110e american bar association adopted by the house of delegates february 11, 2008




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110E


AMERICAN BAR ASSOCIATION
ADOPTED BY THE HOUSE OF DELEGATES
FEBRUARY 11, 2008


RECOMMENDATION


RESOLVED, That the American Bar Association approves the Uniform Limited Cooperative Association Act, promulgated by the National Conference of Commissioners on Uniform State Laws in 2007 as an appropriate Act for those states desiring to adopt the specific substantive law suggested therein.


REPORT
Uniform Limited Cooperative Association Act

A Summary
The Uniform Limited Cooperative Association Act (ULCAA) is designed to promote rural development by creating the option of a statutorily-defined entity that combines traditional cooperative values with modern financing mechanisms, and by providing two distinct categories of members (patron members and investment members). The Act may also be useful in an urban setting, where individuals can use the cooperative structure to democratically own, run, and share in the benefit of their business in combination with modern financing techniques. The ULCAA builds on traditional law governing cooperatives, but recognizes a growing trend toward the “New Generation Cooperative” (NGC), which can combine features not readily available under traditional law, such as legally binding delivery contracts or the opportunity for outside equity investment. This Act creates a new form of business entity and is an alternative to other cooperative and unincorporated structures. It is more flexible than most current law, and provides a default template that encourages planners to utilize tested cooperative principles for a broad range of entities and purposes.
The cooperative industry includes many interests, including, but not limited to, farmers, consumers, financial groups, and insurance organizations. In the Act, a “cooperative” is defined as an unincorporated association (a “limited cooperative association”) of individuals or businesses that unite to meet their mutual interests by creating and using a jointly owned enterprise. The Act contemplates the formation of various types of limited cooperative associations, including marketing, advertising, bargaining, processing, purchasing, real estate, and worker owned cooperatives. A limited cooperative association under the Act can be organized to pursue any lawful purpose. For example, the Act would allow a group of wheat farmers to build a value-added pasta facility, keeping their business in a cooperative form while being able to attract and utilize investment capital. It might also be used by an urban food cooperative to attract investment capital to build facilities for the operation of the cooperative’s business.
Key highlights of the ULCAA include:
● Operating definitions for the Act, and an outline of the nature and powers of limited cooperative associations. The ULCAA also deals with the effect of organic rules, required record retention, service of process, and business dealings between members and the limited cooperative association.
● Requirements for records required to be filed with the state agency that regulates business entities, and the procedures for signing and filing of records with that appropriate agency. The Act also provides for the form and content of the limited cooperative’s annual report to the responsible agency, and designates the appropriate state law governing filing fees.

● A statutory formation process for limited cooperative associations, including the required contents of articles of organization and bylaws, and the initial organizing directors. The Act also governs amendments to and restatements of (and related requirements) the organic rules of an association.


● Qualifications for membership in a limited cooperative association, and the rights and powers that come with belonging to the organization. The ULCAA also addresses the required Annual Meeting of members and procedures for calling special members’ meetings. The ULCAA delineates the procedures for providing notices for member meetings, quorum and voting, the allocation of voting power among patron members, voting by investor members, and action taken without meetings.
● Establishment of patron and investor members, and establishment of their interests as personal property interests, consisting of governance rights, financial rights, and the possible right or obligation to do business with the association. The Act defers to the organic rules on transferability of interests and (in some cases) security interests in members’ rights and set-offs, but in the event the rules are silent, does not allow transfer of or security interests in non-financial rights. The ULCAA also allows charging orders against debtor-members or –transferees.
● Authorization of marketing contracts between the limited cooperative association and third parties (not necessarily patron members). If a marketing contract is for the sale of products, commodities, or goods to an association, then title transfers to the association absolutely upon delivery, or upon a specific time expressly provided for in the contract. The Act also authorizes the association to create an enforceable security interest in the products, commodities, or goods delivered, and to sell such, and pay the sales price on a pooled (or other) basis after deducting selling and processing costs, expenses, overhead, etc. Initially, marketing contracts cannot last longer than 10 years, but they may be made self-renewing for additional 5-year periods.
● Establishment of the directors of the limited cooperative association, their qualifications, and their authority and powers. The ULCAA provides procedures for the election of directors and provides a default term of service in the event that the organic rules are silent on term length. In the event of a director’s resignation, removal, or suspension from the board, or if a vacancy occurs otherwise, the Act sets forth (at a minimum) default provisions on filling the vacancy while permitting a great deal of flexibility to the organic rules to tailor procedures to the association’s needs. Meeting and notice procedures are also set forth under the Act, along with various director rights and standards of conduct, and authority is granted for the appointment of association officers.
● Designation of the governing law for indemnification of other individuals who incur liability on behalf of the association and a grant of authority to the association to purchase insurance on these parties’ behalf.

● Unless otherwise provided by the association’s organic rules, a statutory recognition that member contributions to a limited cooperative association may consist of tangible or intangible personal property, or any other benefit to the association, including money, labor, services, promissory notes, agreements to contribute, and contracts to be performed. The board may determine the “value” of the contribution for purposes of determining whether a member has met its obligation to contribute. Unless an agreement to make a contribution varies the statutory requirements, the ULCAA provides default provisions on contribution agreements and their obligation on members. Profits and losses must be allocated between patron members, unless the organic rules provide otherwise, and the patron membership cannot be allocated any less than 50% of profits, even if investor members are allowed. Subject to the organic rules, before determining the amount of profits, the board may set aside a portion of the profits to create or accumulate: a capital reserve; reasonable reserves for specific purposes, such as expansion or replacement of capital assets, or education, training, and information. Distributions may be made in any form, including cash, capital credits, allocated patronage equities, etc. The interests of patron members in limited cooperative associations enjoy the same exemption from state securities laws that they would in similar cooperative associations under existing law.


● Addressing the right of a member to dissociate and the consequences of dissociation, and dissolution of the limited cooperative association itself (judicial, voluntary, and administrative).
● Statutory establishment of the right of a member to maintain a derivative action to enforce an association’s right where the association fails to or will not enforce that right.
● Permission for “foreign” cooperatives to apply for and receive a certificate of authority to transact business in the enacting jurisdiction.
● A statutory process and required filings for conversion of a limited cooperative association to another entity (or vice versa), and the effect of conversion on the rights, duties, liabilities, immunities and debts of the converting entity
● Provision for member-approved and non-member-approved disposition of the association’s assets.

The ULCAA offers cooperatives and their members a statutory mechanism that embodies the traditional elements of cooperative associations, and recognizes the changing needs and trends that cooperatives face. It recognizes the varied purposes for which a cooperative can and should be used, and provides flexibility in a cooperative’s organization and development. The Act provides an effective vehicle for cooperatives to organize, develop, and thrive, and the ULCAA is an appropriate enactment for all states.


The work of the Drafting Committee is available at www.nccusl.org, the website of the Conference. The Uniform Limited Cooperative Association Act can be found at: http://www.law.upenn.edu/bll/archives/ulc/uaarca/2007_final.htm.

Respectfully submitted,

Martha Lee Walters

President

National Conference of Commissioners

On Uniform Sate Laws

February 2008



GENERAL INFORMATION FORM
To Be Appended to Reports with Recommendations

(Please refer to instructions for completing this form.)


Submitting Entity: National Conference of Commissioners on Uniform State Laws
Submitted by: Michael Kerr, Legislative Director


  1. Summary of Recommendation(s).

The National Conference of Commissioners on Uniform State Laws requests approval of the Uniform Limited Cooperative Association Act by the ABA House of Delegates. (2007), the Uniform Limited Cooperative Association Act was approved by the National Conference in 2007.





  1. Approval by Submitting Entity.

The National Conference of Commissioners on Uniform State Laws approved it in July, 2007.





  1. Has this or a similar recommendation been submitted to the House or Board previously?

No



  1. What existing Association policies are relevant to this recommendation and how would they be affected by its adoption?

None Known





  1. What urgency exists which requires action at this meeting of the House

Not Applicable





  1. Status of Legislation. (If applicable.)

In 2007, Nebraska adopted legislation based on a pre-final version of the Act. The Act has not been introduced in any other state legislature as of 11-01-2007





  1. Cost to the Association. (Both direct and indirect costs.)

Not applicable




  1. Disclosure of Interest. (If applicable.)

None




  1. Referrals

Pursuant to the agreement between the NCCUSL and the ABA, all members of the House of Delegates and Chairs of all ABA entities were advised of the drafting project and those that expressed interest were provided with tentative drafts, as well as the final Act and Report. The work of the Drafting Committee is available at www.nccusl.org, the website of the Conference.


The ABA Advisor was Craig Houghton from the Section of Taxation.



  1. Contact Person (Prior to the meeting.)


John A. Sebert, Executive Director, National Conference of Commissioners on Uniform State Laws, 111 North Wabash, Suite 1010, Chicago, IL. 60602, 312/915-0195.

Michael R. Kerr, Legislative Director, National Conference of Commissioners on Uniform State Laws, 111 North Wabash, Suite 1010, Chicago, IL. 60602, 312/915-0195.





  1. Contact Person. (Who will present the report to the House.)

Martha Lee Walters, President, National Conference of Commissioners on Uniform State Laws, Oregon Supreme Court, 1163 State St., Salem, OR. 97301. martha.l.walters@ojd.state.or.us (503)986-5668






EXECUTIVE SUMMARY


  1. Summary of the Recommendation

That the ABA approves the Uniform Limited Cooperative Association Act (2006), as “an appropriate Act for those States desiring to adopt the substantive law suggested therein.”





  1. Summary of the issue which the recommendation addresses

The Uniform Limited Cooperative Association Act addresses the cooperative

form of business, a unique entity which is different from other forms of business organizations. The Act creates a new form of business entity and is an alternative to other cooperative and unincorporated structures.


  1. Please explain how the proposed policy position will address the issue.

The Uniform Act provides appropriate rules for the objective as stated in (2) above.





  1. Summary of any minority views or opposition which have been identified

The NCCUSL is not aware of any minority views or opposition to the Uniform Act.






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