchise Tax Board, as
required under Part 10.2 (commencing with Section 18401) of
Division 2 of the Revenue and Taxation Code.

(C) Any other information the persons filing the certificate of
cancellation of articles of organization determine to include.

(3) The Secretary of State shall notify the Franchise Tax Board
of the filing.

(c) Upon filing a certificate of cancellation pursuant to
subdivision (b), a worker cooperative company shall be canceled
and its powers, rights, and privileges shall cease.

begin insert 17807.09. end insert   

(a) Notwithstanding the filing of a certificate of
dissolution, a majority in interest of the members may cause to be
filed, in the office of, and on a form prescribed by, the Secretary
of State, a certificate of continuation, in any of the following
circumstances:

(1) The business of the worker cooperative company is to be
continued pursuant to a unanimous vote of the remaining members.

(2) The dissolution of the worker cooperative company was by
vote of the members pursuant to subdivision (b) of Section
17807.01 and each member who consented to the dissolution has
agreed in writing to revoke his or her vote in favor of or consent
to the dissolution.

(3) The worker cooperative company was not, in fact, dissolved.

(b) The certificate of continuation shall set forth all of the
following:

(1) The name of the worker cooperative company and the
Secretary of State’s file number.

(2) The grounds provided by subdivision (a) that are the basis
for filing the certificate of continuation.

(c) Upon the filing of a certificate of continuation, the certificate
of dissolution shall be of no effect from the time of the filing of the
certificate of dissolution.

 

Article begin insert 8. end insert   Actions by Members

 

begin insert 17808.01. end insert   

Any member of a worker cooperative company may
bring a class action on behalf of all or a class of members to
enforce any claim common to those members and any of those
actions shall be governed by the law governing class actions
generally, provided that in order to maintain the class action there
shall be no requirement that the class be so numerous that joinder
of all members of the class is impracticable.

begin insert 17808.02. end insert   

(a) No action shall be instituted or maintained in
right of any domestic by any member of the worker cooperative
company unless both of the following conditions exist:

(1) The plaintiff alleges in the complaint that the plaintiff was
a member of record, or beneficiary, at the time of the transaction
or any part of the transaction of which the plaintiff complains, or
that the plaintiff’s interest later devolved upon the plaintiff by
operation of law from a member who was a member at the time
of the transaction or any part of the transaction complained of.
Any member who does not meet these requirements may
nevertheless be allowed in the discretion of the court to maintain
the action on a preliminary showing to and determination by the
court, by motion and after a hearing at which the court shall
consider any evidence, by affidavit or testimony, as it deems
material, of all of the following:

(A) There is a strong prima facie case in favor of the claim
asserted on behalf of the worker cooperative company.

(B) No other similar action has been or is likely to be instituted.

(C) The plaintiff acquired the interest before there was
disclosure to the public or to the plaintiff of the wrongdoing of
which plaintiff complains.

(D) Unless the action can be maintained, the defendant may
retain a gain derived from defendant’s willful breach of a fiduciary
duty.

(E) The requested relief will not result in unjust enrichment of
the worker cooperative company or any member of the worker
cooperative company.

(2) The plaintiff alleges in the complaint with particularity the
plaintiff’s efforts to secure from the managers the action the
plaintiff desires or the reasons for not making that effort, and
alleges further that the plaintiff has either informed the worker
cooperative company or the managers in writing of the ultimate
facts of each cause of action against each defendant or delivered
to the worker cooperative company or the managers a true copy
of the complaint that the plaintiff proposes to file.

(b) In any action referred to in subdivision (a), at any time
within 30 days after service of summons upon the worker
cooperative company or upon any defendant who is a manager of
the worker cooperative company or held that position at the time
of the acts complained of, the worker cooperative company or the
defendant may move the court for an order, upon notice and
hearing, requiring the plaintiff to furnish security as hereinafter
provided. The motion shall be based upon one or both of the
following grounds:

(1) That there is no reasonable possibility that the prosecution
of the cause of action alleged in the complaint against the moving
party will benefit the worker cooperative company or its members.

(2) That the moving party, if other than the worker cooperative
company did not participate in the transaction complained of in
any capacity. The court, on application of the worker cooperative
company or any defendant, may, for good cause shown, extend
the 30-day period for an additional period not exceeding 60 days.

(c) (1) At the hearing upon any motion pursuant to subdivision
(b), the court shall consider evidence, written or oral, by witnesses
or affidavit, as may be material to the ground upon which the
motion is based, or to a determination of the probable reasonable
expenses, including attorney’s fees, of the worker cooperative
company and the moving party that will be incurred in the defense
of the action.

(2) If the court determines, after hearing the evidence adduced
by the parties, that the moving party has established a probability
in support of any of the grounds upon which the motion is based,
the court shall fix the nature and amount of security, not to exceed
fifty thousand dollars ($50,000), to be furnished by the plaintiff
for reasonable expenses, including attorney’s fees, that may be
incurred by the moving party and the worker cooperative company
in connection with the action. A ruling by the court on the motion
shall not be a determination of any issue in the action or of the
merits of the action. The amount of the security may thereafter be
increased or decreased in the discretion of the court upon a
showing that the security provided has or may become inadequate
or is excessive, but the court shall not in any event increase the
total amount of the security beyond fifty thousand dollars ($50,000)
in the aggregate for all defendants. If the court, upon a motion,
makes a determination that security shall be furnished by the
plaintiff as to any one or more defendants, the action shall be
dismissed as to that defendant or those defendants, unless the
security required by the court has been furnished within any
reasonable time as shall be fixed by the court. The worker
cooperative company and the moving party shall have recourse
to the security in the amount that the court determines upon the
termination of the action.

(d) If the plaintiff, either before or after a motion is made
pursuant to subdivision (b), or any order or determination pursuant
to that motion, posts good and sufficient bond or bonds in the
aggregate amount of fifty thousand dollars ($50,000) to secure
the reasonable expenses of the parties entitled to make the motion,
the plaintiff shall be deemed to have complied with the
requirements of this section and with any order for security made
pursuant to this section. Any motion then pending shall be
dismissed and no further or additional bond or other security shall
be required.

(e) If a motion is filed pursuant to subdivision (b), no pleadings
need be filed by the worker cooperative company or any other
defendant and the prosecution of the action shall be stayed until
10 days after the motion has been disposed of.

 

Article begin insert 9. end insert   Merger and Conversion

 

begin insert 17809.01. end insert   

For purposes of this article, the following definitions
apply:

(a) “Converted entity” means the other business entity or
foreign other business entity that results from a conversion of a
domestic worker cooperative company under this division.

(b) “Converted worker cooperative company” means a domestic
worker cooperative company that results from a conversion of an
other business entity or a foreign other business entity or a foreign
limited liability company pursuant to Section 17809.08.

(c) “Converting worker cooperative company” means a
domestic worker cooperative company that converts to an other
business entity or a foreign other business entity or a foreign
limited liability company pursuant to this division.

(d) “Converting entity” means an other business entity or a
foreign other business entity or a foreign limited liability company
that converts to a domestic worker cooperative company pursuant
to Section 17809.08.

(e) “Constituent corporation” means a corporation that is
merged with or into one or more worker cooperative companies,
foreign limited liability companies, or other business entities and
that includes a surviving corporation.

(f) “Constituent worker cooperative company” means a worker
cooperative company that is merged with or into one or more other
worker cooperative companies, foreign limited liability companies,
or other business entities and that includes a surviving worker
cooperative company.

(g) “Constituent other business entity” means an other business
entity that is merged with or into one or more worker cooperative
companies or foreign limited liability companies and that includes
a surviving other business entity.

(h) “Disappearing worker cooperative company” means a
constituent worker cooperative company that is not the surviving
worker cooperative company.

(i) “Disappearing other business entity” means a constituent
other business entity that is not the surviving other business entity.

(j) “Foreign other business entity” means an other business
entity formed under the laws of a jurisdiction other than this state.

(k) “Other business entity” means a corporation, general
partnership, limited partnership, business trust, real estate
investment trust, a limited liability company, or an unincorporated
association other than a nonprofit association, but excludes a
worker cooperative company.

(l) “Surviving worker cooperative company” means a worker
cooperative company into which one or more other worker
cooperative companies, other business entities, or foreign business
entities are merged.

(m) “Surviving other business entity” means an other business
entity into which one or more worker cooperative companies and
other business entities are merged.

begin insert 17809.02. end insert   

(a) A worker cooperative company may be converted
into an other business entity or a foreign other business entity or
a foreign limited liability company pursuant to this article if both
of the following apply:

(1) Pursuant to a conversion into a domestic or foreign general
partnership or limited partnership or into a foreign limited liability
company, each of the members of the converting worker
cooperative company receives a percentage interest in the profits
and capital of the converted entity equal to that member’s
percentage interest in profits and capital of the converting worker
cooperative company as of the effective time of the conversion.

(2) Pursuant to a conversion into an other business entity or
foreign other business entity not specified in paragraph (1), both
of the following occur:

(A) Each worker cooperative company interest of the same class
is treated equally with respect to any distribution of cash, property,
rights, interests, or securities of the converted entity, unless all
members of the class consent.

(B) The nonredeemable worker cooperative company interests
of the converting worker cooperative company are converted only
into nonredeemable interests or securities of the converted entity,
unless all holders of the unredeemable interests consent.

(b) The conversion of a worker cooperative company to an other
business entity or a foreign other business entity or a foreign
limited liability company may be effected only if both of the
following conditions are satisfied:

(1) The law under which the converted entity will exist expressly
permits the formation of that entity pursuant to a conversion.

(2) The worker cooperative company complies with all other
requirements of any other law that applies to conversion to the
converted entity.

begin insert 17809.03. end insert   

(a) A worker cooperative company that desires to
convert to an other business entity or a foreign other business
entity or a foreign limited liability company shall approve a plan
of conversion.

The plan of conversion shall state all of the following:

(1) The terms and conditions of the conversion.

(2) The place of the organization of the converted entity and of
the converting worker cooperative company and the name of the
converted entity after conversion.

(3) The manner of converting the membership interests of each
of the members into shares of, securities of, or interests in, the
converted entity.

(4) The provisions of the governing documents for the converted
entity, including the worker cooperative company articles of
organization and operating agreement, or articles or certificate
of incorporation if the converted entity is a corporation, to which
the holders of interests in the converted entity are to be bound.

(5) Any other details or provisions that are required by the laws
under which the converted entity is organized, or that are desired
by the parties.

(b) (1) The plan of conversion shall be approved by a two-thirds
majority of the worker-members, subject to subdivision (r) of
Section 17804.07.

(2) However, if the members of the worker cooperative company
would become personally liable for any obligations of the
converted entity as a result of the conversion, the plan of
conversion shall be approved by all of the limited members of the
converting worker cooperative company, unless the plan of
conversion provides that all members will have dissenters’ rights
as provided in Article 10 (commencing with Section 17810.01).

(c) Upon the effectiveness of the conversion, all members of the
converting worker cooperative company, except those that exercise
dissenters’ rights as provided in Article 10 (commencing with
Section 17810.01), shall be deemed parties to any governing
documents for the converted entity adopted as part of the plan of
conversion, regardless of whether or not the member has executed
the plan of conversion or the governing documents for the
converted entity. Any adoption of governing documents made
pursuant to the conversion shall be effective at the effective time
or date of the conversion.

(d) Notwithstanding its prior approval, a plan of conversion
may be amended before the conversion takes effect if the
amendment is approved by all managers and a majority of the
members or if there are no managers, a majority of the members
of the converting worker cooperative company and, if the
amendment changes any of the principal terms of the plan of
conversion, the amendment is approved by the managers and
members of the converting worker cooperative company in the
same manner and to the same extent as required for the approval
of the original plan of conversion.

(e) The managers by unanimous approval and the members of
a converting worker cooperative company may, by majority
approval at any time before the conversion is effective, in their
discretion, abandon a conversion, without further approval by the
managers or members, subject to the contractual rights of third
parties other than managers or members.

(f) The converted entity shall keep the plan of conversion at the
principal place of business of the converted entity if the converted
entity is a domestic worker cooperative company or foreign other
business entity, at the principal office of, or registrar or transfer
agent of, the converted entity, if the converted entity is a domestic
corporation, or at the office where records are to be kept pursuant
to Section 17801.13 if the converted entity is a domestic worker
cooperative company. Upon the request of a member of a
converting worker cooperative company, the authorized person
on behalf of the converted entity shall promptly deliver to the
member or the holder of shares, interests, or other securities, at
the expense of the converted entity, a copy of the plan of
conversion. A waiver by a member of the rights provided in this
subdivision shall be unenforceable.

begin insert 17809.04. end insert   

(a) A conversion into an other business entity or a
foreign other business entity or a foreign limited liability company
shall become effective upon the earliest date that all of the
following occur:

(1) The plan of conversion is approved by the members of the
converting worker cooperative company, as provided in Section
17809.03.

(2) All documents required by law to create the converted entity
are filed, which documents shall also contain a statement of
conversion, if required under Section 17809.06.

(3) The effective date, if set forth in the plan of conversion,
occurs.

(b) A copy of the certificate of limited partnership, statement of
partnership authority, articles of incorporation, or certificate of
conversion complying with Section 17809.06, if applicable, duly
certified by the Secretary of State, is conclusive evidence of the
conversion of the worker cooperative company.

begin insert 17809.05. end insert   

(a) If the worker cooperative company is converting
into a foreign limited liability company or foreign other business
entity, those conversion proceedings shall be in accordance with
the laws of the state or place of organization of the foreign limited
liability company or foreign other business entity and the
conversion shall become effective in accordance with that law.

(b) (1) To enforce an obligation of a worker cooperative
company that has converted to a foreign limited liability company
or foreign other business entity, the Secretary of State shall only
be the agent for service of process in an action or proceeding
against that converted foreign entity, if the agent designated for
the service of process for that entity is a natural person and cannot
be found with due diligence or if the agent is a corporation and
no person, to whom delivery may be made, may be located with
due diligence, or if no agent has been designated and if none of
the officers, members, managers, or agents of that entity may be
located after diligent search, and it is shown by affidavit to the
satisfaction of the court. The court then may make an order that
service be made by personal delivery to the Secretary of State or
to an assistant or Deputy Secretary of State of two copies of the
process together with two copies of the order, and the order shall
set forth an address to which the process shall be sent by the
Secretary of State. Service in this manner is deemed complete on
the 10th day after delivery of the process to the Secretary of State.

(2) Upon receipt of the process and order and the fee set forth
in Section 12197 of the Government Code, the Secretary of State
shall provide notice to that entity of the service of the process by
forwarding by certified mail, return receipt requested, a copy of
the process and order to the address specified in the order.

(3) The Secretary of State shall keep a record of all process
served upon the Secretary of State and shall record the time of
service and the Secretary of State’s action with respect to the
process served. The certificate of the Secretary of State, under the
Secretary of State’s official seal, certifying to the receipt of process,
the providing of notice of process to that entity, and the forwarding
of the process shall be competent and prima facie evidence of the
matters stated therein.

begin insert 17809.06. end insert   

(a) Upon conversion of a worker cooperative
company, one of the following applies:

(1) If the worker cooperative company is converting into a
domestic limited partnership, a statement of conversion shall be
completed on a certificate of limited partnership for the converted
entity and shall be filed with the Secretary of State.

(2) If the worker cooperative company is converting into a
domestic partnership, a statement of conversion shall be completed
on the statement of partnership authority for the converted entity.
If no statement of partnership authority is filed, a certificate of
conversion shall be filed separately with the Secretary of State.

(3) If the worker cooperative company is converting into a
domestic corporation, a statement of conversion shall be completed
on the articles of incorporation for the converted entity and shall
be filed with the Secretary of State.

(4) If the worker cooperative company is converting to a foreign
limited liability company or foreign other business entity, a
certificate of conversion shall be filed with the Secretary of State.

(b) Any certificate or statement of conversion shall be executed
and acknowledged by all members, unless a lesser number is
provided in the articles of organization or operating agreement,
and shall set forth all of the following:

(1) The name and the Secretary of State’s file number of the
converting worker cooperative company.

(2) A statement that the principal terms of the plan of conversion
were approved by a vote of the members, that equaled or exceeded
the vote required under Section 17809.03, specifying each class
entitled to vote and the percentage vote required of each class.

(3) The name, form and jurisdiction of organization, and
Secretary of State’s file number, if any, of the converted entity.

(4) The mailing address of the converted entity’s agent for
service of process and the chief executive office of the converted
entity.

(c) The filing with the Secretary of State of a certificate of
conversion, a certificate of limited partnership, a statement of
partnership authority, or articles of incorporation containing a
statement of conversion as set forth in subdivision (a) shall have
the effect of the filing of a certificate of cancellation by the
converting worker cooperative company, and no converting worker
cooperative company that has made the filing is required to take
any action under Article 7 (commencing with Section 17807.01)
as a result of that conversion.

(d) For the purposes of this division, the certificate of conversion
shall be on a form prescribed by the Secretary of State.

begin insert 17809.07. end insert   

(a) Whenever a worker cooperative company or
other business entity having any real property in this state converts
into a worker cooperative company or an other business entity
pursuant to the laws of this state or of the state or place where the
worker cooperative company or other business entity was
organized, and the laws of the state or place of organization,
including this state, of the converting worker cooperative company
or other converting entity provide substantially that the conversion
vests in the converted worker cooperative company or other
converted entity all the real property of the converting worker
cooperative company or other converting entity, the filing for
record in the office of the county recorder of any county in this
state where any of the real property of the converting worker
cooperative company or other converting entity is located of either
of the following shall evidence record ownership in the converted
worker cooperative company or other converted entity of all
interest of the converting worker cooperative company or other
converting entity in and to the real property located in that county:

(1) A certificate of conversion or a statement of partnership
authority, a certificate of limited partnership, or articles of
incorporation complying with Section 17809.06 certified on or
after the effective date of the conversion by the Secretary of State.

(2) A copy of a certificate of conversion or a statement of
partnership authority, certificate of limited partnership, articles
of organization, articles of incorporation, or other certificate or
document evidencing the creation of a foreign other business entity
by conversion, containing a statement of conversion, certified by
the Secretary of State or an authorized public official of the state
or place pursuant to the laws of which the conversion is effected.

(b) A filed and, if appropriate, recorded certificate of conversion
or a statement of partnership authority, certificate of limited
partnership, articles of organization, articles or certificate of
incorporation, or other certificate evidencing the creation of a
foreign other business entity by conversion, containing a statement
of conversion, filed pursuant to subdivision (a) of Section 17809.06,
stating the name of the converting worker cooperative company
or other converting entity in whose name property was held before
the conversion and the name of the converted entity or converted
worker cooperative company, but not containing all of the other
information required by Section 17809.06, operates with respect
to the entities named to the extent provided in subdivision (a).

(c) Recording of a certificate of conversion, or a statement of
partnership authority, certificate of limited partnership, articles
of organization, articles of incorporation, or other certificate
evidencing the creation of an other business entity or a worker
cooperative company by conversion, containing a statement of
conversion, in accordance with subdivision (a), shall create, in
favor of bona fide purchasers or encumbrances for value, a
conclusive presumption that the conversion was validly completed.

begin insert 17809.08. end insert   

(a) An other business entity or a foreign other
business entity or a foreign limited liability company may be
converted to a domestic worker cooperative company pursuant to
this article only if the converting entity is authorized by the laws
pursuant to which it is organized to effect the conversion.

(b) An other business entity or a foreign other business entity
or a foreign limited liability company that desires to convert into
a domestic worker cooperative company shall approve a plan of
conversion or another instrument as is required to be approved
to effect the conversion pursuant to the laws under which that
entity is organized.

(c) The conversion of an other business entity or a foreign other
business entity or a foreign limited liability company into a
domestic worker cooperative company shall be approved by the
number or percentage of the members, managers, shareholders,
or holders of interest of the converting entity as is required by the
laws under which that entity is organized, or a greater or lesser
percentage, subject to applicable laws, as set forth in the
converting entity’s partnership agreement, articles of organization,
operating agreement, articles or certificate of incorporation, or
other governing document.

(d) The conversion by an other business entity or a foreign other
business entity or a foreign limited liability company into a
domestic worker cooperative company shall be effective under this
article at the time the conversion is effective under the laws under
which the converting entity is organized, as long as the articles of
organization containing a statement of conversion has been filed
with the Secretary of State. If the converting entity’s governing
law is silent as to the effectiveness of the conversion, the conversion
shall be effective upon the completion of all acts required under
this division to form a worker cooperative company.

(e) If the converting foreign limited liability company or foreign
limited liability partnership is authorized to transact intrastate
business in this state, the filing with the Secretary of State of its
articles of organization containing a statement of conversion
pursuant to the laws under which the converting foreign limited
liability company or foreign other business entity is organized
shall have the effect of the filing of a certificate of cancellation by
the converting foreign limited partnership and no converting
foreign limited liability company or foreign limited partnership
that has made the filing is required to file a certificate of
cancellation under Section 15909.07 as a result of that conversion.
If a converting other business entity is a foreign corporation
qualified to transact intrastate business in this state, the foreign
corporation shall, by virtue of the filing, automatically surrender
its right to transact intrastate business.

begin insert 17809.09. end insert   

(a) An entity that converts into another entity
pursuant to this article is for all purposes other than for the
purposes of Part 10 (commencing with Section 17001), Part 10.2
(commencing with Section 18401), and Part 11 (commencing with
Section 23001) of Division 2 of the Revenue and Taxation Code,
the same entity that existed before the conversion and the
conversion shall not be deemed a transfer of property.

(b) Upon a conversion taking effect, all of the following apply:

(1) All the rights and property, whether real, personal, or mixed,
of the converting entity or converting worker cooperative company
are vested in the converted entity or converted worker cooperative
company.

(2) All debts, liabilities, and obligations of the converting entity
or converting worker cooperative company continue as debts,
liabilities, and obligations of the converted entity or converted
worker cooperative company.

(3) All rights of creditors and liens upon the property of the
converting entity or converting worker cooperative company shall
be preserved unimpaired and remain enforceable against the
converted entity or converted worker cooperative company to the
same extent as against the converting entity or converting worker
cooperative company as if the conversion had not occurred.

(4) Any action or proceeding pending by or against the
converting entity or converting worker cooperative company may
be continued against the converted entity or converted worker
cooperative company as if the conversion had not occurred.

(c) A member of a converting worker cooperative company is
liable for both of the following:

(1) All obligations of the converting worker cooperative
company for which the member was personally liable before the
conversion.

(2) All obligations of the converted entity incurred after the
conversion takes effect, but those obligations may be satisfied only
out of property of the entity if that member of a worker cooperative
company, or a shareholder in a corporation, or unless expressly
provided otherwise in the articles of organization or other
governing documents, a limited partner of a limited partnership,
or a holder of equity securities in another converted entity if the
holders of equity securities in that entity are not personally liable
for the obligations of that entity under the law under which the
entity is organized or its governing documents.

(d) A member of a converted worker cooperative company
remains liable for any and all obligations of the converting entity
for which the member was personally liable before the conversion,
but only to the extent that the member was liable for the obligations
of the converting entity prior to the conversion.

(e) If the other party to a transaction with the worker
cooperative company reasonably believes when entering into the
transaction that the worker cooperative company member is a
general partner, the worker cooperative company member is liable
for the obligations incurred by the worker cooperative company
within 90 days after the conversion takes effect. The worker
cooperative company member’s liability for all other obligations
of the worker cooperative company incurred after the conversion
takes effect is that of a worker cooperative company member.

begin insert 17809.10. end insert   

Mergers of worker cooperative companies shall be
governed by Sections 17809.11 to 17809.19, inclusive.

begin insert 17809.11. end insert   

The following entities may be merged pursuant to
this article:

(a) Two or more worker cooperative companies into one worker
cooperative company.

(b) One or more worker cooperative companies and one or
more other business entities into one of those other business entities
or foreign other business entities.

(c) One or more worker cooperative companies and one or more
other business entities or foreign other business entities into one
worker cooperative company.

(d) Notwithstanding this section, the merger of any number of
worker cooperative companies with any number of other business
entities or foreign other business entities may be effected only if
the other business entities that are organized in this state are
authorized by the laws under which they are organized to effect
the merger, and the following apply:

(1) If a worker cooperative company is the surviving worker
cooperative company, the foreign other business entities are not
prohibited by the laws under which they are organized from
effecting that merger.

(2) If a foreign other business entity is the survivor of the
merger, the laws of the jurisdiction under which the survivor is
organized authorize that merger. Notwithstanding the first sentence
of this paragraph, if one or more domestic corporations is also a
party to the merger described in that sentence, the merger may be
effected only if, with respect to any foreign other business entity
that is a corporation, the foreign corporation is authorized by the
laws under which it is organized to effect that merger.

begin insert 17809.12. end insert   

(a) Each worker cooperative company and other
business entity that desires to merge shall approve an agreement
of merger.

The agreement of merger shall be approved by a two-thirds
majority of the worker-member class, subject to subdivision (r) of
Section 17804.07 and the articles or operating agreement.
Notwithstanding the previous sentence, if the members of any
constituent worker cooperative company become personally liable
for any obligations of a constituent worker cooperative company
or constituent other business entity as a result of the merger, the
principal terms of the agreement of merger shall be approved by
all of the members of the constituent worker cooperative company,
unless the agreement of merger provides that all members shall
have the dissenters’ rights provided in Article 10 (commencing
with Section 17810.01). The agreement of merger shall be
approved on behalf of each constituent other business entity by
those persons required to approve the merger by the laws under
which it is organized. Other persons, including a parent of a
constituent worker cooperative company, may be parties to the
agreement of merger. The agreement of merger shall state all of
the following:

(1) The terms and conditions of the merger.

(2) The name and place of the organization of the surviving
worker cooperative company or surviving other business entity,
and of each disappearing worker cooperative company and
disappearing other business entity, and the agreement of merger
may change the name of the surviving worker cooperative
company, the new name may be the same as or similar to the name
of a disappearing domestic, subject to Section 17801.08.

(3) The manner of converting the membership interests of each
of the constituent worker cooperative companies into interests,
shares, or other securities of the surviving worker cooperative
company or surviving other business entity, and if worker
cooperative company interests of any of the constituent worker
cooperative companies are not to be converted solely into interests,
shares, or other securities of the surviving worker cooperative
company or surviving other business entity, the cash, property,
rights, interests, or securities that the holders of the worker
cooperative company interests are to receive in exchange for the
membership interests, the cash, property, rights, interests, or
securities that may be in addition to or in lieu of interests, shares,
or other securities of the surviving worker cooperative company
or surviving other business entity, or that the worker cooperative
company interests are canceled without consideration.

(4) The amendments to the articles of organization of the
surviving worker cooperative company, if applicable, to be effected
by the merger, if any.

(5) Any other details or provisions that are required by the laws
under which any constituent other business entity is organized,
including, if a domestic corporation is a party to the merger, as
provided in subdivision (b) of Section 1113.

(6) Any other details or provisions that are desired, including,
without limitation, a provision for the treatment of fractional
membership interests.

(b) (1) Each membership interest of the same class of any
constituent worker cooperative company, other than a membership
interest in another constituent worker cooperative company that
is being canceled and that is held by a constituent worker
cooperative company or its parent or a worker cooperative
company of which the constituent worker cooperative company is
a parent shall, unless all members of the class consent, be treated
equally with respect to any distribution of cash, property, rights,
interests, or securities.

(2) Notwithstanding paragraph (1), except in a merger of a
worker cooperative company with a worker cooperative company
that controls at least 90 percent of the membership interests entitled
to vote with respect to the merger, the unredeemable membership
interests of a constituent worker cooperative company may be
converted only into unredeemable interests or securities of the
surviving worker cooperative company or other business entity,
or a parent if a constituent worker cooperative company or a
constituent other business entity or its parent owns, directly or
indirectly, prior to the merger, membership interests of another
constituent worker cooperative company or interests or securities
of a constituent other business entity representing more than 50
percent of the interests or securities entitled to vote with respect
to the merger of the other constituent worker cooperative company
or constituent other business entity or more than 50 percent of the
voting power, as defined in Section 194.5, of a constituent other
business entity that is a domestic corporation, unless all of the
members of the class consent.

(3) The provisions of this subdivision do not apply to any
transaction if the commissioner has approved the terms and
conditions of the transaction and the fairness of those terms
pursuant to Section 25142.

(c) Notwithstanding its prior approval, an agreement of merger
may be amended prior to the filing of the certificate of merger or
the agreement of merger, as provided in Section 17809.14, if the
amendment is approved by the managers and members of each
constituent worker cooperative company in the same manner as
required for approval of the original agreement of merger and, if
the amendment changes any of the principal terms of the agreement
of merger, the amendment is approved by the managers and
members of each constituent worker cooperative company in the
same manner and to the same extent as required for the approval
of the original agreement of merger, and by each of the constituent
other business entities.

(d) The managers and members of a constituent worker
cooperative company may, in their discretion, abandon a merger,
subject to the contractual rights, if any, of third parties, including
other constituent worker cooperative companies and constituent
other business entities, without further approval by the membership
interests, at any time before the merger is effective.

(e) An agreement of merger approved in accordance with
subdivision (a) may do the following:

(1) Effect any amendment to the operating agreement of any
constituent worker cooperative company.

(2) Effect the adoption of a new operating agreement for a
constituent worker cooperative company if it is the surviving
worker cooperative company in the merger. Any amendment to an
operating agreement or adoption of a new operating agreement
made pursuant to the foregoing sentence shall be effective at the
effective time or date of the merger. Notwithstanding the above
provisions of this subdivision, if a greater number of members is
required to approve an amendment to the operating agreement of
a constituent worker cooperative company than is required to
approve the agreement of merger pursuant to subdivision (a), and
the number of members that approve the agreement of merger is
less than the number of members required to approve an
amendment to the operating agreement of the constituent worker
cooperative company, any amendment to the operating agreement
or adoption of a new operating agreement of that constituent
worker cooperative company made pursuant to the first sentence
of this subdivision shall be effective only if the agreement of merger
provides that all of the members shall have the dissenters’ rights
provided in Article 10 (commencing with Section 17810.01).

(f) The surviving worker cooperative company or surviving
other business entity shall keep the agreement of merger at its
designated office or at the business address specified in paragraph
(5) of subdivision (a) of Section 17809.14, as applicable, and, upon
the request of a member of a constituent worker cooperative
company or a holder of shares, interests, or other securities of a
constituent other business entity, the managers or members of the
surviving worker cooperative company or the authorized person
of the surviving other business entity shall promptly deliver to the
member or the holder of shares, interests, or other securities, at
the expense of the surviving worker cooperative company or
surviving other business entity, a copy of the agreement of merger.
A waiver by a member or holder of shares, interests, or other
securities of the rights provided in this subdivision shall be
unenforceable.

begin insert 17809.13. end insert   

Subdivision (b) of Section 17809.12 shall not apply
to any transaction if the commissioner has approved the terms and
conditions of the transaction and the fairness of such terms and
conditions pursuant to Section 25142.

begin insert 17809.14. end insert   

(a) If the surviving entity is a worker cooperative
company or an other business entity, other than a corporation in
a merger in which a domestic corporation is a constituent party,
after approval of a merger by the constituent worker cooperative
companies and any constituent other business entities, the
constituent worker cooperative companies and constituent other
business entities shall file a certificate of merger in the office of,
and on a form prescribed by, the Secretary of State. The certificate
of merger shall be executed and acknowledged by each domestic
constituent worker cooperative company by all managers, or if
none, all members unless a lesser number is provided in the articles
of organization or operating agreement of the domestic constituent
worker cooperative company and by each foreign constituent
worker cooperative company by one or more managers, or if none,
members, and by each constituent other business entity by those
persons required to execute the certificate of merger by the laws
under which the constituent other business entity is organized. The
certificate of merger shall set forth all of the following:

(1) The names and the Secretary of State’s file numbers, if any,
of each of the constituent worker cooperative companies and
constituent other business entities, separately identifying the
disappearing worker cooperative companies and disappearing
other business entities and the surviving worker cooperative
company or surviving other business entity.

(2) If a vote of the members was required pursuant to Section
17809.12, a statement setting forth the total number of outstanding
interests of each class entitled to vote on the merger and that the
principal terms of the agreement of merger were approved by a
vote of the number of interests of each class that equaled or
exceeded the vote required, specifying each class entitled to vote
and the percentage vote required of each class.

(3) If the surviving entity is a worker cooperative company and
not an other business entity, any change required to the information
set forth in the articles of organization of the surviving worker
cooperative company resulting from the merger, including any
change in the name of the surviving worker cooperative company
resulting from the merger. The filing of a certificate of merger
setting forth any such changes to the articles of organization of
the surviving worker cooperative company shall have the effect of
the filing of a certificate of amendment by the surviving worker
cooperative company, and the surviving worker cooperative
company need not file an amendment under Section 17802.02 to
reflect those changes.

(4) The future effective date, that shall be a date certain not
more than 90 days subsequent to the date of filing of the merger,
if the merger is not to be effective upon the filing of the certificate
of merger with the office of the Secretary of State.

(5) If the surviving entity is an other business entity or a foreign
limited liability company, the full name of the entity, type of entity,
legal jurisdiction where the entity was organized and by whose
laws its internal affairs are governed, and the address of the
principal place of business of the entity.

(6) Any other information required to be stated in the certificate
of merger by the laws where each constituent other business entity
is organized, including if a domestic corporation is a party to the
merger, as required under paragraph (2) of subdivision (g) of
Section 1113. If the surviving entity is a foreign limited liability
company in a merger where a domestic corporation is a
disappearing other business entity, a copy of the agreement of
merger and attachments as required under paragraph (1) of
subdivision (g) of Section 1113 shall be filed at the same time as
the filing of the certificate of merger.

(b) If the surviving entity is a domestic corporation or a foreign
corporation in a merger that a domestic corporation is a
constituent party, after approval of the merger by the constituent
worker cooperative companies and constituent other business
entities, the surviving corporation shall file in the office of the
Secretary of State a copy of the agreement of merger and
attachments required under paragraph (1) of subdivision (g) of
Section 1113. The certificate of merger shall be executed and
acknowledged by each domestic constituent worker cooperative
company by all general members, unless a lesser number is
provided in the articles of organization of the worker cooperative
company of the domestic constituent worker cooperative company.

(c) A certificate of merger or the agreement of merger, as is
applicable under subdivisions (a) and (b), shall have the effect of
the filing of a certificate of cancellation for each disappearing
worker cooperative company, and no disappearing worker
cooperative company need take any action under Article 7
(commencing with Section 17807.01) concerning dissolution as a
result of the merger.

(d) If a disappearing other entity is a foreign corporation
qualified to transact intrastate business in this state, the filing of
the certificate of merger or agreement of merger, as is applicable,
by the foreign corporation shall automatically surrender its right
to transact intrastate business.

begin insert 17809.15. end insert   

(a) Unless a future effective date is provided in a
certificate of merger or the agreement of merger, if an agreement
of merger is required to be filed under Section 17809.14, in which
event the merger shall be effective at that future effective date, a
merger shall be effective upon the filing of the certificate of merger
or the agreement of merger, as is applicable, in the office of the
Secretary of State.

(b) (1) For all purposes, a copy of the certificate of merger
duly certified by the Secretary of State is conclusive evidence of
the merger of the constituent worker cooperative companies, either
by themselves or together with constituent other business entities,
into the surviving other business entity, or the constituent worker
cooperative companies or the constituent other business entities,
or both, into the surviving worker cooperative company.

(2) In a merger in which the surviving entity is a corporation
in a merger in which a domestic corporation and a domestic
worker cooperative company are parties to the merger, a copy of
an agreement of merger certified on or after the effective date by
an official having custody thereof has the same force in evidence
as the original and, except as against the state, is conclusive
evidence of the performance of all conditions precedent to the
merger, the existence on the effective date of the surviving
corporation, and the performance of the conditions necessary to
the adoption of any amendment to the articles of incorporation of
the surviving corporation, if applicable, contained in the agreement
of merger.

begin insert 17809.16. end insert   

(a) Upon a merger of worker cooperative companies
or worker cooperative companies and other business entities
pursuant to this article, the separate existence of the disappearing
worker cooperative companies and disappearing other business
entities ceases and the surviving worker cooperative company or
surviving other business entity shall succeed, without other
transfer, act or deed, to all the rights and property, whether real,
personal, or mixed, of each of the disappearing worker cooperative
companies and disappearing other business entities, and shall be
subject to all the debts and liabilities of each in the same manner
as if the surviving worker cooperative company or surviving other
business entity had itself incurred them.

(b) All rights of creditors and all liens upon the property of each
of the constituent worker cooperative companies and constituent
other business entities shall be preserved unimpaired and may be
enforced against the surviving worker cooperative company or
the surviving other business entity to the same extent as if the debt,
liability, or duty which gave rise to that lien had been incurred or
contracted by the surviving worker cooperative company or the
surviving other business entity, provided that such liens upon the
property of a disappearing worker cooperative company or
disappearing other business entity shall be limited to the property
affected thereby immediately prior to the time the merger is
effective.

(c) Any action or proceeding pending by or against any
disappearing worker cooperative company or disappearing other
business entity may be prosecuted to judgment, which shall bind
the surviving worker cooperative company or surviving other
business entity, or the surviving worker cooperative company or
surviving other business entity may be proceeded against or be
substituted in the place of the disappearing worker cooperative
company or disappearing other business entity.

(d) Nothing in this article is intended to affect the liability a
member of a disappearing worker cooperative company may have
in connection with the debts and liabilities of the disappearing
worker cooperative company existing prior to the time the merger
is effective.

begin insert 17809.17. end insert   

(a) If the surviving entity is a domestic worker
cooperative company or a domestic other business entity, the
merger proceedings with respect to that worker cooperative
company or other business entity and any domestic disappearing
worker cooperative company shall conform to the provisions of
this article governing the merger of domestic worker cooperative
companies, but if the surviving entity is a foreign limited liability
company or a foreign other business entity, then, subject to the
requirements of subdivision (d) and Article 10 (commencing with
Section 17810.01) and, with respect to any domestic constituent
corporation, Section 1113, Chapter 12 (commencing with Section
1200), and Chapter 13 (commencing with Section 1300) of Division
1 of Title 1 and, with respect to any domestic constituent limited
partnership, Article 11.5 (commencing with Section 15911.20) of
Chapter 5.5 of Title 2, the merger proceedings may be in
accordance with the laws of the state or place of organization of
the surviving worker cooperative company or surviving other
business entity.

(b) If the surviving entity is a domestic worker cooperative
company or domestic other business entity, other than a domestic
corporation, the certificate of merger shall be filed as provided in
subdivision (a) of Section 17809.14, and thereupon, subject to
subdivision (a) of Section 17809.15, the merger shall be effective
as to each domestic constituent worker cooperative company and
domestic constituent other business entity. If the surviving entity
is a domestic corporation, the agreement of merger with
attachments shall be filed pursuant to subdivision (b) of Section
17809.14, and thereupon, subject to subdivision (a) of Section
17809.15, the merger shall be effective as to each domestic
constituent worker cooperative company and domestic constituent
other business entity unless another effective date is provided
pursuant to Article 10 (commencing with Section 17810.01), with
respect to any constituent corporation or constituent worker
cooperative company.

(c) If the surviving entity is a foreign limited liability company
or foreign other business entity, the merger shall become effective
in accordance with the laws of the jurisdiction where the surviving
worker cooperative company or surviving other business entity is
organized, but shall be effective as to any domestic disappearing
worker cooperative company as of the time of effectiveness in the
foreign jurisdiction upon the filing in this state of a certificate of
merger or agreement of merger pursuant to Section 17809.14.

(d) If a merger described in subdivision (c) or (d) also includes
a foreign disappearing worker cooperative company previously
registered for the transaction of intrastate business in this state
pursuant to Section 17809.02, the filing of the certificate of merger
or agreement of merger, as is applicable under Section 17809.14,
automatically has the effect of a cancellation of registration for
that foreign limited liability company pursuant to Section 17809.07
without the necessity of the filing of a certificate of cancellation.

(e) The provisions of subdivision (b) of Section 17809.12 and
Article 10 (commencing with Section 17810.01) apply to the rights
of the members of any of the constituent worker cooperative
companies that are domestic worker cooperative companies and
of any domestic worker cooperative company that is a parent of
any foreign constituent worker cooperative company.

(f) If the surviving entity is a foreign limited liability company
or foreign other business entity, the surviving entity shall file the
following with the Secretary of State:

(1) An agreement that it may be served in this state in a
proceeding for the enforcement of an obligation of any constituent
entity and in a proceeding to enforce the rights of any holder of a
dissenting interest or dissenting shares in a constituent domestic
worker cooperative company or domestic other business entity.

(2) An irrevocable appointment of the Secretary of State as its
agent for service of process, and an address to which process may
be forwarded.

(3) An agreement that it will promptly pay the holder of any
dissenting interest or dissenting share in a constituent domestic
worker cooperative company or domestic other business entity the
amount to which that person is entitled under the laws of this state.

begin insert 17809.18. end insert   

Whenever a domestic or other business entity having
any real property in this state merges with another worker
cooperative company or other business entity pursuant to the laws
of this state or of the state or place where any constituent worker
cooperative company or constituent other business entity was
organized, and the laws of the state or place of organization,
including this state of any disappearing worker cooperative
company or disappearing other business entity provide
substantially that the making and filing of the agreement of merger
or certificate of merger vests in the surviving worker cooperative
company or surviving other business entity all the real property
of any disappearing worker cooperative company and disappearing
other business entity, the filing for record in the office of the county
recorder of any county in this state where any of the real property
of the disappearing worker cooperative company or disappearing
other business entity is located of either of the following shall
evidence record ownership in the surviving worker cooperative
company or surviving other business entity of all interest of the
disappearing worker cooperative company or disappearing other
business entity in and to the real property located in that county
in which both of the following occur:

(a) A certificate of merger certified by the Secretary of State,
or other certificate prescribed by the Secretary of State.

(b) A copy of the agreement of merger or certificate of merger,
certified by the Secretary of State or an authorized public official
of the state or place pursuant to the laws of which the merger is
effected.

begin insert 17809.19. end insert   

(a) Upon a merger pursuant to this article, a
surviving domestic or other business entity shall be deemed to
have assumed the liability of each disappearing domestic or other
business entity that is taxed under Part 10 (commencing with
Section 17001) or Part 11 (commencing with Section 23001) of
Division 2 of the Revenue and Taxation Code for the following:

(1) To prepare and file, or to cause to be prepared and filed,
tax and information returns otherwise required of that disappearing
entity as specified in Chapter 2 (commencing with Section 18501)
of Part 10.2 of Division 2 of the Revenue and Taxation Code.

(2) To pay any tax liability determined to be due.

(b) If the surviving entity is a domestic worker cooperative
company, domestic corporation, or registered worker cooperative
partnership or a foreign limited liability company, foreign limited
liability partnership, or foreign corporation that is registered or
qualified to do business in this state, the Secretary of State shall
notify the Franchise Tax Board of the merger.

 

Article begin insert 10. end insert   Dissenters’ Rights

 

begin insert 17810.01. end insert   

(a) For purposes of this article, “reorganization”
refers to any of the following:

(1) A conversion pursuant to Article 9 (commencing with Section
17809.01).

(2) A merger pursuant to Article 9 (commencing with Section
17809.01).

(3) The acquisition by one worker cooperative company in
exchange, in whole or in part, for its membership interests, or the
membership interests or equity securities of a worker cooperative
company or other business entity that is in control of the acquiring
worker cooperative company, of membership interests or equity
securities of another worker cooperative company or other business
entity if, immediately after the acquisition, the acquiring worker
cooperative company has control of the other worker cooperative
company or other business entity.

(4) The acquisition by one worker cooperative company in
exchange, in whole or in part, for its membership interests, or the
membership interests or equity securities of a worker cooperative
company or other business entity which is in control of the
acquiring worker cooperative company, or for its debt securities,
or debt securities of a worker cooperative company or other
business entity which is in control of the acquiring worker
cooperative company, that are not adequately secured and that
have a maturity date in excess of five years after the consummation
of the acquisition, or both, of all or substantially all of the assets
of another worker cooperative company or other business entity.

(b) For purposes of this article, “control” means the possession,
direct or indirect, of the power to direct or cause the direction of
the management and policies of a worker cooperative company
or other business entity.

begin insert 17810.02. end insert   

(a) If the approval of outstanding membership
interests is required for a worker cooperative company to
participate in a reorganization, pursuant to the worker cooperative
company agreement, or otherwise, then each member of the worker
cooperative company holding those interests may, by complying
with this article, require the worker cooperative company to
purchase for cash, at its fair market value, the interest owned by
the member in the worker cooperative company, if the interest is
a dissenting interest as defined in subdivision (b). The fair market
value shall be determined as of the day before the first
announcement of the terms of the proposed reorganization,
excluding any appreciation or depreciation in consequence of the
proposed reorganization.

(b) As used in this article, “dissenting interest” means the
interest of a member that satisfies all of the following conditions:

(1) Either:

(A) Was not, immediately prior to the reorganization, either (i)
listed on any national securities exchange certified by the
Commissioner of Corporations under subdivision (o) of Section
25100, or (ii) listed on the list of OTC margin stocks issued by the
Board of Governors of the Federal Reserve System, provided that
in either instance the worker cooperative company whose
outstanding interests are so listed provides, in its notice to members
requesting their approval of the proposed reorganization, a
summary of the provisions of this section and Sections 17810.03,
17810.04, 17810.05, and 17810.06.

(B) If the interest is of a class of interests listed as described in
clause (i) or (ii) of subparagraph (A), demands for payment are
filed with respect to 5 percent or more of the outstanding interests
of that class.

(2) Was outstanding on the date for the determination of
members entitled to vote on the reorganization.

(3) Either:

(A) Was not voted in favor of the reorganization.

(B) If the interest is described in clause (i) or (ii) of
subparagraph (A) of paragraph (1), was voted against the
reorganization; provided, however, that subparagraph (A) rather
than this subparagraph applies in any event where the approval
for the proposed reorganization is sought by written consent rather
than at a meeting.

(4) The member has demanded that the interest be purchased
by the worker cooperative company at its fair market value in
accordance with Section 17810.03.

(5) The member has submitted the interest for endorsement, if
applicable, in accordance with Section 17810.04.

(c) As used in this article, “dissenting member” means the
recordholder of a dissenting interest, and includes an assignee of
record of that interest.

begin insert 17810.03. end insert   

(a) If members have a right under Section 17810.02,
subject to compliance with paragraphs (4) and (5) of subdivision
(b) of Section 17810.02, to require the worker cooperative company
to purchase their membership interests for cash, the worker
cooperative company shall mail to each member a notice of the
approval of the reorganization by the requisite vote or consent of
the members, within 10 days after the date of the approval,
accompanied by a copy of this section and Sections 17810.01,
17810.02, 17810.04, and 17810.05, a statement of the price
determined by the worker cooperative company to represent the
fair market value of its outstanding interests, and a brief
description of the procedure to be followed if the member desires
to exercise the member’s rights under those sections. The statement
of price constitutes an offer by the worker cooperative company
to purchase at the price stated any dissenting interests as defined
in subdivision (b) of Section 17810.02, unless they lose their status
as dissenting interests under Section 17810.11.

(b) Any member who has a right to require the worker
cooperative company to purchase the member’s interest for cash
under Section 17810.02, subject to compliance with paragraphs
(4) and (5) of subdivision (b) of Section 17810.02, and who desires
the worker cooperative company to purchase that interest, shall
make written demand upon the worker cooperative company for
the purchase of that interest and the payment to the member in
cash of its fair market value. The demand is not effective for any
purpose unless it is received by the worker cooperative company
or any transfer agent thereof (1) in the case of interests described
in clause (i) or (ii) of subparagraph (A) of paragraph (1) of
subdivision (b) of Section 17810.02, not later than the date of the
members’ meeting to vote upon the reorganization, or (2) in any
other case, within 30 days after the date on which notice of the
approval of the reorganization by the requisite vote or consent of
the members is mailed by the worker cooperative company to the
members.

(c) The demand shall state the number or amount of the
member’s interest in the worker cooperative company and shall
contain a statement of what the member claims to be the fair market
value of that interest on the day before the announcement of the
proposed reorganization. The statement of fair market value
constitutes an offer by the member to sell the interest at such price.

begin insert 17810.04. end insert   

Within 30 days after the date on which notice of the
approval of the outstanding interests of the worker cooperative
company is mailed to the member pursuant to subdivision (a) of
Section 17810.03, the member shall submit to the worker
cooperative company at its principal office or at the office of any
transfer agent thereof, if the interest is evidenced by a certificate,
the member’s certificate representing the interest which the
member demands that the worker cooperative company purchase,
to be stamped or endorsed with a statement that the interest is a
dissenting interest or to be exchanged for certificates of
appropriate denominations so stamped or endorsed, or if the
interest is not evidenced by a certificate, written notice of the
number or amount of interest which the member demands that the
worker cooperative company purchase. Upon subsequent transfers
of the dissenting interest on the books of the worker cooperative
company, the new certificates or other written statement issued
therefor shall bear a like statement, together with the name of the
original holder of the dissenting interest.

begin insert 17810.05. end insert   

(a) If the worker cooperative company and the
dissenting member agree that the member’s interest is a dissenting
interest and agree upon the price to be paid for the dissenting
interest, the dissenting member is entitled to the agreed price with
interest thereon at the legal rate on judgments from the date of
consummation of the reorganization. All agreements fixing the
fair market value of any dissenting member’s interest as between
the worker cooperative company and that member shall be in
writing and filed in the records of the worker cooperative company.

(b) Subject to the provisions of Section 17810.08, payment of
the fair market value for a dissenting interest shall be made within
30 days after the amount has been agreed to or within 30 days
after any statutory or contractual conditions to the reorganization
are satisfied, whichever is later, and in the case of dissenting
interests evidenced by certificates of interest, subject to surrender
of such certificates of interest, unless provided otherwise by
agreement.

begin insert 17810.06. end insert   

(a) If the worker cooperative company denies that
a membership interest is a dissenting interest, or the worker
cooperative company and a dissenting member fail to agree upon
the fair market value of a dissenting interest, then the member or
any interested worker cooperative company, within six months
after the date when notice of the approval of the reorganization
by the requisite vote or consent of the members was mailed to the
member, but not later, may file a complaint in the superior court
of the proper county praying the court to determine whether the
interest is a dissenting interest, or the fair market value of the
dissenting interest, or both, or may intervene in any action pending
on such a complaint.

(b) Two or more dissenting members may join as plaintiffs or
be joined as defendants in any of those actions and two or more
of those actions may be consolidated.

(c) On the trial of the action, the court shall determine the issues.
If the status of the membership interest as a dissenting interest is
in issue, the court shall first determine that issue. If the fair market
value of the dissenting interest is in issue, the court shall determine,
or shall appoint one or more impartial appraisers to determine,
the fair market value of the dissenting interest.

begin insert 17810.07. end insert   

(a) If the court appoints an appraiser or appraisers,
they shall proceed forthwith to determine the fair market value
per interest of the outstanding membership interests of the worker
cooperative company, by class if necessary. Within the time fixed
by the court, the appraisers, or a majority of them, shall make and
file a report in the office of the clerk of the court. Thereupon, on
the motion of any party, the report shall be submitted to the court
and considered on such additional evidence as the court considers
relevant. If the court finds the report reasonable, the court may
confirm it.

(b) If a majority of the appraisers appointed fails to make and
file a report within 30 days from the date of their appointment, or
within a further time as may be allowed by the court, or the report
is not confirmed by the court, the court shall determine the fair
market value per interest of the outstanding membership interests
of the worker cooperative company, by class if necessary.

(c) Subject to Section 17810.08, judgment shall be rendered
against the worker cooperative company for payment of an amount
equal to the fair market value, as determined by the court, of each
dissenting interest that any dissenting member who is a party, or
has intervened, is entitled to require the worker cooperative
company to purchase, with interest thereon at the legal rate on
judgments from the date of consummation of the reorganization.

(d) Any of those judgments shall be payable forthwith, provided,
however, that with respect to membership interests evidenced by
transferable certificates of interest, only upon the endorsement
and delivery to the worker cooperative company of those
certificates representing the interests described in the judgment.
Any party may appeal from the judgment.

(e) The costs of the action, including reasonable compensation
for the appraisers, to be fixed by the court, shall be assessed or
apportioned as the court considers equitable, but, if the appraisal
exceeds the price offered by the worker cooperative company, the
worker cooperative company shall pay the costs, including, in the
discretion of the court, if the value awarded by the court for the
dissenting interest is more than 125 percent of the price offered
by the worker cooperative company under subdivision (a) of
Section 17810.02, attorney’s fees and fees of expert witnesses.

begin insert 17810.08. end insert   

To the extent that the payment to dissenting members
of the fair market value of their dissenting interests would require
the dissenting members to return payment or a portion of the
payment by reason of Section 17810.09 or the Uniform Fraudulent
Transfer Act (Chapter 1 (commencing with Section 3439) of Title
2 of Part 2 of Division 4 of the Civil Code), then that payment or
portion thereof shall not be made and the dissenting members shall
become creditors of the worker cooperative company for the
amount not paid, together with interest thereon at the legal rate
on judgments until the date of payment, but subordinate to all
other creditors in any proceeding relating to the winding up and
dissolution of the worker cooperative company, such debt to be
payable when permissible.

begin insert 17810.09. end insert   

Any cash distributions made by a worker cooperative
company to a dissenting member after the date of consummation
of the reorganization, but prior to any payment by the worker
cooperative company for that dissenting member’s interest, shall
be credited against the total amount to be paid by the worker
cooperative company for such dissenting interest.

begin insert 17810.10. end insert   

Except as expressly limited by this article, dissenting
members shall continue to have all the rights and privileges
incident to their interests immediately prior to the reorganization,
including worker cooperative, until payment by the worker
cooperative company for their dissenting interests. A dissenting
member may not withdraw a demand for payment unless the worker
cooperative company consents thereto.

begin insert 17810.11. end insert   

A dissenting interest loses its status as a dissenting
interest and the holder thereof ceases to be a dissenting member
and ceases to be entitled to require the worker cooperative
company to purchase the interest upon the happening of any of
the following:

(a) The worker cooperative company abandons the
reorganization.

Upon abandonment of the reorganization, the worker cooperative
company shall pay, on demand, to any dissenting member who
has initiated proceeding in good faith under this article, all
reasonable expenses incurred in such proceedings and reasonable
attorney’s fees.

(b) The interest is transferred prior to its submission for
endorsement in accordance with Section 17810.04.

(c) The dissenting member and the worker cooperative company
do not agree upon the status of the interest as a dissenting interest
or upon the purchase price of the dissenting interest, and neither
files a complaint nor intervenes in a pending action, as provided
in Section 17810.06, within six months after the date upon which
notice of the approval of the reorganization by the requisite vote
or consent of members was mailed to the member.

(d) The dissenting member, with the consent of the worker
cooperative company, withdraws the member’s demand for
purchase of the dissenting interest.

begin insert 17810.12. end insert   

If litigation is instituted to test the sufficiency or
regularity of the vote or consent of the members in authorizing a
reorganization, any proceedings under Sections 17810.06 and
17810.07 shall be suspended until final determination of that
litigation.

begin insert 17810.13. end insert   

(a) This article applies to the following:

(1) A domestic worker cooperative company formed on or after
January 1, 2015.

(2) A worker cooperative company if the operating agreement
so provides or if all managers and a majority of the members, if
it is a manager-managed worker cooperative company, or a
majority, if it is a member-managed worker cooperative company,
determine that this article shall apply.

(b) This article does not apply to membership interests governed
by operating agreements whose terms and provisions specifically
set forth the amount to be paid in respect of those interests in the
event of a reorganization of the worker cooperative company, or
to any worker cooperative company with 35 or fewer members if
all the members have waived the application of this article in
writing, whether in an operating agreement or otherwise, provided
that if, at the time of the reorganization, the worker cooperative
company had more than 35 members, any waiver shall be
ineffective as to that reorganization.

begin insert 17810.14. end insert   

(a) No member of a worker cooperative company
who has a right under this article to demand payment of cash for
the interest owned by a member in a worker cooperative company
shall have any right at law or in equity to attack the validity of the
reorganization, or to have the reorganization set aside or
rescinded, except in an action to test whether the vote or consent
of members required to authorize or approve the reorganization
has been obtained in accordance with the procedures established
therefor by the operating agreement of the worker cooperative
company.

(b) If one of the parties to a reorganization is directly or
indirectly controlled by, or under common control with, another
party to the reorganization, subdivision (a) shall not apply to any
member of the controlled party who has not demanded payment
of cash for the member’s interest pursuant to this article; but if
the member institutes any action to attack the validity of the
reorganization or to have the reorganization set aside or rescinded,
the member shall not thereafter have any right to demand payment
of cash for the member’s interest pursuant to this article.

(c) If one of the parties to a reorganization is directly or
indirectly controlled by, or under common control with, another
party to the reorganization, then, in any action to attack the validity
of the reorganization or to have the reorganization set aside or
rescinded, both of the following apply:

(1) A party to a reorganization that controls another party to
a reorganization shall have the burden of proving that the
transaction is just and reasonable as to the members of the
controlled party.

(2) A person that controls two or more parties to a
reorganization shall have the burden of proving that the
transaction is just and reasonable as to the members of any party
so controlled.

(d) Subdivisions (b) and (c) shall not apply if a majority of the
members other than members who are directly or indirectly
controlled by, or under common control with, another party to the
reorganization approve or consent to the reorganization.

(e) This section shall not prevent a member of a worker
cooperative company that is a party to a reorganization from
bringing an action against a manager of the worker cooperative
company, the worker cooperative company, or any person
controlling a manager at law or in equity as to any matters,
including, without limitation, an action for breach of fiduciary
obligation or fraud, other than to attack the validity of the
reorganization or to have the reorganization set aside or rescinded.

 

Article begin insert 11. end insert   Class Provisions

 

begin insert 17811.01. end insert   

The articles of organization or the operating
agreement may provide for the creation of classes of members
having those relative rights, powers, and duties as the articles of
organization or operating agreement may provide, including rights,
powers, and duties senior to other classes of members.

 

Article begin insert 12. end insert   Miscellaneous Provisions

 

begin insert 17812.05. end insert   

This division, or any part, chapter, article, or section
thereof, may at any time be amended or repealed.

begin insert 17812.06. end insert   

(a) If a manager or member required by this division
to execute or file any document fails, after demand, to do so within
a reasonable time or refuses to do so, any other manager or
member, or any person appointed by a court of competent
jurisdiction, may prepare, execute, and file that document with the
Secretary of State.

(b) If there is any dispute concerning the filing of a document,
or the failure to file a document, any manager or member may
petition the superior court to direct the execution of the document.

(c) If the court finds that it is proper for the document to be
executed and that any person so designated has failed or refused
to execute the document, or if the court determines that any
document should be filed, it shall order a party to file the document,
on a form prescribed by the Secretary of State if appropriate, as
ordered by the court.

(d) In any action under this section, if the court finds the failure
of the manager or member to comply with the requirement to file
any document to have been without justification, the court may
award an amount sufficient to reimburse the managers or members
bringing the action for the reasonable expenses incurred by them,
including attorney’s fees, in connection with the action or
proceeding.

(e) Any member who is not a manager, or any person filing any
document under this section, shall state the statutory authority
after the signature on the appropriate document.

begin insert 17812.07. end insert   

(a) Every worker cooperative company that neglects,
fails, or refuses to keep or cause to be kept or maintained the
documents, books, and records required by Section 17801.13 to
be kept or maintained shall be subject to a penalty of twenty-five
dollars ($25) for each day that the failure or refusal continues,
beginning 30 days after receipt of written request by any member
that the duty be performed, up to a maximum of one thousand five
hundred dollars ($1,500). The penalty shall be paid to the member
or members jointly making the request for performance of the duty
and damaged by the neglect, failure, or refusal, if suit therefor is
commenced within 90 days after the written request is made; but
the maximum daily penalty because of failure to comply with any
number of separate requests made on any one day or for the same
act shall be two hundred fifty dollars ($250).

(b) Upon the failure of a worker cooperative company, or a
foreign limited liability company registered to transact intrastate
business in this state, to file the statement required by Section
17802.09, the Secretary of State shall provide a notice of that
delinquency to the worker cooperative company. The notice shall
also contain information concerning the application of this section,
advise the worker cooperative company of the penalty imposed by
this subdivision for failure to timely file the required statement
after notice of delinquency has been provided by the Secretary of
State, and shall advise the worker cooperative company of its right
to request relief from the Secretary of State because of reasonable
cause or unusual circumstances that justify the failure to file. If,
within 60 days after providing notice of the delinquency, a
statement pursuant to Section 17802.09 has not been filed by the
worker cooperative company, the worker cooperative company
shall be subject to a penalty of two hundred fifty dollars ($250).

begin insert 17812.08. end insert   

Any penalty prescribed by Section 17812.07 shall
be in addition to any remedy by injunction or action for damages
or by writ of mandate for the nonperformance of acts and duties
enjoined by law upon the worker cooperative company or its
managers, including, without limitation, the remedies provided in
subdivisions (f) and (g) of Section 17804.10. The court in which
an action for any penalty is brought may reduce, remit, or suspend
the penalty on any terms and conditions as it may deem reasonable
when it is made to appear that the neglect, failure, or refusal was
inadvertent or excusable.

begin insert 17812.09. end insert   

(a) Upon the failure of a worker cooperative
company to file the statement required by Section 17802.09, the
Secretary of State shall provide a notice of the delinquency to the
worker cooperative company. The notice shall also contain
information concerning the application of this section, advise the
worker cooperative company of the penalty imposed by Section
19141 of the Revenue and Taxation Code for failure to timely file
the required statement after notice of delinquency has been mailed
by the Secretary of State, and shall advise the worker cooperative
company of its right to request relief from the Secretary of State
because of reasonable cause or unusual circumstances that justify
such failure to file. If, within 60 days after providing notice of the
delinquency, a statement pursuant to Section 17802.09 has not
been filed by the worker cooperative company, the Secretary of
State shall certify the name of such worker cooperative company
to the Franchise Tax Board.

(b) Upon certification pursuant to subdivision (a), the Franchise
Tax Board shall assess against the worker cooperative company
the penalty provided in Section 19141 of the Revenue and Taxation
Code.

(c) The penalty provided by Section 19141 of the Revenue and
Taxation Code shall not apply to a worker cooperative company
that on or prior to the date of certification pursuant to subdivision
(a) has been canceled, has been merged into another worker
cooperative company, other business entity, foreign other business
entity, or has converted into another foreign business entity, foreign
other business entity.

(d) The penalty herein provided shall not apply and the
Secretary of State need not provide notice of the delinquency to a
worker cooperative company the powers, rights, and privileges of
which have been suspended by the Franchise Tax Board pursuant
to Section 23301, 23301.5, or 23775 of the Revenue and Taxation
Code on or prior to, and remain suspended on, the last day of the
filing period pursuant to Section 17802.09. The Secretary of State
need not provide notice of the filing requirement pursuant to
Section 17802.09 to a worker cooperative company the powers,
rights, and privileges of which have been so suspended by the
Franchise Tax Board on or prior to, and remain suspended on,
the day the Secretary of State prepares the notice for sending.

(e) If, after certification pursuant to subdivision (a) the Secretary
of State finds (1) the required statement was filed or the required
fee was paid before the expiration of the 60-day period after
providing notice of the delinquency, or (2) the failure to provide
notice of delinquency was due to an error of the Secretary of State,
the Secretary of State shall promptly decertify the name of the
worker cooperative company to the Franchise Tax Board. The
Franchise Tax Board shall then promptly abate any penalty
assessed against the worker cooperative company pursuant to
Section 19141 of the Revenue and Taxation Code.

(f) If the Secretary of State determines that the failure of a
worker cooperative company to file the statement required by
Section 17802.09 is excusable because of reasonable cause or
unusual circumstances that justify such failure, the Secretary of
State may waive the penalty imposed by this section and by Section
19141 of the Revenue and Taxation Code, in which case the
Secretary of State shall not certify the name of the worker
cooperative company to the Franchise Tax Board, or if already
certified, the Secretary of State shall promptly decertify the name
of the worker cooperative company.

begin insert 17812.10. end insert   

(a) A worker cooperative company that (1) fails to
file a statement pursuant to Section 17802.09 for an applicable
filing period, (2) has not filed a statement pursuant to Section
17802.09 during the preceding 24 months, and (3) was certified
for penalty pursuant to Section 17812.09 for the same filing period,
shall be subject to suspension pursuant to this section rather than
to penalty pursuant to Section 17812.09.

(b) When subdivision (a) is applicable, the Secretary of State
shall notify the worker cooperative company that its powers, rights,
and privileges will be suspended after 60 days if it fails to file a
statement pursuant to Section 17802.09.

(c) After the expiration of the 60-day period without any
statement filed pursuant to Section 17802.09, the Secretary of State
shall notify the Franchise Tax Board of the suspension, and shall
provide a notice of the suspension to the worker cooperative
company and thereupon, except for the purpose of amending the
articles of organization to set forth a new name, the powers, rights,
and privileges of the worker cooperative company are suspended.

(d) A statement pursuant to Section 17802.09 may be filed
notwithstanding suspension of the powers, rights, and privileges
pursuant to this section or Section 23301 or 23301.5 of the Revenue
and Taxation Code. Upon the filing of a statement pursuant to
Section 17802.09 by a worker cooperative company that has
suffered suspension pursuant to this section, the Secretary of State
shall certify that fact to the Franchise Tax Board and the worker
cooperative company may thereupon be relieved from suspension
unless the worker cooperative company is held in suspension by
the Franchise Tax Board by reason of Section 23301 or 23301.5
of the Revenue and Taxation Code.

begin insert 17812.12. end insert   

(a) A worker cooperative company is liable for a
civil penalty in an amount not exceeding one million dollars
($1,000,000) if the worker cooperative company does both of the
following:

(1) Has actual knowledge that a member, officer, manager, or
agent of the worker cooperative company does any of the following:

(A) Makes, publishes, or posts, or has made, published, or
posted, either generally or privately to the shareholders or other
persons, either of the following:

(i) An oral, written, or electronically transmitted report, exhibit,
notice, or statement of its affairs or pecuniary condition that
contains a material statement or omission that is false and intended
to give membership shares in the worker cooperative company a
materially greater or a materially less apparent market value than
they really possess.

(ii) An oral, written, or electronically transmitted report,
prospectus, account, or statement of operations, values, business,
profits, or expenditures that includes a material false statement
or omission intended to give membership shares in the worker
cooperative company a materially greater or a materially less
apparent market value than they really possess.

(B) Refuses or has refused to make any book entry or post any
notice required by law in the manner required by law.

(C) Misstates or conceals or has misstated or concealed from
a regulatory body a material fact in order to deceive a regulatory
body to avoid a statutory or regulatory duty, or to avoid a statutory
or regulatory limit or prohibition.

(2) Within 30 days after actual knowledge is acquired of the
actions described in paragraph (1), the worker cooperative
company knowingly fails to do both of the following:

(A) Notify the Attorney General or appropriate government
agency in writing, unless the worker cooperative company has
actual knowledge that the Attorney General or appropriate
government agency has been notified.

(B) Notify its members and investors in writing, unless the
worker cooperative company has actual knowledge that the
members and investors have been notified.

(b) The requirement for notification under this section is not
applicable if the action taken or about to be taken by the worker
cooperative company, or by a member, officer, manager, or agent
of the worker cooperative company under paragraph (1) of
subdivision (a), is abated within the time prescribed for reporting,
unless the appropriate government agency requires disclosure by
regulation.

(c) If the action reported to the Attorney General pursuant to
this section implicates the government authority of an agency other
than the Attorney General, the Attorney General shall promptly
forward the written notice to that agency.

(d) If the Attorney General was not notified pursuant to
subparagraph (A) of paragraph (2) of subdivision (a), but the
worker cooperative company reasonably and in good faith believed
that it had complied with the notification requirements of this
section by notifying a government agency listed in paragraph (5)
of subdivision (e), no penalties shall apply.

(e) For purposes of this section:

(1) “Manager” means a person defined by subdivision (m) of
Section 17801.01 having both of the following:

(A) Management authority over the worker cooperative
company.

(B) Significant responsibility for an aspect of the worker
cooperative company that includes actual authority for the
financial operations or financial transactions of the worker
cooperative company.

(2) “Agent” means a person or entity authorized by the worker
cooperative company to make representations to the public about
the worker cooperative company’s financial condition and who is
acting within the scope of the agency when the representations
are made.

(3) “Member” means a person as defined by subdivision (o) of
Section 17801.01 that is a member of the worker cooperative
company at the time the disclosure is required pursuant to
subparagraph (B) of paragraph (2) of subdivision (a).

(4) “Notify its members” means to give sufficient description
of an action taken or about to be taken that would constitute acts
or omissions as described in paragraph (1) of subdivision (a). A
notice or report filed by a worker cooperative company with the
United States Securities and Exchange Commission that relates
to the facts and circumstances giving rise to an obligation under
paragraph (1) of subdivision (a) shall satisfy all notice
requirements arising under paragraph (2) of subdivision (a) but
shall not be the exclusive means of satisfying the notice
requirements, provided that the Attorney General or appropriate
agency is informed in writing that the filing has been made together
with a copy of the filing or an electronic link where it is available
online without charge.

(5) “Appropriate government agency” means an agency on the
following list that has regulatory authority with respect to the
financial operations of a worker cooperative company:

(A) Department of Business Oversight.

(B) Department of Insurance.

(C) Department of Financial Institutions.

(D) Department of Managed Health Care.

(E) United States Securities and Exchange Commission.

(6) “Actual knowledge of the worker cooperative company”
means the knowledge a member, officer, or manager of a worker
cooperative company actually possesses or does not consciously
avoid possessing, based on an evaluation of information provided
pursuant to the worker cooperative company’s disclosure controls
and procedures.

(7) “Refuse to make a book entry” means the intentional
decision not to record an accounting transaction when all of the
following conditions are satisfied:

(A) The independent auditors required recordation of an
accounting transaction during the course of an audit.

(B) The audit committee of the worker cooperative company
has not approved the independent auditor’s recommendation.

(C) The decision is made for the primary purpose of rendering
the financial statements materially false or misleading.

(8) “Refuse to post any notice required by law” means an
intentional decision not to post a notice required by law when all
of the following conditions exist:

(A) The decision not to post the notice has not been approved
by the worker cooperative company’s audit committee.

(B) The decision is intended to give the membership shares in
the worker cooperative company a materially greater or a
materially less apparent market value than they really possess.

(9) “Misstate or conceal material facts from a regulatory body”
means an intentional decision not to disclose material facts when
all of the following conditions exist:

(A) The decision not to disclose material facts has not been
approved by the worker cooperative company’s audit committee.

(B) The decision is intended to give the membership shares in
the worker cooperative company a materially greater or a
materially less apparent market value than they really possess.

(10) “Material false statement or omission” means an untrue
statement of material fact or an omission to state a material fact
necessary in order to make the statements made under the
circumstances under which they were made not misleading.

(11) “Officer” means a person appointed pursuant to Section
17803.02, except an officer of a specified subsidiary worker
cooperative company who is not also an officer of the parent
worker cooperative company.

(f) This section only applies to worker cooperative companies
that are issuers, as defined in Section 2 of the federal
Sarbanes-Oxley Act of 2002 (15 U.S.C. Sec. 7201 et seq.).

(g) An action to enforce this section may only be brought by the
Attorney General or a district attorney or city attorney in the name
of the people of the State of California.

end insert

begin delete SEC. 5. end delete
begin insert SEC. 6. end insert   

Section 25100 of the Corporations Code is amended
to read:

25100.  

The following securities are exempted from Sections
25110, 25120, and 25130:

(a) Any security (including a revenue obligation) issued or
guaranteed by the United States, any state, any city, county, city
and county, public district, public authority, public corporation,
public entity, or political subdivision of a state or any agency or
corporate or other instrumentality of any one or more of the
foregoing; or any certificate of deposit for any of the foregoing.

(b) Any security issued or guaranteed by Canada, any Canadian
province, any political subdivision or municipality of that province,
or by any other foreign government with which the United States
currently maintains diplomatic relations, if the security is
recognized as a valid obligation by the issuer or guarantor; or any
certificate of deposit for any of the foregoing.

(c) Any security issued or guaranteed by and representing an
interest in or a direct obligation of a national bank or a bank or
trust company incorporated under the laws of this state, and any
security issued by a bank to one or more other banks and
representing an interest in an asset of the issuing bank.

(d) Any security issued or guaranteed by a federal savings
association or federal savings bank or federal land bank or joint
land bank or national farm loan association or by any savings
association, as defined in subdivision (a) of Section 5102 of the
Financial Code, which is subject to the supervision and regulation
of the Commissioner of Financial Institutions of this state.

(e) Any security (other than an interest in all or portions of a
parcel or parcels of real property which are subdivided land or a
subdivision or in a real estate development), the issuance of which
is subject to authorization by the Insurance Commissioner, the
Public Utilities Commission, or the Real Estate Commissioner of
this state.

(f) Any security consisting of any interest in all or portions of
a parcel or parcels of real property which are subdivided lands or
a subdivision or in a real estate development; provided that the
exemption in this subdivision shall not be applicable to: (1) any
investment contract sold or offered for sale with, or as part of, that
interest, or (2) any person engaged in the business of selling,
distributing, or supplying water for irrigation purposes or domestic
use that is not a public utility except that the exemption is
applicable to any security of a mutual water company (other than
an investment contract as described in paragraph (1)) offered or
sold in connection with subdivided lands pursuant to Chapter 2
(commencing with Section 14310) of Part 7 of Division 3 of Title
1.

(g) Any mutual capital certificates or savings accounts, as
defined in the Savings Association Law, issued by a savings
association, as defined by subdivision (a) of Section 5102 of the
Financial Code, and holding a license or certificate of authority
then in force from the Commissioner of Financial Institutions of
this state.

(h) Any security issued or guaranteed by any federal credit
union, or by any credit union organized and supervised, or
regulated, under the Credit Union Law.

(i) Any security issued or guaranteed by any railroad, other
common carrier, public utility, or public utility holding company
which is (1) subject to the jurisdiction of the Interstate Commerce
Commission or its successor or (2) a holding company registered
with the Securities and Exchange Commission under the Public
Utility Holding Company Act of 1935 or a subsidiary of that
company within the meaning of that act or (3) regulated in respect
of the issuance or guarantee of the security by a governmental
authority of the United States, of any state, of Canada or of any
Canadian province; and the security is subject to registration with
or authorization of issuance by that authority.

(j) Any security (except evidences of indebtedness, whether
interest bearing or not) of an issuer (1) organized exclusively for
educational, benevolent, fraternal, religious, charitable, social, or
reformatory purposes and not for pecuniary profit, if no part of the
net earnings of the issuer inures to the benefit of any private
shareholder or individual, or (2) organized as a chamber of
commerce or trade or professional association. The fact that
amounts received from memberships or dues or both will or may
be used to construct or otherwise acquire facilities for use by
members of the nonprofit organization does not disqualify the
organization for this exemption. This exemption does not apply
to the securities of any nonprofit organization if any promoter
thereof expects or intends to make a profit directly or indirectly
from any business or activity associated with the organization or
operation of that nonprofit organization or from remuneration
received from that nonprofit organization.

(k) Any agreement, commonly known as a “life income
contract,” of an issuer (1) organized exclusively for educational,
benevolent, fraternal, religious, charitable, social, or reformatory
purposes and not for pecuniary profit and (2) which the
commissioner designates by rule or order, with a donor in
consideration of a donation of property to that issuer and providing
for the payment to the donor or persons designated by him or her
of income or specified periodic payments from the donated
property or other property for the life of the donor or those other
persons.

(l) Any note, draft, bill of exchange, or banker’s acceptance
which is freely transferable and of prime quality, arises out of a
current transaction or the proceeds of which have been or are to
be used for current transactions, and which evidences an obligation
to pay cash within nine months of the date of issuance, exclusive
of days of grace, or any renewal of that paper which is likewise
limited, or any guarantee of that paper or of that renewal, provided
that the paper is not offered to the public in amounts of less than
twenty-five thousand dollars ($25,000) in the aggregate to any one
purchaser. In addition, the commissioner may, by rule or order,
exempt any issuer of any notes, drafts, bills of exchange or banker’s
acceptances from qualification of those securities when the
commissioner finds that the qualification is not necessary or
appropriate in the public interest or for the protection of investors.

(m) Any security issued by any corporation organized and
existing under the provisions of Chapter 1 (commencing with
Section 54001) of Division 20 of the Food and Agricultural Code.

(n) Any beneficial interest in an employees’ pension,
profit-sharing, stock bonus or similar benefit plan which meets the
requirements for qualification under Section 401 of the federal
Internal Revenue Code or any statute amendatory thereof or
supplementary thereto. A determination letter from the Internal
Revenue Service stating that an employees’ pension, profit-sharing,
stock bonus or similar benefit plan meets those requirements shall
be conclusive evidence that the plan is an employees’ pension,
profit-sharing, stock bonus or similar benefit plan within the
meaning of the first sentence of this subdivision until the date the
determination letter is revoked in writing by the Internal Revenue
Service, regardless of whether or not the revocation is retroactive.

(o) Any security listed or approved for listing upon notice of
issuance on a national securities exchange, if the exchange has
been certified by rule or order of the commissioner and any warrant
or right to purchase or subscribe to the security. The exemption
afforded by this subdivision does not apply to securities listed or
approved for listing upon notice of issuance on a national securities
exchange, in a rollup transaction unless the rollup transaction is
an eligible rollup transaction as defined in Section 25014.7.

That certification of any exchange shall be made by the
commissioner upon the written request of the exchange if the
commissioner finds that the exchange, in acting on applications
for listing of common stock, substantially applies the minimum
standards set forth in either subparagraph (A) or (B) of paragraph
(1), and, in considering suspension or removal from listing,
substantially applies each of the criteria set forth in paragraph (2).

(1) Listing standards:

(A) (i) Shareholders’ equity of at least four million dollars
($4,000,000).

(ii) Pretax income of at least seven hundred fifty thousand
dollars ($750,000) in the issuer’s last fiscal year or in two of its
last three fiscal years.

(iii) Minimum public distribution of 500,000 shares (exclusive
of the holdings of officers, directors, controlling shareholders, and
other concentrated or family holdings), together with a minimum
of 800 public holders or minimum public distribution of 1,000,000
shares together with a minimum of 400 public holders. The
exchange may also consider the listing of a company’s securities
if the company has a minimum of 500,000 shares publicly held, a
minimum of 400 shareholders and daily trading volume in the
issue has been approximately 2,000 shares or more for the six
months preceding the date of application. In evaluating the
suitability of an issue for listing under this trading provision, the
exchange shall review the nature and frequency of that activity
and any other factors as it may determine to be relevant in
ascertaining whether the issue is suitable for trading. A security
that trades infrequently shall not be considered for listing under
this paragraph even though average daily volume amounts to 2,000
shares per day or more.

Companies whose securities are concentrated in a limited
geographical area, or whose securities are largely held in block by
institutional investors, normally may not be considered eligible
for listing unless the public distribution appreciably exceeds
500,000 shares.

(iv) Minimum price of three dollars ($3) per share for a
reasonable period of time prior to the filing of a listing application;
provided, however, in certain instances an exchange may favorably
consider listing an issue selling for less than three dollars ($3) per
share after considering all pertinent factors, including market
conditions in general, whether historically the issue has sold above
three dollars ($3) per share, the applicant’s capitalization, and the
number of outstanding and publicly held shares of the issue.

(v) An aggregate market value for publicly held shares of at
least three million dollars ($3,000,000).

(B) (i) Shareholders’ equity of at least four million dollars
($4,000,000).

(ii) Minimum public distribution set forth in clause (iii) of
subparagraph (A) of paragraph (1).

(iii) Operating history of at least three years.

(iv) An aggregate market value for publicly held shares of at
least fifteen million dollars ($15,000,000).

(2) Criteria for consideration of suspension or removal from
listing:

begin delete

(i)

end delete

begin insert (A) end insert  If a company that (A) has shareholders’ equity of less than
one million dollars ($1,000,000) has sustained net losses in each
of its two most recent fiscal years, or (B) has net tangible assets
of less than three million dollars ($3,000,000) and has sustained
net losses in three of its four most recent fiscal years.

begin delete

(ii)

end delete

begin insert (B) end insert  If the number of shares publicly held (excluding the holdings
of officers, directors, controlling shareholders and other
concentrated or family holdings) is less than 150,000.

begin delete

(iii)

end delete

begin insert (C) end insert  If the total number of shareholders is less than 400 or if the
number of shareholders of lots of 100 shares or more is less than
300.

begin delete

(iv)

end delete

begin insert (D) end insert  If the aggregate market value of shares publicly held is less
than seven hundred fifty thousand dollars ($750,000).

begin delete

(v)

end delete

begin insert (E) end insert  If shares of common stock sell at a price of less than three
dollars ($3) per share for a substantial period of time and the issuer
shall fail to effectuate a reverse stock split of the shares within a
reasonable period of time after being requested by the exchange
to take that action.

A national securities exchange, certified by rule or order of the
commissioner under this subdivision, shall file annual reports when
requested to do so by the commissioner. The annual reports shall
contain, by issuer: the variances granted to an exchange’s listing
standards, including variances from corporate governance and
voting rights’ standards, for any security of that issuer; the reasons
for the variances; a discussion of the review procedure instituted
by the exchange to determine the effect of the variances on
investors and whether the variances should be continued; and any
other information that the commissioner deems relevant. The
purpose of these reports is to assist the commissioner in
determining whether the quantitative and qualitative requirements
of this subdivision are substantially being met by the exchange in
general or with regard to any particular security.

The commissioner after appropriate notice and opportunity for
hearing in accordance with the provisions of the Administrative
Procedure Act, Chapter 5 (commencing with Section 11500) of
Part 1 of Division 3 of Title 2 of the Government Code, may, in
his or her discretion, by rule or order, decertify any exchange
previously certified that ceases substantially to apply the minimum
standards or criteria as set forth in paragraphs (1) and (2).

A rule or order of certification shall conclusively establish that
any security listed or approved for listing upon notice of issuance
on any exchange named in a rule or order of certification, and any
warrant or right to purchase or subscribe to that security, is exempt
under this subdivision until the adoption by the commissioner of
any rule or order decertifying the exchange.

(p) A promissory note secured by a lien on real property, which
is neither one of a series of notes of equal priority secured by
interests in the same real property nor a note in which beneficial
interests are sold to more than one person or entity.

(q) Any unincorporated interindemnity or reciprocal or
interinsurance contract, that qualifies under the provisions of
Section 1280.7 of the Insurance Code, between members of a
cooperative corporation, organized and operating under Part 2
(commencing with Section 12200) of Division 3 of Title 1, and
whose members consist only of physicians and surgeons licensed
in California, which contracts indemnify solely in respect to
medical malpractice claims against the members, and which do
not collect in advance of loss any moneys other than contributions
by each member to a collective reserve trust fund or for necessary
expenses of administration.

(1) Whenever it appears to the commissioner that any person
has engaged or is about to engage in any act or practice constituting
a violation of any provision of Section 1280.7 of the Insurance
Code, the commissioner may, in the commissioner’s discretion,
bring an action in the name of the people of the State of California
in the superior court to enjoin the acts or practices or to enforce
compliance with Section 1280.7 of the Insurance Code. Upon a
proper showing a permanent or preliminary injunction, a restraining
order, or a writ of mandate shall be granted and a receiver or
conservator may be appointed for the defendant or the defendant’s
assets.

(2) The commissioner may, in the commissioner’s discretion,
(A) make public or private investigations within or outside of this
state as the commissioner deems necessary to determine whether
any person has violated or is about to violate any provision of
Section 1280.7 of the Insurance Code or to aid in the enforcement
of Section 1280.7, and (B) publish information concerning the
violation of Section 1280.7.

(3) For the purpose of any investigation or proceeding under
this section, the commissioner or any officer designated by the
commissioner may administer oaths and affirmations, subpoena
witnesses, compel their attendance, take evidence, and require the
production of any books, papers, correspondence, memoranda,
agreements, or other documents or records which the commissioner
deems relevant or material to the inquiry.

(4) In case of contumacy by, or refusal to obey a subpoena
issued to, any person, the superior court, upon application by the
commissioner, may issue to the person an order requiring the
person to appear before the commissioner, or the officer designated
by the commissioner, to produce documentary evidence, if so
ordered, or to give evidence touching the matter under investigation
or in question. Failure to obey the order of the court may be
punished by the court as a contempt.

(5) No person is excused from attending or testifying or from
producing any document or record before the commissioner or in
obedience to the subpoena of the commissioner or any officer
designated by the commissioner, or in any proceeding instituted
by the commissioner, on the ground that the testimony or evidence
(documentary or otherwise), required of the person may tend to
incriminate the person or subject the person to a penalty or
forfeiture, but no individual may be prosecuted or subjected to any
penalty or forfeiture for or on account of any transaction, matter,
or thing concerning which the person is compelled, after validly
claiming the privilege against self-incrimination, to testify or
produce evidence (documentary or otherwise), except that the
individual testifying is not exempt from prosecution and
punishment for perjury or contempt committed in testifying.

(6) The cost of any review, examination, audit, or investigation
made by the commissioner under Section 1280.7 of the Insurance
Code shall be paid to the commissioner by the person subject to
the review, examination, audit, or investigation, and the
commissioner may maintain an action for the recovery of these
costs in any court of competent jurisdiction. In determining the
cost, the commissioner may use the actual amount of the salary or
other compensation paid to the persons making the review,
examination, audit, or investigation plus the actual amount of
expenses including overhead reasonably incurred in the
performance of the work.

The recoverable cost of each review, examination, audit, or
investigation made by the commissioner under Section 1280.7 of
the Insurance Code shall not exceed twenty-five thousand dollars
($25,000), except that costs exceeding twenty-five thousand dollars
($25,000) shall be recoverable if the costs are necessary to prevent
a violation of any provision of Section 1280.7 of the Insurance
Code.

(r) (1) Any shares or memberships issued by any corporation
organized and existing pursuant to the provisions of Part 2
(commencing with Section 12200) of Division 3 of Title 1,
provided the aggregate investment of any shareholder or member
in shares or memberships sold pursuant to this subdivision does
not exceed three hundred dollars ($300). This exemption does not
apply to the shares or memberships of that corporation if any
promoter thereof expects or intends to make a profit directly or
indirectly from any business or activity associated with the
corporation or the operation of the corporation or from
remuneration, other than reasonable salary, received from the
corporation. This exemption does not apply to nonvoting shares
or memberships of that corporation issued to any person who does
not possess, and who will not acquire in connection with the
issuance of nonvoting shares or memberships, voting power
(Section 12253) in the corporation. This exemption also does not
apply to shares or memberships issued by a nonprofit cooperative
corporation organized to facilitate the creation of an unincorporated
interindemnity arrangement that provides indemnification for
medical malpractice to its physician and surgeon members as set
forth in subdivision (q).

(2) Notwithstanding paragraph (1), any membership issued by
a worker cooperative company organized and existing pursuant to
the provisions of Division 2 (commencing with Section 17801.01)
of Title 2.6, provided the primary motivation of the purchaser is
to use or consume the products or services of the worker
cooperative company or to otherwise patronize the worker
cooperative company and is not primarily motivated by the
prospect of a return on investment, shall be exempted from Sections
25110, 25120, and 25130.

(s) Any security consisting of or representing an interest in a
pool of mortgage loans that meets each of the following
requirements:

(1) The pool consists of whole mortgage loans or participation
interests in those loans, which loans were originated or acquired
in the ordinary course of business by a national bank or federal
savings association or federal savings bank having its principal
office in this state, by a bank incorporated under the laws of this
state or by a savings association as defined in subdivision (a) of
Section 5102 of the Financial Code and which is subject to the
supervision and regulation of the Commissioner of Financial
Institutions, and each of which at the time of transfer to the pool
is an authorized investment for the originating or acquiring
institution.

(2) The pool of mortgage loans is held in trust by a trustee which
is a financial institution specified in paragraph (1) as trustee or
otherwise.

(3) The loans are serviced by a financial institution specified in
paragraph (1).

(4) The security is not offered in amounts of less than
twenty-five thousand dollars ($25,000) in the aggregate to any one
purchaser.

(5) The security is offered pursuant to a registration under the
Securities Act of 1933, or pursuant to an exemption under
Regulation A under that act, or in the opinion of counsel for the
issuer, is offered pursuant to an exemption under Section 4(2) of
that act.

(t) (1) Any security issued or guaranteed by and representing
an interest in or a direct obligation of an industrial loan company
incorporated under the laws of the state and authorized by the
Commissioner of Financial Institutions to engage in industrial loan
business.

(2) Any investment certificate in or issued by any industrial
loan company that is organized under the laws of a state of the
United States other than this state, that is insured by the Federal
Deposit Insurance Corporation, and that maintains a branch office
in this state.

begin delete SEC. 6. end delete
begin insert SEC. 7. end insert   

No reimbursement is required by this act pursuant to
Section 6 of Article XIII B of the California Constitution because
the only costs that may be incurred by a local agency or school
district will be incurred because this act creates a new crime or
infraction, eliminates a crime or infraction, or changes the penalty
for a crime or infraction, within the meaning of Section 17556 of
the Government Code, or changes the definition of a crime within
the meaning of Section 6 of Article XIII B of the California
Constitution.