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S.238

Introduced by   Senator MacDonald of Orange District

Referred to Committee on

Date:

Subject:  Cooperatives; Vermont Cooperative Associations Act

Statement of purpose:  This bill proposes to enact the “Vermont Cooperative Associations Act” to revise comprehensively the manner of organizing and empowering agricultural and other cooperative associations in the state, except electric cooperatives.

AN ACT RELATING TO VERMONT COOPERATIVE ASSOCIATIONS

It is hereby enacted by the General Assembly of the State of Vermont:

Sec. 1.  Title 11C of Vermont Statutes Annotated is added to read:

TITLE 11C.  COOPERATIVE ASSOCIATIONS

TABLE OF CONTENTS

CHAPTER 1.  GENERAL PROVISIONS

§ 101.  CITATION

§ 102.  DEFINITIONS

§ 103.  RESERVATION OF RIGHT

§ 104.  USE OF TERM COOPERATIVE RESTRICTED

§ 105.  FILING FEES

§ 106.  REGISTERED OFFICE AND AGENT

§ 107.  PERIODIC REGISTRATION

§ 108.  LEGAL RECOGNITION OF ELECTRONIC RECORDS AND

            SIGNATURES

§ 109.  FOREIGN COOPERATIVES

CHAPTER 2.  ORGANIZATION

§ 201.  ORGANIZATIONAL PURPOSE

§ 202.  ORGANIZERS

§ 203.  COOPERATIVE NAME

§ 204.  ARTICLES OF ORGANIZATION

§ 205.  AMENDMENT OF ARTICLES

§ 206.  AMENDMENT OF ORGANIZATIONAL DOCUMENTS TO BE

            GOVERNED BY THIS CHAPTER

§ 207.  CURATIVE FILING

§ 208.  EXISTENCE

§ 209.  BYLAWS

§ 210.  COOPERATIVE RECORDS

CHAPTER 3.  POWERS AND AUTHORITIES

§ 301.  POWERS

§ 302.  EMERGENCY POWERS

§ 303.  AGRICULTURAL PRODUCT MARKETING CONTRACTS

CHAPTER 4.  DIRECTORS AND OFFICERS

§ 401.  BOARD GOVERNS COOPERATIVE

§ 402.  NUMBER OF DIRECTORS

§ 403.  ELECTION OF DIRECTORS

§ 404.  FILLING VACANCIES

§ 405.  REMOVAL OF DIRECTORS

§ 406.  BOARD OF DIRECTORS’ MEETINGS

§ 407.  QUORUM

§ 408.  ACT OF THE BOARD OF DIRECTORS

§ 409.  ACTION WITHOUT A MEETING

§ 410.  AUDIT COMMITTEE

§ 411.  COMMITTEES

§ 412.  STANDARD OF CONDUCT

§ 413.  DIRECTOR CONFLICTS OF INTEREST

§ 414.  LIMITATION OF DIRECTOR’S LIABILITY

§ 415.  INDEMNIFICATION

§ 416.  OFFICERS

CHAPTER 5.  MEMBERS

§ 501.  MEMBERS

§ 502.  MEMBER NOT LIABLE FOR COOPERATIVE DEBTS

§ 503.  REGULAR MEMBERS’ MEETINGS

§ 504.  SPECIAL MEMBERS’ MEETINGS

§ 505.  CERTIFICATION OF MEETING NOTICE

§ 506.  QUORUM

§ 507.  REMOTE COMMUNICATIONS FOR MEMBER MEETINGS

§ 508.  ACT OF MEMBERS

§ 509.  ACTION WITHOUT A MEETING

§ 510.  MEMBER VOTING RIGHTS

§ 511.  PATRON MEMBER VOTING BASED ON PATRONAGE

§ 512.  VOTING RIGHTS

§ 513.  VOTING BY ORGANIZATIONS AND LEGAL

             REPRESENTATIVES

§ 514.  PROXIES

§ 515.  SALE OF PROPERTY AND ASSETS

§ 516.  VOTE OF OWNERSHIP INTERESTS HELD BY COOPERATIVE

CHAPTER 6.  MEMBERSHIP INTERESTS

§ 601.  MEMBERSHIP INTERESTS

§ 602.  ASSIGNMENT OF FINANCIAL RIGHTS

§ 603.  NATURE OF A MEMBERSHIP INTEREST AND STATEMENT OF

            INTEREST OWNED

§ 604.  CERTIFICATED MEMBERSHIP INTERESTS

§ 605.  LOST CERTIFICATES; REPLACEMENT

§ 606.  RESTRICTION ON TRANSFER OR REGISTRATION OF

             MEMBERSHIP INTERESTS

CHAPTER 7.  CONTRIBUTIONS, ALLOCATIONS, AND DISTRIBUTIONS

§ 701.  AUTHORIZATION, FORM, AND ACCEPTANCE OF

            CONTRIBUTIONS

§ 702.  RESTATEMENT OF VALUE OF PREVIOUS CONTRIBUTIONS

§ 703.  CONTRIBUTION AGREEMENTS

§ 704.  CONTRIBUTION RIGHTS AGREEMENTS

§ 705.  ALLOCATIONS AND DISTRIBUTIONS TO MEMBERS

§ 706.  ALLOCATIONS AND DISTRIBUTIONS TO PATRON MEMBERS

§ 707.  MEMBER CONTROL AGREEMENTS

§ 708.  DISTRIBUTION OF UNCLAIMED PROPERTY

CHAPTER 8.  MERGER

§ 801.  MERGER AND CONSOLIDATION

§ 802.  MERGER OF SUBSIDIARY

§ 803.  ABANDONMENT

CHAPTER 9.  DISSOLUTION

§ 901.  METHODS OF DISSOLUTION

§ 902.  WINDING UP

§ 903.  REVOCATION OF DISSOLUTION PROCEEDINGS

§ 904.  STATUTE OF LIMITATIONS

§ 905.  ARTICLES OF DISSOLUTION

§ 906.  APPLICATION FOR COURT-SUPERVISED VOLUNTARY

            DISSOLUTION

§ 907.  COURT-ORDERED REMEDIES OR DISSOLUTION

§ 908.  PROCEDURE IN INVOLUNTARY OR COURT-SUPERVISED

            VOLUNTARY DISSOLUTION

§ 909.  RECEIVER QUALIFICATIONS AND POWERS

§ 910.  DISSOLUTION ACTION BY ATTORNEY GENERAL;

            ADMINISTRATIVE DISSOLUTION

§ 911.  FILING CLAIMS IN COURT-SUPERVISED DISSOLUTION

            PROCEEDINGS

§ 912.  DISCONTINUANCE OF COURT-SUPERVISED DISSOLUTION

            PROCEEDINGS

§ 913.  COURT-SUPERVISED DISSOLUTION ORDER

§ 914.  FILING COURT’S DISSOLUTION ORDER

§ 915.  BARRING OF CLAIMS

§ 916.  RIGHT TO SUE OR DEFEND AFTER DISSOLUTION

Chapter 1.  GENERAL PROVISIONS

§ 101.  CITATION

This title may be cited as the “Vermont Cooperative Associations Act.”

§ 102.  DEFINITIONS

The definitions in this section apply to this title.

(1)  “Address” means mailing address, including a zip code.  In the case of a registered address, the term means the mailing address and the actual office location, which may not be a post office box.

(2)  “Alternative ballot” means a method of voting on a candidate or issue prescribed by the board of directors in advance of the vote which may include voting by electronic, telephonic, internet, or other means which reasonably allows members the opportunity to vote.

(3)  “Articles” means the articles of organization of a cooperative as originally filed and subsequently amended.

(4)  “Association” means an organization conducting business on a cooperative plan under the laws of this state or another state that is chartered to conduct business under other laws of this state or another state.

(5)  “Board” means the board of directors of a cooperative.

(6)  “Business entity” means a company, limited liability company, limited liability partnership, or other legal entity, whether domestic or foreign, association, or body vested with the power or function of a legal entity.

(7)  “Cooperative” means an association organized under this title conducting business on a cooperative plan as provided under this title.

(8)  “Domestic business entity” means a business entity organized under the laws of this state.

(9)  “Domestic cooperative” means a cooperative organized under this title or chapter 7 of Title 11.

(10)  “Filed with the secretary of state” means that a document meeting the applicable requirements of this title, signed and accompanied by the required filing fee, has been delivered to the secretary of state of this state.  The secretary of state shall endorse on the document the word “Filed” or a similar word determined by the secretary of state and the month, day, and year of filing, record the document in the office of the secretary of state, and return a document to the person or entity who delivered it for filing.

(11)  “Foreign business entity” means a business entity that is not a domestic business entity.

(12)  “Foreign cooperative” means a foreign business entity organized to conduct business on a cooperative plan consistent with this title or chapter 7 of Title 11.

(13)  “Member” means a person or entity reflected on the books of the cooperative as the owner of governance rights of a membership interest of the cooperative and includes patron and nonpatron members.

(14)  “Membership interest” means a member’s interest in a cooperative consisting of a member’s financial rights, a member’s right to assign financial rights, a member’s governance rights, and a member’s right to assign governance rights.  Membership interest includes patron membership interests and nonpatron membership interests.

(15)  “Members’ meeting” means a regular or special members’ meeting.

(16)  “Nonpatron membership interest” means a membership interest that does not require the holder to conduct patronage business for or with the cooperative to receive financial rights or distributions.

(17)  “Patron” means a person or entity who conducts patronage business with the cooperative.

(18)  “Patronage” means business, transactions, or services done for or with the cooperative as defined by the cooperative.

(19)  “Patron member” means a member holding a patron membership interest.

(20)  “Patron membership interest” means the membership interest requiring the holder to conduct patronage business for or with the cooperative, as specified by the cooperative to receive financial rights or distributions.

(21)  “Signed” means that the signature of a person has been written on a document, and, with respect to a document required by this title to be filed with the secretary of state, means that the document has been signed by a person authorized to do so by this title, the articles, or bylaws, or by a resolution approved by the directors or the members.  A signature on a document may be a facsimile affixed, engraved, printed, placed, stamped with indelible ink, transmitted by facsimile or electronically, or in any other manner reproduced on the document.

(22)  “Vermont limited liability company” means a limited liability company governed by chapter 21 of Title 11.

§ 103.  RESERVATION OF RIGHT

The state reserves the right to amend or repeal the provisions of this title by law.  A cooperative organized or governed by this title is subject to this reserved right.

§ 104.  USE OF TERM COOPERATIVE RESTRICTED

(a)  A business entity organized in this state may not use the term “cooperative” as part of its business name or title, or represent itself as a cooperative, unless the business entity has complied with and is subject to this title, chapter 7 or 8 of Title 11, or chapter 81 of Title 30, or organized under other laws of this state authorizing organization of business on a cooperative plan.

(b)  A business entity that violates subsection (a) of this section is guilty of a misdemeanor and subject to a fine of not less than $100.00, and not more than $1,000.00 for each such offense.

§ 105.  FILING FEES

Unless otherwise provided, the filing fee for documents filed under this title with the secretary of state is $100.00.

§ 106.  REGISTERED OFFICE AND AGENT

(a)  A cooperative shall establish and continuously maintain in this state:

(1)  a registered office which may be, but need not be, the same as its place of business; and

(2)  a registered agent, which agent may be either an individual resident in this state whose business office is identical with the registered office, or a domestic business entity, or a foreign business entity authorized to transact business in this state, having an office identical with the registered office.

(b)  A cooperative may designate or change its registered office or agent, or both, upon filing in the office of the secretary of state a statement setting forth:

(1)  the name of the cooperative;

(2)  the address of its then‑registered office;

(3)  if the address of its registered office is to be changed, the address to which the registered office is to be changed;

(4)  the name of its then‑registered agent;

(5)  if its registered agent is to be changed, the name of its successor registered agent;

(6)  that the address of its registered office and the address of the business office of its registered agent, as changed, will be identical; and

(7)  that the change was authorized by affirmative vote of a majority of the board of directors of the cooperative.

(c)  The statement shall be signed and delivered to the secretary of state.  The statement is effective if the secretary of state finds that the statement conforms to the provisions of this section.  The secretary shall file the statement and the change of address of the registered office or the appointment of a new registered agent, or both, as the case may be.

(d)  Any registered agent of a cooperative may resign as agent upon filing a written notice of resignation, signed with one original and one exact or conformed copy, with the secretary of state, who shall mail a copy to the cooperative at its principal mailing address as defined and prescribed by the secretary of state.  The appointment of the agent shall terminate upon the expiration of 30 days after receipt of notice by the secretary of state.

(e)  If the address or name of a registered agent changes, the agent shall change the address of the registered office or the name of the registered agent of the cooperative represented by the agent by filing with the secretary of state the statement required in subsection (b) of this section, except that the statement need only be signed by the registered agent, need not be responsive to subdivision (b)(5) of this section, but must state that a copy of the statement has been mailed to the cooperative or to the legal representative of the cooperative.

§ 107.  PERIODIC REGISTRATION

(a)  Each cooperative governed by this title and each foreign cooperative registered under section 109 of this title shall file a periodic registration with the secretary of state with the initial articles and any amendment of the articles in each odd-numbered year.  In these years, the secretary of state shall mail by first class mail a registration form to the registered office of each cooperative and registered foreign cooperative as shown on the records of the secretary of state, or if no such address is in the records, to the location of the principal place of business shown on the records of the secretary of state.

(1)  For a cooperative, the form must include the following notice:

“NOTICE:  Failure to file this form by December 31 of this year will result in the dissolution of this cooperative without further notice from the secretary of state, pursuant to the requirements set out for involuntary termination of corporations under chapter 14 of Title 11A.”

(2)  For a foreign cooperative, the form must contain the following notice:

“NOTICE:  Failure to file this form by December 31 of this year will result in the loss of good standing and the authority to do business in Vermont.”

(b)  In each calendar year in which a registration is to be filed, a cooperative shall file with the secretary of state a registration by December 31 of that calendar year, containing:

(1)  the name of the cooperative;

(2)  the address of its registered office;

(3)  the address of its principal place of business, if different from the registered office address; and

(4)  the name and business address of the officer or other person exercising the principal functions of the chief executive officer of the cooperative.

(c)  The information required by subsection (b) of this section is public information.

(d)  A cooperative that has failed to file a registration pursuant to the requirements of this section by December 31 of the calendar year for which the registration was required shall be dissolved by the secretary of state.  If the cooperative has not filed the registration by December 31 of that calendar year, the secretary of state shall issue a certificate of involuntary dissolution, and the certificate shall be filed in the office of the secretary of state.  The secretary of state shall annually inform the attorney general and the commissioner of taxes of the methods by which the names of cooperatives dissolved under this section during the preceding year may be determined.  The secretary of state shall also make available in an electronic format the names of the dissolved cooperatives.  A cooperative dissolved in this manner is not entitled to the benefits of section 915 of this title.

(e)  A cooperative may, within one year of the date of dissolution under this section, retroactively reinstate its existence by filing a single annual registration and paying a $100.00 fee.  Filing the annual registration with the secretary of state:

(1)  returns the cooperative to active status as of the date of the dissolution;

(2)  validates contracts or other acts within the authority of the articles, and the cooperative is liable for those contracts or acts; and

(3)  restores to the cooperative all assets and rights of the cooperative and its shareholders or members to the extent they were held by the cooperative and its shareholders or members before the dissolution occurred, except to the extent that assets or rights were affected by acts occurring after the dissolution or sold or otherwise distributed after that time.

§ 108.   LEGAL RECOGNITION OF ELECTRONIC RECORDS AND

             SIGNATURES

(a)  The definitions in this subsection apply to this section. 

(1)  “Electronic” means relating to technology having electrical, digital, magnetic, wireless, optical, electromagnetic, or similar capabilities. 

(2)  “Electronic record” means a record created, generated, sent, communicated, received, or stored by electronic means. 

(3)  “Electronic signature” means an electronic sound, symbol, or process attached to or logically associated with a record and executed or adopted by a person with the intent to sign the record. 

(4)  “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. 

(b)  For purposes of this title:

(1)  a record or signature may not be denied legal effect or enforceability solely because it is in electronic form;

(2)  a contract may not be denied legal effect or enforceability solely because an electronic record was used in its formation;

(3)  if a provision requires a record to be in writing, an electronic record satisfies the requirement; and

(4)  if a provision requires a signature, an electronic signature satisfies the requirement. 

§ 109.  FOREIGN COOPERATIVES

(a)  Authority.

(1)  Subject to the constitution of this state, the laws of the jurisdiction under which a foreign cooperative is organized govern its organization and internal affairs and the liability of its members.  A foreign cooperative may not be denied a certificate of authority to transact business in this state by reason of any difference between those laws and the laws of this state.

(2)  A foreign cooperative holding a valid certificate of authority in this state has no greater rights and privileges than a domestic cooperative.  The certificate of authority does not authorize the foreign cooperative to exercise any of its powers or purposes that a domestic cooperative is forbidden by law to exercise in this state. 

(3)  A foreign cooperative may apply for a certificate of authority under any name that would be available to a cooperative, whether or not the name is the name under which it is authorized in its jurisdiction of organization. 

(b)  Certificate of authority.

(1)  Before transacting business in this state, a foreign cooperative shall obtain a certificate of authority.  An applicant for the certificate shall file with the secretary of state a certificate of status from the filing office in the jurisdiction in which the business entity is organized and an application executed by an authorized person and setting forth:

(A)  the name of the foreign cooperative and, if different, the name under which it proposes to transact business in this state;

(B)  the jurisdiction of its organization;

(C)  the name and business address of the proposed registered agent in this state, which agent shall be an individual resident of this state, a domestic business entity, or a foreign cooperative having a place of business in, and authorized to do business in, this state;

(D)  the address of the office required to be maintained in the jurisdiction of its organization by the laws of that jurisdiction or, if not so required, of the principal place of business of the foreign cooperative; and

(E)  the date the foreign cooperative expires in the jurisdiction of its organization.

(2)  The application must be accompanied by payment of $200.00, which includes a $100.00 initial license fee in addition to the $100.00 filing fee required by section 105 of this title. 

(3)  If the secretary of state finds that an application for a certificate of authority conforms to law and all fees have been paid, the secretary shall:

(A)  endorse on the application the word “Filed” and the date of the filing of it;

(B)  file the original of the application; and

(C)  return the original of the application to the person who filed it with a certificate of authority issued by the secretary of state.

(4)  A certificate of authority issued under this section is effective from the date the application is filed with the secretary of state accompanied by the payment of the requisite fees.

(5)  If any statement in the application for a certificate of authority by a foreign cooperative was false when made or any arrangements or other facts described have changed, making the application inaccurate in any respect, the foreign cooperative shall promptly file with the secretary of state:

(A)  in the case of a change in its name, a termination or a merger, a certificate to that effect authenticated by the proper officer of the state or country under the laws of which the foreign cooperative is organized; or

(B)  in the case of a change in the name or address of the registered agent required to be maintained by section 107 of this title, an amendment to the certificate of authority signed by an authorized person.

(6)  The fee for filing the document is the same as for filing an amendment.

(c)  Registered agent and certain reports.  A foreign cooperative authorized to transact business in this state shall:

(1)  appoint and continuously maintain a registered agent in the same manner as provided in section 107 of this title; or

(2)  file a report upon any change in the name or business address of its registered agent in the same manner as provided in section 107 of this title.

(d)  Biennial registration.

(1)  A foreign cooperative shall file a periodic registration with the secretary of state in each odd‑numbered year containing:

(A)  the name of the foreign cooperative;

(B)  the alternate name, if any, the foreign cooperative has adopted for use in this state;

(C)  the address of its registered office;

(D)  the name of its registered agent, if any;

(E)  the jurisdiction in which the foreign cooperative is organized; and

(F)  the name and business address of the manager or other person exercising the principal functions of the chief manager of the foreign cooperative.

(2)  The secretary of state shall mail a registration form to each foreign cooperative no less than 90 days before the registration is due.  The registration form shall be sent to the last registered office address filed with the secretary of state.  A foreign cooperative which needs to amend its name, registered office address, or registered agent may make these amendments on the biennial registration form.  If an amendment is made on the biennial registration form, it shall be signed by an authorized person.  The fee listed in section 107 of this title applies to these amendments.

(3)  A foreign cooperative that fails to file a registration pursuant to the requirements of this subdivision loses its good standing in this state.  The business entity may regain its good standing in this state by filing a registration and paying a $100.00 fee.

(4)  If a foreign cooperative has not filed a registration during a reporting period, the secretary of state shall notify the business entity that its authority to do business in Vermont will be revoked if the biennial registration is not filed by the due date of the next registration.  This notice shall be sent to the foreign cooperative at its registered office address of record as part of the registration form.  If the foreign cooperative does not file the biennial registration by the due date, the secretary of state shall revoke the authority of the foreign cooperative to do business in Vermont.  The secretary of state shall issue a certificate of revocation which shall be sent to the foreign cooperative at its registered office address.  A copy of the certificate shall be filed with the secretary of state.

(5)  If a foreign cooperative has its authority to do business in Vermont revoked, it may retroactively reinstate its authority to do business by filing a single biennial registration and paying a $100.00 fee, but only within one year of the date of the termination or revocation.

(6)  A foreign cooperative filing the biennial registration restores the foreign cooperative’s ability to do business in Vermont and the rights and privileges which accompany that authority.

(e)  Certificate of withdrawal. 

(1)  A foreign cooperative authorized to transact business in this state may withdraw from this state upon procuring from the secretary of state a certificate of withdrawal.  In order to procure the certificate, the foreign cooperative shall file with the secretary of state an application for withdrawal, which shall set forth:

(A)  the name of the foreign cooperative and the state or country under the laws of which it is organized;

(B)  that the foreign cooperative is not transacting business in this state;

(C)  that the foreign cooperative surrenders its authority to transact business in this state;

(D)  that the foreign cooperative revokes the authority of its registered agent in this state to accept service of process and consents to that service of process in any action, suit, or proceeding based upon any cause of action arising in this state during the time the business entity was authorized to transact business in this state and that service of process may be made on the business entity by service upon the secretary of state; and

(E)  a post office address to which a person may mail a copy of any process against the business entity.

(2)  The filing with the secretary of state of a certificate of termination or a certificate of merger if the foreign cooperative is not the surviving organization from the proper officer of the state or country under the laws of which the business entity is organized constitutes a valid application of withdrawal, and the authority of the business entity to transact business in this state shall cease upon filing of the certificate.

(3)  The certificate of authority of a foreign cooperative to transact business in this state may be revoked by the secretary of state upon the occurrence of either of these events:

(A)  the foreign cooperative has failed to appoint and maintain a registered agent as required by this title, file a report upon any change in the name or business address of the registered agent, or file in the office of the secretary of state any amendment to its application for a certificate of authority as specified in section 107 of this title; or

(B)  a misrepresentation has been made of any material matter in any application, report, affidavit, or other document submitted by the foreign cooperative pursuant to this title.

(4)  No certificate of authority of a foreign cooperative shall be revoked by the secretary of state unless:

(A)  the secretary has given the foreign cooperative not less than 60 days’ notice by mail addressed to its registered office in this state or, if the foreign cooperative fails to appoint and maintain a registered agent in this state, addressed to the office address in the jurisdiction of organization; and

(B)  during the 60-day period, the foreign cooperative has failed to file the report of change regarding the registered agent, to file any amendment, or to correct the misrepresentation.

(5)  Upon the expiration of 60 days after the mailing of the notice, the authority of the foreign cooperative to transact business in this state ceases.  The secretary of state shall issue a certificate of revocation and shall mail the certificate to the address of the principal place of business or the office required to be maintained in the jurisdiction of organization of the foreign cooperative.

(f)  Transaction of business without certificate of authority.

(1)  A foreign cooperative transacting business in this state may not maintain any action, suit, or proceeding in any court of this state until it possesses a certificate of authority.

(2)  The failure of a foreign cooperative to obtain a certificate of authority does not impair the validity of any contract or act of the foreign cooperative or prevent the foreign cooperative from defending any action, suit, or proceeding in any court of this state.

(3)  A foreign cooperative, by transacting business in this state without a certificate of authority, appoints the secretary of state as its agent upon whom any notice, process, or demand may be served.

(4)  A foreign cooperative that transacts business in this state without a valid certificate of authority is liable to the state for the years or parts of years during which it transacted business in this state without the certificate in any amount equal to all fees that would have been imposed by this title upon that business entity had it duly obtained the certificate, filed all reports required by this title, and paid all penalties imposed by this title.  The attorney general shall bring proceedings to recover all amounts due this state under the provisions of this section.

(5)  A foreign cooperative that transacts business in this state without a valid certificate of authority is subject to a civil penalty, payable to the state, not to exceed $1,000.00.  Each director or, in the absence of directors, each member or agent who authorizes, directs, or participates in the transaction of business in this state on behalf of a foreign cooperative that does not have a certificate is subject to a civil penalty, payable to the state, not to exceed $1,000.00.

(6)  The civil penalties set forth in this title may be recovered in an action brought within the Washington superior court district by the attorney general.  Upon a finding by the court that a foreign cooperative or any of its members, directors, or agents have transacted business in this state in violation of this title, the court shall issue, in addition to the imposition of a civil penalty, an injunction restraining the further transaction of the business of the foreign cooperative and the further exercise of any business entity’s rights and privileges in this state.  The foreign cooperative shall be enjoined from transacting business in this state until all civil penalties plus any interest and court costs that the court may assess have been paid and until the foreign cooperative has otherwise complied with the provisions of this title.

(7)  A member of a foreign cooperative is not liable for the debts and obligations of the foreign cooperative solely by reason of the business entity having transacted business in this state without a valid certificate of authority.

(g)  Transactions not constituting transacting business.

(1)  The following activities of a foreign cooperative, among others, do not constitute transacting business within the meaning of this section:

(A)  maintaining, defending, or settling any proceeding;

(B)  holding meetings of its members or carrying on any other activities concerning its internal affairs;

(C)  maintaining bank accounts;

(D)  maintaining offices or agencies for the transfer, exchange, and registration of the foreign cooperative’s own securities or maintaining trustees or depositories with respect to those securities;

(E)  selling through independent contractors;

(F)  soliciting or obtaining orders, whether by mail or through employees or agents or otherwise, if the orders require acceptance outside this state before they become contracts;

(G)  creating or acquiring indebtedness, mortgages, and security interests in real or personal property;

(H)  securing or collecting debts or enforcing mortgages, and security interests in property securing the debts;

(I)  holding, protecting, renting, maintaining, and operating real or personal property in this state so acquired;

(J)  selling or transferring title to property in this state to any person; or

(K)  conducting an isolated transaction that is completed within 30 days and that is not one in the course of repeated transactions of a like manner.

(2)  The term “transacting business” as used in this section has no effect on personal jurisdiction under this title.

(3)  For purposes of this section, any foreign cooperative that owns income-producing real or tangible personal property in this state, other than property exempted under subdivision (1) of this subsection, will be considered transacting business in this state.

(4)  The list of activities in subdivision (1) of this subsection is not exhaustive.  This subdivision does not apply in determining the contracts or activities that may subject a foreign cooperative to service of process or taxation in this state or to regulation under any other law of this state.

(h)  Action to restrain foreign cooperative.  The attorney general may bring an action to restrain a foreign cooperative from transacting business in this state in violation of this title, chapter 7 of Title 11, or other laws of this state.

(i)  Service of process.  Service of process on a foreign cooperative shall be as provided in chapter 5 of Title 11B.

Chapter 2.  ORGANIZATION

§ 201.  ORGANIZATIONAL PURPOSE

A cooperative may be formed and organized on a cooperative plan for patrons as provided under this title for any lawful purpose, including:

(1)  to market, process, or otherwise change the form or marketability of products, including crops, livestock, and other agricultural products, including manufacturing and further processing of those products and other purposes that are necessary or convenient to facilitate the production or marketing of products by patron members and others and other purposes that are related to the business of the cooperative;

(2)  to provide products, supplies, and services to its members; and

(3)  for any other purposes that cooperatives are authorized for by law.

§ 202.  ORGANIZERS

(a)  Qualification.  A cooperative may be organized by one or more organizers who shall be adult natural persons, and who may act for themselves as individuals or as the agents of other entities.  The organizers forming the cooperative need not be members of the cooperative.

(b)  Role of organizers.  If the first board of directors is not named in the articles of organization, the organizers may elect the first board of directors or may act as directors with all of the powers, rights, duties, and liabilities of directors, until directors are elected or until a contribution is accepted, whichever occurs first. 

(c)  Meeting.  After the filing of articles of organization, the organizers or the directors named in the articles of organization shall either hold an organizational meeting at the call of a majority of the organizers or of the directors named in the articles, or take written action, for the purposes of transacting business and taking actions necessary or appropriate to complete the organization of the cooperative, including, without limitations, amending the articles; electing directors; adopting bylaws; adopting banking resolutions; authorizing or ratifying the purchase, lease, or other acquisition of suitable space, furniture, furnishings, supplies, and materials; adopting a fiscal year for the cooperative; contracting to receive and accept contributions; and making any appropriate tax elections.  If a meeting is held, the person or persons calling the meeting shall give at least three days’ notice of the meeting to each organizer or director named, stating the date, time, and place of the meeting.  Organizers and directors may waive notice of an organizational meeting in the same manner that a director may waive notice of meetings of the board.

§ 203.  COOPERATIVE NAME

(a)  Distinguished name.  The name of a cooperative shall distinguish the cooperative upon the records in the office of the secretary of state from the name of a domestic business entity or a foreign business entity, authorized or registered to do business in this state or a name the right to which is, at the time of organization, reserved or provided for by law.

(b)  Reservation; contest of name.  The cooperative name shall be reserved for the cooperative during its existence, provided, however, a person doing business in this state may contest the registration of a name with the secretary of state as provided in chapter 4 of Title 11A for business corporations.

§ 204.  ARTICLES OF ORGANIZATION

(a)  Requirements.

(1)  The articles of the cooperative shall include:

(A)  the name of the cooperative;

(B)  the purpose of the cooperative;

(C)  the name and address of each organizer; and

(D)  the period of duration for the cooperative, if the duration is not to be perpetual.

(2)  The articles may contain any other lawful provision.

(3)  The articles shall be signed by the organizers.

(b)  Filing.  The original articles and a designation of the cooperative’s registered office and agent including a registration form under section 107 of this title shall be filed with the secretary of state.  The fee for filing the articles with the secretary of state is $100.00.

(c)  Effect of filing.  When the articles, the registration form under section 107 of this title, and the designation of the cooperative’s registered office and agent have been filed with the secretary of state and the required fee has been paid to the secretary of state, it shall be presumed that:

(1)  all conditions precedent that are required to be performed by the organizers have been complied with;

(2)  the organization of the cooperative has been chartered by the state as a separate legal entity; and

(3)  the secretary of state will issue a certificate of organization to the cooperative.

§ 205.  AMENDMENT OF ARTICLES

(a)  Procedure.

(1)  The articles of a cooperative shall be amended as follows:

(A)  The board by majority vote shall pass a resolution stating the text of the proposed amendment.  The text of the proposed amendment and an attached mail or alternative ballot, if the board has provided for a mail or alternative ballot in the resolution or alternative method approved by the board and stated in the resolution, shall be mailed or otherwise distributed with a regular or special meeting notice to each member.  The notice shall designate the time and place of the meeting for the proposed amendment to be considered and voted on.

(B)  If a quorum of the members is registered as being present or represented by alternative vote at the meeting, the proposed amendment is adopted:

(i)  if approved by a majority of the votes cast; or

(ii)  for a cooperative with articles or bylaws requiring more than majority approval or other conditions for approval, the amendment is approved by a proportion of the votes cast or a number of total members as required by the articles or bylaws and the conditions for approval in the articles or bylaws have been satisfied.

(2)  After an amendment has been adopted by the members, the amendment shall be signed by the chair, vice chair, records officer, or assistant records officer and a copy of the amendment filed in the office of the secretary of state.

(b)  Certificate.

(1)  A certificate shall be prepared stating:

(A)  the vote and meeting of the board adopting a resolution of the proposed amendment;

(B)  the notice given to members of the meeting at which the amendment was adopted;

(C)  the quorum registered at the meeting; and

(D)  the vote cast adopting the amendment.

(2)  The certificate shall be signed by the chair, vice chair, records officer, or financial officer and filed with the records of the cooperative.

(c)  Amendment by directors.  A majority of directors may amend the articles if the cooperative does not have any members with voting rights.

(d)  Filing.  An amendment of the articles shall be filed with the secretary of state with a registration statement as provided in section 107 of this title and the amendment is effective upon filing or the date specified in the resolution adopting the amendment.

§ 206.  AMENDMENT OF ORGANIZATIONAL DOCUMENTS TO BE

            GOVERNED BY THIS CHAPTER

(a)  Authority.  A cooperative organized under Title 11 may convert and become subject to this title by amending its organizational documents to conform to the requirements of this title. 

(b)  A cooperative organized under Title 11 that becomes subject to this title shall provide its members with a disclosure statement of the rights and obligations of the members and the capital structure of the cooperative prior to becoming subject to this title.  A cooperative organized under Title 11 upon distribution of the disclosure required in this subdivision and approval of its members as necessary for amending its articles under Title 11, may amend its articles to comply with this title.

(c)  A cooperative organized under Title 11 that is converting to be subject to this title shall prepare a certificate stating:

(1)  the date on which the entity was first organized;

(2)  the name of the Title 11 cooperative and, if the name is changed, the name of the cooperative to be governed under this title; and

(3)  the future effective date and time, which must be a date and time certain, that it will be governed by this title, if the effective date and time is not to be the date and time of filing.

(d)  Upon filing with the secretary of state of the articles for compliance with this title and the certificate required under subsection (c) of this section, a cooperative organized under Title 11 is converted and governed by this title unless a later date and time is specified in the certificate under subsection (c).

(e)  In connection with a conversion under which a cooperative becomes governed by this title, the rights, securities, or interests in the Title 11 cooperative may be exchanged or converted into rights, property, securities, or interests in the cooperative as governed by this title.

(f)  The conversion of a cooperative organized under Title 11 to a cooperative governed by this title does not affect any obligations or liabilities of the cooperative before the conversion or the personal liability of any person incurred before the conversion.  When the conversion is effective, the rights, privileges, and powers of the cooperative, real and personal property of the cooperative, debts due to the cooperative, and causes of action belonging to the cooperative, remain vested in the cooperative and are the property of the cooperative as converted and governed by this title.  Title to real property vested by deed or otherwise in the cooperative organized under Title 11 does not revert and is not impaired by reason of the cooperative being converted and governed by this title.  Rights of creditors and liens upon property of the cooperative under Title 11 are preserved unimpaired, and debts, liabilities, and duties of the cooperative under Title 11 remain attached to the cooperative as converted and governed by this title and may be enforced against the cooperative to the same extent as if the debts, liabilities, and duties had originally been incurred or contracted by the cooperative as organized under this title.  The rights, privileges, powers, and interests in property of the cooperative under Title 11, as well as the debts, liabilities, and duties of the cooperative are not deemed, as a consequence of the conversion, to have been transferred for any purpose of the laws of this state.

§ 207.  CURATIVE FILING

If in the discretion of the secretary of state, the secretary of state determines that a filing has been made in error by the cooperative, the secretary of state may revoke and expunge the erroneous filing and authorize a curative document to be filed.  A filing fee of $500.00 shall be charged for any such revocation or expungement and subsequent curative filing.

§ 208.  EXISTENCE

(a)  Commencement upon filing.  The existence of a cooperative shall begin when the articles are filed with the secretary of state.

(b)  Duration.  A cooperative shall have a perpetual duration unless the cooperative provides for a limited period of duration in the articles of organization.

§ 209.  BYLAWS

(a)  Required.  A cooperative shall have bylaws governing the cooperative’s business affairs, structure, the qualifications, classification, rights, and obligations of members, and the classifications, allocations, and distributions of membership interests which are not otherwise provided for in the articles or by this title.

(b)  Contents.

(1)  If not stated in the articles, the bylaws shall state: 

(A)  the purpose of the cooperative;

(B)  the capital structure of the cooperative to the extent not stated in the articles, including a statement of the classes and relative rights, preferences, and restrictions granted to or imposed upon each class of member interests, the rights to share in profits or distributions of the cooperative, and the authority to issue member interests, which may be designated to be determined by the board;

(C)  a provision designating the voting and governance rights, to the extent not stated in the articles, including which membership interests have voting power and any limitations or restrictions on the voting power, which shall be in accordance with the provisions of this title;

(D)  a statement that patron membership interests with voting power shall be restricted to one vote for each member regardless of the amount of patron membership interests held in the affairs of the cooperative or a statement describing the allocation of voting power allocated as prescribed in this title;

(E)  a statement that membership interests held by a member are transferable only with the approval of the board or as provided in the bylaws; and

(F)  if nonpatron membership interests are authorized, a statement as to how profits and losses will be allocated and cash will be distributed between patron membership interests collectively and nonpatron membership interests collectively to the extent not stated in the articles, a statement that net income allocated to patron membership interests as determined by the board in excess of dividends and additions to reserves shall be distributed on the basis of patronage, and a statement that the records of the cooperative shall include the interests of patron membership interests.

(2)  The bylaws may contain any provision relating to the management or regulation of the affairs of the cooperative that are not inconsistent with law or the articles, and shall include the following:

(A)  the number of directors, and the qualifications, manner of election, powers, duties, and compensation, if any, of directors;

(B)  the qualifications of members and any limitations on their number;

(C)  the manner of admission, withdrawal, suspensions, and expulsion of members;

(D)  generally the governance rights, financial rights, assignability of governance and financial rights, and other rights, privileges, and obligations of members and their membership interests, which may be further described in member control agreements; and

(E)  any provisions required by the articles to be in the bylaws.

(c)  Adoption.

(1)  Bylaws shall be adopted prior to any distributions to members, but if the articles or bylaws provide that rights of contributors to a class of membership interest will be determined in the bylaws, then the bylaws shall be adopted prior to the acceptance of any contributions to that class. 

(2)  Subject to subsections (d), (e), and (f) of this section, the bylaws of a cooperative may be adopted or amended by the directors, or the members may adopt or amend bylaws at a regular or special members’ meeting, if:

(A)  the notice of the regular or special meeting contains a statement that the bylaws or restated bylaws will be voted upon and copies are included with the notice, or copies are available upon request from the cooperative and summary statement of the proposed bylaws or amendment is included with the notice;

(B)  a quorum is registered as being present or represented by mail or an alternative voting method if the mail or alternative voting method is authorized by the board; and

(C)  the bylaws or amendment is approved by a majority vote cast, or for a cooperative with articles or bylaws requiring more than majority approval or other conditions for approval, the bylaws or amendment is approved by a proportion of the vote cast or a number of the total members as required by the articles or bylaws and the conditions for approval in the articles or bylaws have been satisfied.

(3)  Until the next annual or special members’ meeting, the majority of directors may adopt and amend bylaws for the cooperative that are consistent with subsections (d), (e), and (f) of this section which may be further amended or repealed by the members at an annual or special members’ meeting.

(d)  Amendment of bylaws by board of directors or members.

(1)  The board of directors may amend the bylaws at any time to add, change, or delete a provision, unless:

(A)  This title, the articles, or the bylaws reserve the power exclusively to the members in whole or in part; or

(B)  a particular bylaw expressly prohibits the board of directors from doing so.

(2)  Any amendment of the bylaws by the board of directors shall be distributed to the members no later than ten days after adoption, and the notice of the annual meeting of the members shall contain a notice and summary or the actual amendments to the bylaws adopted by the board of directors.

(3)  The members may amend the bylaws even though the bylaws may also be amended by the board of directors.

(e)  Bylaw changing quorum or voting requirement for members.

(1)  The members may amend the bylaws to fix a greater quorum or voting requirement for members, or voting groups of members, than is required by this title.  An amendment to the bylaws to add, change, or delete a greater quorum or voting requirement for members shall meet the same quorum requirement and be adopted by the same vote and voting groups required to take action under the quorum and voting requirements then in effect or proposed to be adopted, whichever are greater.

(2)  A bylaw that fixes a greater quorum or voting requirement for members under subdivision (1) of this subsection may not be adopted and shall not be amended by the board of directors.

(f)  Bylaw changing quorum or voting requirement for directors.

(1)  A bylaw that fixes a greater quorum or voting requirement for the board of directors may be amended:

(A)  if adopted by the members, only by the members; or

(B)  if adopted by the board of directors, either by the members or by the board of directors.

(2)  A bylaw adopted or amended by the members that fixes a greater quorum or voting requirement for the board of directors may provide that it may be amended only by a specified vote of either the members or the board of directors, but if the bylaw is to be amended by a specified vote of the members, the bylaw shall be adopted by the same specified vote of the members.

(3)  Action by the board of directors under subdivision (1)(B) of this subsection to adopt or amend a bylaw that changes the quorum or voting requirement for the board of directors shall meet the same quorum requirement and be adopted by the same vote required to take action under the quorum and voting requirement then in effect or proposed to be adopted, whichever is greater.

(g)  Emergency bylaws.

(1)  Unless otherwise provided in the articles or bylaws, the board of directors may adopt bylaws to be effective only in an emergency as defined in subdivision (4) of this subsection.  The emergency bylaws, which are subject to amendment or repeal by the members, may include all provisions necessary for managing the cooperative during the emergency, including:

(A)  procedures for calling a meeting of the board of directors;

(B)  quorum requirements for the meeting; and

(C)  designation of additional or substitute directors.

(2)  All provisions of the regular bylaws consistent with the emergency bylaws shall remain in effect during the emergency.  The emergency bylaws shall not be effective after the emergency ends.

(3)  Action taken in good faith in accordance with the emergency bylaws:

(A)  binds the cooperative; and

(B)  may not be the basis for imposition of liability on any director, officer, employee, or agent of the cooperative on the ground that the action was not authorized cooperative action.

(4)  An emergency exists for the purposes of this section if a quorum of the directors cannot readily be obtained because of some catastrophic event.

§ 210.  COOPERATIVE RECORDS

(a)  A cooperative shall keep as permanent records minutes of all meetings of its members and of the board, a record of all actions taken by the members or the board without a meeting by a written unanimous consent in lieu of a meeting, and a record of all waivers of notices of meetings of the members and of the board.

(b)  A cooperative shall maintain appropriate accounting records.

(c)  A cooperative shall maintain its records in written form or in another form capable of conversion into written form within a reasonable time.

(d)  A cooperative shall keep a copy of each of the following records at its principal office:

(1)  its articles and other governing instruments;

(2)  its bylaws or other similar instruments;

(3)  a record of the names and addresses of its members, in a form that allows preparation of a list of members that is alphabetical and that shows each member’s address;

(4)  the minutes of members’ meetings, and records of all actions taken by members without a meeting by unanimous written consent in lieu of a meeting, for the past three years;

(5)  all written communications within the past three years to members as a group or to any class of members as a group;

(6)  a list of the names and business addresses of its current board of directors and officers;

(7)  a copy of its most recent periodic registration delivered to the secretary of state under section 107 of this title; and

(8)  all financial statements prepared for periods ending during the last fiscal year.

(e)  Except as otherwise limited by this title, the board of directors of a cooperative shall have discretion to determine what records are appropriate for the purposes of the cooperative, the length of time records are to be retained, and policies relating to the confidentiality, disclosure, inspection, and copying of the records of the cooperative.

Chapter 3.  POWERS AND AUTHORITIES

§ 301.  POWERS

(a)  Generally.  In addition to other powers, a cooperative as an agent or otherwise:

(1)  may perform every act necessary or proper to the conduct of the cooperative’s business or the accomplishment of the purposes of the cooperative;

(2)  has other rights, powers, or privileges granted by the laws of this state to other cooperatives, except those that are inconsistent with the express provisions of this title; and

(3)  has the powers given in this title and in section 994 of Title 11.

(b)  Dealing in products.  A cooperative may buy, sell, or deal in its own products, the products of the cooperative’s individual members, patrons, or nonmembers, the products of another cooperative association or of its members or patrons, or the products of another person or entity.  A cooperative may negotiate the price at which its products may be sold.

(c)  Contracts with members.  A cooperative may enter into or become a party to a contract or agreement for the cooperative or for the cooperative’s individual members or patrons or between the cooperative and its members.

(d)  Holding and transactions of real and personal property.

(1)  A cooperative may purchase and hold, lease, mortgage, encumber, sell, exchange, and convey as a legal entity real, personal, and intellectual property, including real estate, buildings, personal property, patents, and copyrights as the business of the cooperative may require, including the sale or other disposition of assets required by the business of the cooperative as determined by the board.

(2)  A cooperative may take, receive, and hold real and personal property, including the principal and interest of money or other funds and rights in a contract, in trust for any purpose not inconsistent with the purposes of the cooperative in its articles or bylaws and may exercise fiduciary powers in relation to taking, receiving, and holding the real and personal property.

(e)  Buildings.  A cooperative may erect buildings or other structures or facilities on the cooperative’s owned or leased property or on a right-of-way legally acquired by the cooperative.

(f)  Debt instruments.  A cooperative may issue bonds, debentures, or other evidence of indebtedness and may borrow money, may secure any of its obligations by mortgage of or creation of a security interest in or other encumbrances or assignment of all or any of its property, franchises, or income, and may issue guarantees for any legal purpose.  The provisions of chapter 131 of Title 9 shall not apply to a note, bond or other evidence of indebtedness issued by a cooperative or foreign corporation doing business in this state pursuant to this title, to the United States of America or an agency or instrumentality thereof, or to a mortgage, deed of trust or other instrument executed to secure the same.  The cooperative may form special purpose business entities to secure assets of the cooperative.

(g)  Advances to patrons.  A cooperative may make advances to the cooperative’s members or patrons on products delivered by the members or patrons to the cooperative.

(h)  Deposits.  A cooperative may accept donations or deposits of money or real or personal property from other cooperatives, associations, or members from which it is constituted.

(i)  Lending, borrowing, and investing.  A cooperative may lend or borrow money to or from individual members, cooperatives, or associations from which it is constituted with security that it considers sufficient, whether or not the property taken as security is of the kind dealt in by the cooperative, in dealing with the members, cooperatives, or associations.  A cooperative may invest and reinvest its funds.

(j)  Pensions and benefits.  A cooperative may pay pensions, retirement allowances, and compensation for past services to and for the benefit of, and establish, maintain, continue, and carry out, wholly or partially at the expense of the cooperative, employee, or incentive benefit plans, trusts, and provisions to or for the benefit of, any or all of its and its related organizations’ officers, managers, directors, governors, employees, and agents and, in the case of a related organization that is a cooperative, members who provide services to the cooperative, and the families, dependents, and beneficiaries of any of them.  It may indemnify and purchase and maintain insurance for and on behalf of a fiduciary of any of these employee benefit and incentive plans, trusts, and provisions.

(k)  Insurance.  A cooperative may provide for its benefit life insurance and other insurance with respect to the services of any or all of its members, managers, directors, employees, and agents, or on the life of a member for the purpose of acquiring at the death of the member any or all membership interests in the cooperative owned by the member.

(l)  Ownership interests in other entities.

(1)  A cooperative may purchase, acquire, hold, or dispose of the ownership interests of another business entity or organize business entities, whether organized under the laws of this state or another state or the United States, and assume all rights, interests, privileges, responsibilities, and obligations arising out of the ownership interests, including a business entity organized:

(A)  as a federation of associations;

(B)  for the purpose of forming a district, state, or national marketing, sales, or service agency; or

(C)  for the purpose of acquiring marketing facilities at terminal or other markets in this state or other states.

(2)  A cooperative may purchase, own, and hold ownership interests, including stock and other equity interests, memberships, interests in nonstock capital, evidences of indebtedness of any domestic business entity or foreign business entity. 

(m)  Fiduciary powers.  A cooperative may exercise any and all fiduciary powers in relations with members, cooperatives, associations, or business entities from which it is constituted.

§ 302.  EMERGENCY POWERS

(a)  In anticipation of or during an emergency defined in subsection (d) of this section, the board of directors may:

(1)  modify lines of succession to accommodate the incapacity of any director, officer, employee, or agent; and

(2)  relocate the principal office, designate alternative principal offices or regional offices, or authorize the officers to do so.

(b)  During an emergency as contemplated in subsection (d) of this section, unless emergency bylaws provide otherwise:

(1)  notice of a meeting of the board of directors need be given only to those directors whom it is practicable to reach and may be given in any practicable manner, including by publication or radio; and

(2)  one or more officers of the cooperative present at a meeting of the board of directors may be deemed to be directors for the meeting, in order of rank and within the same rank in order of seniority, as necessary to achieve a quorum.

(c)  Cooperative action taken in good faith during an emergency under this section to further the ordinary business affairs of the cooperative:

(1)  binds the cooperative; and

(2)  may not be the basis for the imposition of liability on any director, officer, employee, or agent of the cooperative on the grounds that the action was not authorized cooperative action.

(d)  An emergency exists for purposes of this section if a quorum of the directors cannot readily be obtained because of some catastrophic event.

§ 303.  AGRICULTURAL PRODUCT MARKETING CONTRACTS

(a)  Authority.  A cooperative and its patron member or patron may make and execute a marketing contract, requiring the patron member or patron to sell a specified portion of the patron member’s or patron’s agricultural product or specified commodity produced from a certain area exclusively to or through the cooperative or facility established by the cooperative.

(b)  Title to products.  If a sale is contracted to the cooperative, the sale shall transfer title to the product absolutely, except for a recorded lien or security interest against the agricultural products of the patron member or patron in the state central notification system and liens granted against farm products under federal law, to the cooperative on delivery of the product or at another specified time if expressly provided in the contract.  The contract may allow the cooperative to sell or resell the product of its patron member or patron with or without taking title to the product, and pay the resale price to the patron member or patron, after deducting all necessary selling, overhead, and other costs and expenses, including other proper reserves and interest.

(c)  Term of contract.  A single term of a marketing contract shall not exceed ten years, but a marketing contract may be made self-renewing for periods not exceeding five years each, subject to the right of either party to terminate by giving written notice of the termination during a period of the current term as specified in the contract.

(d)  Damages for breach of contract.  The bylaws or the marketing contract, or both, may set a specific sum as liquidated damages to be paid by the patron member or patron to the cooperative for breach of any provision of the marketing contract regarding the sale or delivery or withholding of a product and may provide that the member or patron shall pay the costs, premiums for bonds, expenses, and fees if an action is brought on the contract by the cooperative.  The remedies for breach of contract are valid and enforceable in the courts of this state.  The provisions shall be enforced as liquidated damages and are not to be considered or regarded as a penalty.

(e)  Injunction against breach of contract.  If there is a breach or threatened breach of a marketing contract by a patron member or patron, the cooperative is entitled to an injunction to prevent the further breach of the contract and to a decree of specific performance of the contract.  Pending the adjudication of the action after filing a certified complaint showing the breach or threatened breach and filing a sufficient bond, the cooperative is entitled to a temporary restraining order and preliminary injunction against the patron member or patron.

(f)  Penalties for contract interference and false reports.  Any person who knowingly induces or attempts to induce any member or patrons of a cooperative organized under this title to breach his or her marketing contract with the cooperative, or who maliciously and knowingly spreads false reports about the finances or management thereof, shall be guilty of a misdemeanor and subject to a fine of not less than $100.00, and not more than $1,000.00, for each such offense.

(g)  Penalties for violation of subsection (f) of this section.  In addition to the penalty provided in subsection (f) of this section, the person, business entity, or other entity may be liable to the cooperative for civil damages for any violation of the provisions of subsection (f).  Each violation shall constitute a separate offense and is subject to the penalties in subsection (f).

CHAPTER 4.  DIRECTORS AND OFFICERS

§ 401.  BOARD GOVERNS COOPERATIVE

A cooperative shall be governed by its board which shall take all action for and on behalf of the cooperative except those actions reserved or granted to members.  Board action shall be by the affirmative vote of a majority of the directors voting at a duly called meeting unless a greater majority is required by the articles or bylaws.  A director individually or collectively with other directors does not have authority to act for or on behalf of the cooperative unless authorized by the board.  A director may advocate interests of members or member groups to the board, but the fiduciary duty of each director is to represent the best interests of the cooperative and all members collectively.

§ 402.  NUMBER OF DIRECTORS

The board shall have not less than five directors, except that a cooperative with 50 or fewer members may have three or more directors as prescribed in the articles or bylaws. 

§ 403.  ELECTION OF DIRECTORS

(a)  First board.  The organizers shall elect and obtain the acknowledgement of the first board of directors to serve until directors are elected by members.  Until election by members, the first board shall appoint directors to fill any vacancies.

(b)  Generally.

(1)  Directors shall be elected for the term, at the time, and in the manner provided in this section and the bylaws.

(2)  A majority of the directors shall be members, and a majority of the directors shall be elected exclusively by the members holding patron membership interests unless otherwise provided in the articles or bylaws.

(3)  The voting authority of the directors may be allocated according to allocation units or equity classifications of the cooperative, provided that at least one-half of the voting power on general matters of the cooperative shall be allocated to the directors elected by members holding patron membership interests or in the alternative, the directors elected by the members holding patron membership interests shall have an equal or shall not have a minority voting power on general matters of the cooperative.

(4)  A director holds office for the term the director was elected and until a successor is elected and has qualified, or until the earlier death, resignation, removal, or disqualification of the director,

(5)  The expiration of a director’s term with or without election of a qualified successor does not make the prior or subsequent acts of the director or the board void or voidable.

(6)  Subject to any limitation in the articles or bylaws, the board of directors may set the compensation of directors.

(7)  Directors may be divided into or designated and elected by class or other distinction as provided in the articles or bylaws.

(8)  A director may resign by giving notice to the chair of the board or the board of directors.  The resignation is effective without acceptance when the notice is given to the chair of the board or the board of directors unless a later effective time is specified in the notice.

(c)  Election at regular meeting.  Directors shall be elected at the regular members’ meeting for the terms of office prescribed in the bylaws.  Except for directors elected at district or special meetings to replace a vacancy, all directors shall be elected at the regular members’ meeting.  There shall be no cumulative voting for directors except as provided in this title and the articles or bylaws.

(d)  District or local unit election of directors.  For a cooperative with districts or other units, members may elect directors on a district or unit basis if provided in the bylaws.  The directors may be nominated or elected at district meetings if provided in the bylaws.  Directors who are nominated at district meetings shall be elected at the annual regular members’ meeting by vote of the entire membership, unless the bylaws provide that directors who are nominated at district meetings are to be elected by vote of the members of the district, at the district meeting or the annual regular members’ meeting.

(e)  Vote by mail or alternative ballot.  The following shall apply to voting by mail or alternative ballot voting:

(1)  A member may not vote other than by his or her presence at a meeting for a director or by mail ballot or alternative ballot authorized by the board of directors.

(2)  The ballot shall be in a form prescribed by the board.

(3)  The member shall mark the ballot for the candidate chosen and mail the ballot to the cooperative in a sealed plain envelope inside another envelope bearing the member’s name, or shall vote designating the candidate chosen by alternative ballot in the manner prescribed by the board.

(4)  If the ballot of the member is received by the cooperative on or before the date of the regular members’ meeting or as otherwise prescribed for alternative ballots, the ballot shall be accepted and counted as the vote of the absent member.

(f)  Business entity members may nominate persons for director.  If a member of a cooperative is not a natural person, and the bylaws do not provide otherwise, the member may appoint or elect one or more natural persons to be eligible for election as a director to the board.

(g)  Term.  A director holds office for the term for which the director was elected and until a successor is elected and has qualified, or the earlier death, resignation, removal, or disqualification of the director.

(h)  Acts not void or voidable.  The expiration of a director’s term with or without the election of a qualified successor does not make prior or subsequent acts of the director void or voidable.

(i)  Compensation.  Subject to any limitation in the articles or bylaws, the board of directors may fix the compensation of the directors.

(j)  Classification.  Directors may be divided into classes as provided in the articles or bylaws.

§ 404.  FILLING VACANCIES

(a)  Patron directors.  If a patron member director’s position becomes vacant or a new director position is created for a director that was or is to be elected by patron members, the board in consultation with the directors elected by patron members shall appoint a patron member of the cooperative to fill the director’s position until the next regular or special members’ meeting, provided, however, if there are no directors elected by patron members on the board at the time of the vacancy, a special patron members’ meeting shall be called to fill the patron member director vacancy. 

(b)  Nonpatron directors.  If the vacating director was not elected by the patron members or a new director position is created, unless otherwise provided in the articles or bylaws, the board shall appoint a director to fill the vacant position by majority vote of the remaining or then‑serving directors even though less than a quorum.  At the next regular or special members’ meeting, the members or patron members shall elect a director to fill the unexpired term of the vacant director’s position.

§ 405.  REMOVAL OF DIRECTORS

(a)  Modification.  The provisions of this section apply unless modified by the articles or the bylaws.

(b)  Removal by directors.  A director may be removed at any time, with or without cause, if:

(1)  the director was named by the board of directors to fill a vacancy;

(2)  the members have not elected directors in the interval between the time of the appointment to fill a vacancy and the time of the removal; and

(3)  a majority of the remaining directors present affirmatively votes to remove the director.

(c)  Removal by members.  Any one or all of the directors may be removed at any time, with or without cause, by the affirmative vote of the holders of a majority of the voting power of membership interests entitled to vote at an election of directors, provided that if a director has been elected solely by the patron members or the holders of a class or series of membership interests as stated in the articles or bylaws, that director may be removed only by the affirmative vote of the holders of a majority of the voting power of the patron members for a director elected by the patron members or of all membership interests of that class or series entitled to vote at an election of that director.

(d)  Election of replacements.  New directors may be elected at a meeting at which directors are removed.

§ 406.  BOARD OF DIRECTORS’ MEETINGS

(a)  Time and place.  Meetings of the board of directors may be held from time to time as provided in the articles or bylaws at any place within or without the state that the board of directors may select or by any means described in subsection (b) of this section.  If the board of directors fails to select a place for a meeting, the meeting shall be held at the principal executive office, unless the articles or bylaws provide otherwise.

(b)  Electronic communications.

(1)  A conference among directors by any means of communications through which the directors may simultaneously hear each other during the conference constitutes a board of directors’ meeting, if the same notice is given of the conference as would be required by subsection (c) of this section for a meeting, and if the number of directors participating in the conference would be sufficient to constitute a quorum at a meeting.  Participation in a meeting by that means constitutes presence in person at the meeting.

(2)  A director may participate in a board of directors’ meeting not described in subdivision (1) of this subsection by any means of communications through which the director, other directors so participating, and all directors physically present at the meeting may simultaneously hear each other during the meeting.  Participation in a meeting by that means constitutes presence in person at the meeting.

(c)  Calling meetings and notice.  Unless the articles or bylaws provide for a different time period, a director may call a board meeting by giving at least ten days’ notice or, in the case of organizational meetings, at least three days’ notice to all directors of the date, time, and place of the meeting.  The notice need not state the purpose of the meeting unless this title, the articles, or the bylaws require it.

(d)  Previously scheduled meetings.  If the day or date, time, and place of a board of directors’ meeting have been provided in the articles or bylaws, or announced at a previous meeting of the board of directors, no notice is required.  Notice of an adjourned meeting need not be given other than by announcement at the meeting at which adjournment is taken.

(e)  Waiver of notice.  A director may waive notice of a meeting of the board of directors.  A waiver of notice by a director entitled to notice is effective whether given before, at, or after the meeting, and whether given in writing, orally, or by attendance.  Attendance by a director at a meeting is a waiver of notice of that meeting, except where the director objects at the beginning of the meeting to the transaction of business because the meeting is not lawfully called or convened and does not participate in the meeting after the objection.

(f)  Absent directors.  If the articles or bylaws so provide, a director may give advance written consent or opposition to a proposal to be acted on at a board of directors’ meeting.  If the director is not present at the meeting, consent or opposition to a proposal does not constitute presence for purposes of determining the existence of a quorum, but consent or opposition must be counted as the vote of a director present at the meeting in favor of or against the proposal and must be entered in the minutes or other record of action at the meeting, if the proposal acted on at the meeting is substantially the same or has substantially the same effect as the proposal to which the director has consented or objected. 

§ 407.  QUORUM

A majority, or a larger or smaller portion or number provided in the articles or bylaws, of the directors currently holding office is a quorum for the transaction of business.  In the absence of a quorum, a majority of the directors present may adjourn a meeting from time to time until a quorum is present.  If a quorum is present when a duly called or held meeting is convened, the directors present may continue to transact business until adjournment, even though the withdrawal of a number of directors originally present leaves less than the proportion or number otherwise required for a quorum.

§ 408.  ACT OF THE BOARD OF DIRECTORS

(a)  The board of directors shall take action by the affirmative vote of the greater of:

(1)  a majority of directors present at a duly held meeting at the time the action is taken; or

(2)  a majority of the minimum proportion or number of directors that would constitute a quorum for the transaction of business at the meeting, except where this title, the articles, or bylaws require the affirmative vote of a larger proportion or number.

(b)  If the articles or bylaws require a larger proportion or number than is required by this title for a particular action, the articles or bylaws control.

§ 409.  ACTION WITHOUT A MEETING

(a)  Method.  An action required or permitted to be taken at a board of directors’ meeting may be taken by written action signed by all of the directors.  If the articles or bylaws so provide, any action, other than an action requiring member approval, may be taken by written action signed by the number of directors that would be required to take the same action at a meeting of the board of directors at which all directors were present.

(b)  Effective time.  The written action is effective when signed by the required number of directors, unless a different effective time is provided in the written action.

(c)  Notice and liability.  When written action is permitted to be taken by fewer than all directors, all directors shall be notified immediately of its text and effective date.  Failure to provide the notice does not invalidate the written action.  A director who does not sign or consent to the written action has no liability for the action or actions taken by the written action.

§ 410.  AUDIT COMMITTEE

The board of directors shall establish an audit committee to review the financial information and accounting report of the cooperative.  The cooperative shall have the financial information audited for presentation to the members unless the bylaws allow financial statements that are not audited and the financial statements clearly state that they are not audited and state the difference between the financial statements and audited financial statements that are prepared according to generally accepted accounting processes.  The directors shall elect members to the audit committee.  The audit committee shall assure an independent review of the cooperative’s finances and audit.

§ 411.  COMMITTEES

(a)  Generally.  A resolution approved by the affirmative vote of a majority of the board of directors may establish committees having the authority of the board in the management of the business of the cooperative only to the extent provided in the resolution.  Committees may include a special litigation committee consisting of one or more independent directors or other independent persons to consider legal rights or remedies of the cooperative and whether those rights and remedies should be pursued.  Committees other than special litigation committees are subject at all times to the direction and control of the board of directors.

(b)  Membership.  Committee members must be natural persons.  Unless the articles or bylaws provide for a different membership or manner of appointment, a committee consists of one or more persons, who need not be directors, appointed by affirmative vote of a majority of the directors present.

(c)  Procedure.  The procedures for meetings of the board of directors apply to committees and members of committees to the same extent as they apply to the board of directors and individual directors.

(d)  Minutes.  Minutes, if any, of committee meetings shall be made available upon request to members of the committee and to any director.

(e)  Standard of conduct.  The establishment of, delegation of authority to, and action by a committee does not alone constitute compliance by a director with the standard of conduct set forth in section 412 of this title.

(f)  Committee members considered directors.  Committee members are considered to be directors for purposes of sections 412, 413, and 415 of this title. 

§ 412.  STANDARD OF CONDUCT

(a)  Standard and liability.  A director shall discharge the duties of the position of director in good faith, in a manner the director reasonably believes to be in the best interests of the cooperative, and with the care an ordinarily prudent person in a like position would exercise under similar circumstances.  A person who so performs those duties is not liable by reason of being or having been a director of the cooperative.

(b)  Reliance.

(1)  A director is entitled to rely on information, opinions, reports, or statements, including financial statements and other financial data, in each case prepared or presented by:

(A)  one or more officers or employees of the cooperative whom the director reasonably believes to be liable and competent in the matters presented;

(B)  counsel, public accountants, or other persons as to matters that the director reasonably believes are within the person’s professional or expert competence; or

(C)  a committee of the board of directors upon which the director does not serve, duly established by the board of directors, as to matters within its designated authority, if the director reasonably believes the committee to merit confidence.

(2)  Subdivision (1) of this subsection does not apply to a director who has knowledge concerning the matter in question that makes the reliance otherwise permitted by subdivision (1) unwarranted.

(c)  Presumption of assent and dissent.  A director who is present at a meeting of the board of directors when an action is approved by the affirmative vote of a majority of the directors present is presumed to have assented to the action approved, unless the director:

(1)  objects at the beginning of the meeting to the transaction of business because the meeting is not lawfully called or convened and does not participate in the meeting after the objection, in which case the director is not considered to be present at the meeting for any purpose of this title;

(2)  votes against the action at the meeting; or

(3)  is prohibited by a conflict of interest from voting on the action.

(d)  Considerations.  In discharging the duties of the position of director, a director may, in considering the best interests of the cooperative, consider the interests of the cooperative’s employees, customers, suppliers, and creditors, the economy of the state, and long-term as well as short-term interests of the cooperative and its patron members including the possibility that these interests may be best served by the continued independence of the cooperative.

§ 413.  DIRECTOR CONFLICTS OF INTEREST

(a)  Conflict and procedure when conflict arises.

(1)  A contract or other transaction between a cooperative and one or more of its directors, or between a cooperative and a business entity in or of which one or more of its directors are governors, directors, managers, officers, or legal representatives or have a material financial interest, is not void or voidable because the director or directors or the other business entities are parties or because the director or directors are present at the meeting of the members or the board of directors or a committee at which the contract or transaction is authorized, approved, or ratified, if: 

(A)  the contract or transaction was, and the person asserting the validity of the contract or transaction sustains the burden of establishing that the contract or transaction was, fair and reasonable as to the cooperative at the time it was authorized, approved, or ratified; and:

(i)  the material facts as to the contract or transaction and as to the director’s or directors’ interests are disclosed or known to the members; and

(ii)  the material facts as to the contract or transaction and as to the director’s or directors’ interests are fully disclosed or known to the board of directors or a committee, and the board of directors or committee authorizes, approves, or ratifies the contract or transaction in good faith by a majority of the board of directors or committee, but the interested director or directors are not counted in determining the presence of a quorum and shall not vote; or

(B)  the contract or transaction is a distribution or a contract or transaction that is made available to all members or patron members as part of the cooperative’s business.

(2)  If a committee is elected or appointed to authorize, ratify, or approve a contract or transaction under this section, the members of the committee shall not have a conflict of interest and shall be charged with representing the best interests of the cooperative.

(b)  Material financial interest.  For purposes of this section:

(1)  A resolution fixing the compensation of a director or fixing the compensation of another director as a director, officer, employee, or agent of the cooperative is not void or voidable or considered to be a contract or other transaction between a cooperative and one or more of its directors for purposes of this section even though the director receiving the compensation fixed by the resolution is present and voting at the meeting of the board or a committee at which the resolution is authorized, approved, or ratified, or even though other directors voting upon the resolution are also receiving compensation from the cooperative.

(2)  A director has a material financial interest in each organization in which the director, or the spouse, parents, children and spouses of children, brothers, and sisters, spouses of brothers and sisters, and the brothers and sisters of the spouse of the director, or any combination of them have a material financial interest.  For purposes of this section, a contract or other transaction between a cooperative and the spouse, parents, children and spouses of children, brothers and sisters, spouses of brothers and sisters, and the brothers and sisters of the spouse of a director, or any combination of them, is considered to be a transaction between the cooperative and the director.

§ 414.  LIMITATION OF DIRECTOR’S LIABILITY

(a)  Articles may limit liability.  A director’s personal liability to the cooperative or members for monetary damages for breach of fiduciary duty as a director may be eliminated or limited in the articles or bylaws except as provided in subsection (b) of this section.

(b)  Restrictions on liability limitation.  The articles or bylaws may not eliminate or limit the liability of a director for:

(1)  a breach of the director’s duty of loyalty to the cooperative or its members;

(2)  acts or omissions that are not in good faith or involve intentional misconduct or a knowing violation of law;

(3)  a transaction from which the director derived an improper personal benefit; or

(4)  an act or omission occurring before the date when the provision in the articles or bylaws eliminating or limiting liability becomes effective.

§ 415.  INDEMNIFICATION

(a)  Definitions.  The following definitions apply to this section. 

(1)  “Cooperative” includes a domestic or foreign cooperative that was the predecessor of the cooperative referred to in this section in a merger or other transaction in which the predecessor’s existence ceased upon consummation of the transaction. 

(2)  “Official capacity” means:

(A)  with respect to a director, the position of director in a cooperative;

(B)  with respect to a person other than a director, the elective or appointive office or position held by the person, member of a committee of the board of directors, the employment relationship undertaken by an employee of the cooperative, or the scope of the services provided by members of the cooperative who provide services to the cooperative; and

(C)  with respect to a director, chief executive officer, member, or employee of the cooperative who, while a member, director, chief executive officer, or employee of the cooperative, is or was serving at the request of the cooperative or whose duties in that position involve or involved service as a governor, director, manager, officer, member, partner, trustee, employee, or agent of another organization or employee benefit plan, the position of that person as a governor, director, manager, officer, member, partner, trustee, employee, or agent, as the case may be, of the other organization or employee benefit plan. 

(3)  “Proceeding” means a threatened, pending, or completed civil, criminal, administrative, or investigative proceeding, or an arbitration, including a proceeding by or in the right of the cooperative. 

(4)  “Special legal counsel” means counsel who has not represented the cooperative or a related organization, or a director, manager, member of a committee of the board of directors, or employee, whose indemnification is in issue. 

(b)  Indemnification.  Subject to the provisions of subsection (d) of this section, a cooperative shall indemnify a person made or threatened to be made a party to a proceeding by reason of the former or present official capacity of the person against judgments, penalties, fines, including, without limitation, excise taxes assessed against the person with respect to an employee benefit plan, settlements, and reasonable expenses, including attorney’s fees and disbursements, incurred by the person in connection with the proceeding, if, with respect to the acts or omissions of the person complained of in the proceeding, the person: 

(1)  has not been indemnified by another organization or employee benefit plan for the same judgments, penalties, fines, including, without limitation, excise taxes assessed against the person with respect to an employee benefit plan, settlements, and reasonable expenses, including attorney’s fees and disbursements, incurred by the person in connection with the proceeding with respect to the same acts or omissions;

(2)  acted in good faith;

(3)  received no improper personal benefit and the person has not committed an act for which liability cannot be eliminated or limited under subsection 414(b) of this title;

(4)  in the case of a criminal proceeding, had no reasonable cause to believe the conduct was unlawful; and

(5)  in the case of acts or omissions occurring in the official capacity described in subdivisions (a)(2)(A) and (B) of this section, reasonably believed that the conduct was in the best interests of the cooperative, or in the case of acts or omissions occurring in the official capacity described in subdivision (a)(2)(C) of this section, reasonably believed that the conduct was not opposed to the best interests of the cooperative.  If the person’s acts or omissions complained of in the proceeding relate to conduct as a director, officer, trustee, employee, or agent of an employee benefit plan, the conduct is not considered to be opposed to the best interests of the cooperative if the person reasonably believed that the conduct was in the best interests of the participants or beneficiaries of the employee benefit plan.  The termination of a proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent does not, of itself, establish that the person did not meet the criteria set forth in subsection (b) of this section. 

(c)  Advances.  Subject to the provisions of subsection (d) of this section, if a person is made or threatened to be made a party to a proceeding, the person is entitled, upon written request to the cooperative, to payment or reimbursement by the cooperative of reasonable expenses, including attorney’s fees and disbursements, incurred by the person in advance of the final disposition of the proceeding:

(1)  upon receipt by the cooperative of a written affirmation by the person of a good faith belief that the criteria for indemnification set forth in subsection (b) of this section have been satisfied and a written undertaking by the person to repay all amounts so paid or reimbursed by the cooperative, if it is ultimately determined that the criteria for indemnification have not been satisfied; and

(2)  after a determination that the facts then known to those making the determination would not preclude indemnification under this section. 

The written undertaking required by subdivision (1) of this subsection is an unlimited general obligation of the person making it, but need not be secured and shall be accepted without reference to financial ability to make the repayment. 

(d)  Prohibition or limit on indemnification or advances.  The articles or bylaws either may prohibit indemnification or advances of expenses otherwise required by this section or may impose conditions on indemnification or advances of expenses in addition to the conditions contained in subsections (b) and (c) of this section, including, without limitation, monetary limits on indemnification or advances of expenses, if the conditions apply equally to all persons or to all persons within a given class.  A prohibition or limit on indemnification or advances may not apply to or affect the right of a person to indemnification or advances of expenses with respect to any acts or omissions of the person occurring before the effective date of a provision in the articles or the date of adoption of a provision in the bylaws establishing the prohibition or limit on indemnification or advances. 

(e)  Reimbursement to witnesses.  This section does not require or limit the ability of a cooperative to reimburse expenses, including attorney’s fees and disbursements, incurred by a person in connection with an appearance as a witness in a proceeding at a time when the person has not been made or threatened to be made a party to a proceeding. 

(f)  Determination of eligibility.

(1)(A)  All determinations, whether indemnification of a person is required because the criteria set forth in subsection (b) of this section have been satisfied and whether a person is entitled to payment or reimbursement of expenses in advance of the final disposition of a proceeding as provided in subsection (c) of this section, shall be made: 

(i)  by the board of directors by a majority of a quorum, if the directors who are, at the time, parties to the proceeding are not counted for determining either a majority or the presence of a quorum;

(ii)  if a quorum under subdivision (i) of this subdivision (1)(A) cannot be obtained, by a majority of a committee of the board of directors, consisting solely of two or more directors not at the time parties to the proceeding, duly designated to act in the matter by a majority of the full board of directors including directors who are parties;

(iii)  if a determination is not made under subdivision (i) or (ii) of this subdivision (1)(A), by special legal counsel, selected either by a majority of the board of directors or a committee by vote pursuant to subdivision (i) or (ii) or, if the requisite quorum of the full board of directors cannot be obtained and the committee cannot be established, by a majority of the full board of directors including directors who are parties;

(iv)  if a determination is not made under subdivisions (i) - (iii) of this subdivision (1)(A), by the affirmative vote of the members, but the membership interests held by parties to the proceeding shall not be counted in determining the presence of a quorum and are not considered to be present and entitled to vote on the determination; or

(v)  if an adverse determination is made under subdivisions

(i) - (iv) of this subdivision (1)(A) or under subdivision (2) of this subsection, or if no determination is made under subdivisions (i) - (iv) or under subdivision (2) within 60 days after:

(I)  the later to occur of the termination of a proceeding or a written request for indemnification to the cooperative; or

(II)  a written request for an advance of expenses, as the case may be, by a court in this state, which may be the same court in which the proceeding involving the person’s liability took place, upon application of the person and any notice the court requires.

(B)  The person seeking indemnification or payment or reimbursement of expenses pursuant to subdivision (1)(A) of this subsection has the burden of establishing that the person is entitled to indemnification or payment or reimbursement of expenses. 

(2)  With respect to a person who is not, and was not at the time of the acts or omissions complained of in the proceedings, a director, chief executive officer, or person possessing, directly or indirectly, the power to direct or cause the direction of the management or policies of the cooperative, the determination whether indemnification of this person is required because the criteria set forth in subsection (b) of this section have been satisfied and whether this person is entitled to payment or reimbursement of expenses in advance of the final disposition of a proceeding as provided in subsection (c) of this section may be made by an annually appointed committee of the board of directors, having at least one member who is a director.  The committee shall report at least annually to the board of directors concerning its actions. 

(g)  Insurance.  A cooperative may purchase and maintain insurance on behalf of a person in that person’s official capacity against any liability asserted against and incurred by the person in or arising from that capacity, whether or not the cooperative would have been required to indemnify the person against the liability under the provisions of this section. 

(h)  Disclosure.  A cooperative that indemnifies or advances expenses to a person in accordance with this section in connection with a proceeding by or on behalf of the cooperative shall report to the members in writing the amount of the indemnification or advance and to whom and on whose behalf it was paid not later than the next meeting of members. 

(i)  Indemnification of other persons.  Nothing in this section shall be construed to limit the power of the cooperative to indemnify persons other than a director, chief executive officer, member, employee, or member of a committee of the board of the cooperative, by contract or otherwise. 

§ 416.  OFFICERS

(a)  Required officers.

(1)  The board shall elect a chair and one or more vice chairs.

(2)  The board shall elect or appoint a records officer and a financial officer.

(3)  The officers, other than the chief executive officer, shall not have the authority to bind the cooperative except as authorized by the board.

(b)  The board may elect additional officers as the articles or bylaws authorize or require.

(c)  The offices of records officer and financial officer may be combined.

(d)  The chair and first vice chair shall be directors and members.  The financial officer, records officer, and additional officers need not be directors or members.

(e)  The board may employ a chief executive officer to manage the day‑to‑day affairs and business of the cooperative, and if a chief executive officer is employed, the chief executive officer shall have the authority to implement the functions, duties, and obligations of the cooperative except as restricted by the board of directors.  The chief executive officer shall not exercise authority reserved to the board or the members under this title, the articles, or the bylaws.

CHAPTER 5.  MEMBERS

§ 501.  MEMBERS

(a)  Requirement.  A cooperative shall have one or more members. 

(b)  Grouping of members.

(1)  A cooperative may group members and patron members in districts or units, or on another basis if and as authorized in its articles or bylaws which may include authorization for the board to determine the groupings.

(2)  The board may do things necessary to implement the use of districts or units, including setting the time and place and prescribing the rules of conduct for holding meetings by districts or units to elect delegates to members’ meetings.

(c)  Member violations.

(1)  A member who knowingly, intentionally, or repeatedly violates a provision of the articles, bylaws, member control agreement or marketing contract with the cooperative may be required by the board to surrender the member’s voting power or the financial rights of membership interest of any class owned by the member, or both.

(2)  The cooperative shall refund to the member for the surrendered financial rights of membership interest the lesser of the book value or market value of the financial right of the membership interest payable in not more than seven years from the date of surrender, or the board may transfer all of any patron member’s financial rights to a class of financial rights held by members who are not patron members, or to a certificate of interest which carries liquidation rights on par with membership interests and is redeemed within seven years after the transfer as provided in the certificate.

(3)  Membership interests required to be surrendered may be reissued or be retired and canceled by the board.

(d)  Inspection of cooperative records by member.

(1)  A member is entitled to inspect and copy, at the member’s expense, during regular business hours at a reasonable location specified by the cooperative, any of the records described in section 210 of this title if the member meets the requirements of subdivision (2) of this subsection and gives the cooperative written demand at least five business days before the date on which the member wishes to inspect and copy such records.  Notwithstanding the provisions of this subdivision or any provisions of section 210 of this title, no member shall have the right to inspect or copy any records of the cooperative relating to the amount of equity capital in the cooperative held by any person or any accounts receivable or other amounts due the cooperative from any person, or any personnel records or employment records of any employee.

(2)  To be entitled to inspect and copy permitted records, the member shall meet the following requirements:

(A)  the member has been a member for at least one year immediately preceding the demand to inspect or copy or is a member holding at least five percent of all of the outstanding equity interests in the cooperative as of the date the demand is made;

(B)  the demand is made in good faith and for a proper cooperative business purpose;

(C)  the member describes with reasonable particularity the purpose and the records the member desires to inspect; and

(D)  the records are directly connected with the described purpose. 

(3)  The right of inspection granted by this section may not be abolished or limited by the articles, bylaws, or any actions of the board or the members. 

(4)  This section does not affect: 

(A)  the right of a member to inspect records to the same extent as any other litigant if the member is in litigation with the cooperative; or

(B)  the power of a court to compel the production of the cooperative’s records for examination. 

(5)  Notwithstanding any other provision in this section, if the records of the cooperative to be inspected or copied are in active use or storage and, therefore, not available at the time otherwise provided for inspection or copying, the cooperative shall notify the member of this fact and shall set a date and hour within three business days of the date otherwise set in this section for the inspection or copying. 

(6)  A member’s agent or attorney has the same inspection and copying rights as the member.  The right to copy records under this subdivision includes, if reasonable, the right to receive copies made by photographic or xerographic copying or other means.  The cooperative may impose a reasonable charge, covering the costs of labor and material, for copies of any documents provided to the member.  The charge may not exceed the estimated cost of production and reproduction of the records.

(7)  If a cooperative refuses to allow a member, or the member’s agent or attorney, who complies with this subdivision to inspect or copy any records that the member is entitled to inspect or copy by this section within a prescribed time limit or, if none, within a reasonable time, the superior court of the county in this state where the cooperative’s principal office is located or, if it has no principal office in this state, the superior court of the county in which its registered office is located may, on application of the member, summarily order the inspection or copying of the records demanded at the cooperative’s expense.

(8)  If a court orders inspection or copying of the records demanded, unless the cooperative proves that it refused inspection or copying in good faith because it had a reasonable basis for doubt about the right of the member or the member’s agent or attorney to inspect or copy the records demanded: 

(A)  the court may order the losing party to pay the prevailing party’s reasonable costs, including reasonable attorney’s fees;

(B)  the court may order the losing party to pay the prevailing party for any damages the prevailing party shall have incurred by reason of the subject matter of the litigation;

(C)  if inspection or copying is ordered pursuant to this subdivision (8), the court may order the cooperative to pay the member’s inspection and copying expenses;

(D)  the court may grant either party any other remedy provided by law; and

(E)  the court may impose reasonable restrictions on the use or distribution of the records by the demanding member.

§ 502.  MEMBER NOT LIABLE FOR COOPERATIVE DEBTS

A member is not, merely on the account of that status, personally liable for the acts, debts, liabilities, or obligations of a cooperative.  A member is liable for any unpaid subscription for the membership interest, unpaid membership fees, or a debt for which the member has separately contracted with the cooperative.

§ 503.  REGULAR MEMBERS’ MEETINGS

(a)  Annual meeting.  Regular members’ meetings shall be held annually at a time determined by the board, unless otherwise provided for in the bylaws.

(b)  Location.  The regular members’ meeting shall be held at the principal place of business of the cooperative or at another conveniently located place as determined by the bylaws or the board.

(c)  Business and fiscal reports.  The officers shall submit reports to the members at the regular members’ meeting covering the business of the cooperative for the previous fiscal year that show the condition of the cooperative at the close of the fiscal year.

(d)  Election of directors.  All directors shall be elected at the regular members’ meeting for the terms of office prescribed in the bylaws, except for directors elected at district or unit meetings.

(e)  Notice.

(1)  The cooperative shall give notice of regular members’ meetings by mailing the regular members’ meeting notice to each member at the member’s last known post office address or by other notification approved by the board and agreed to by the members.  The regular members’ meeting notice shall be published or otherwise given by approved method at least two weeks before the date of the meeting or mailed at least 15 days before the date of the meeting.

(2)  The notice shall contain a summary of any bylaw amendments adopted by the board of directors since the last annual meeting.

(f)  Waiver and objections.  A member may waive notice of a meeting of members.  A waiver of notice by a member entitled to notice is effective whether given before, at, or after the meeting, and whether given in writing, orally, or by attendance.  Attendance by a member at a meeting is a waiver of notice of that meeting, except where the member objects at the beginning of the meeting to the transaction of business because the meeting is not lawfully called or convened, or objects before a vote on an item of business because the item may not lawfully be considered at that meeting and does not participate in the consideration of the item at that meeting.

§ 504.  SPECIAL MEMBERS’ MEETINGS

(a)  Calling meeting.  Special members’ meetings may be called by:

(1)  a majority vote of the board; or

(2)  the written petition of at least 20 percent of the patron members, and, if authorized, 20 percent of the nonpatron members, 20 percent of all members, or members representing 20 percent of the membership interests collectively submitted to the chair.

(b)  Notice.  The cooperative shall give notice of a special members’ meeting by mailing the special members’ meeting notice to each member personally at the person’s last known post office address or an alternative method approved by the board and the member individually or the members generally.  For a member that is an entity, notice mailed or delivered by an alternative method shall be to an officer of the entity.  The special members’ meeting notice shall state the time, place, and purpose of the special members’ meeting.  The special members’ meeting notice shall be issued within ten days from and after the date of the presentation of a members’ petition, and the special members’ meeting shall be held within 30 days after the date of the presentation of the members’ petition.

(c)  Waiver and objections.  A member may waive notice of a meeting of members.  A waiver of notice by a member entitled to notice is effective whether given before, at, or after the meeting, and whether given in writing, orally, or by attendance.  Attendance by a member at a meeting is a waiver of notice of that meeting, except where the member objects at the beginning of the meeting to the transaction of business because the meeting is not lawfully called or convened, or objects before a vote on an item of business because the item may not lawfully be considered at that meeting and does not participate in the consideration of the item at that meeting.

§ 505.  CERTIFICATION OF MEETING NOTICE

(a)  Certificate of mailing.  After mailing special or regular members’ meeting notices or otherwise delivering the notices, the cooperative shall execute a certificate containing the date of mailing or delivery of the notice and a statement that the special or regular members’ meeting notices were mailed or delivered as prescribed by law.

(b)  Matter of record.  The certificate shall be made a part of the record of the meeting.

(c)  Failure to receive meeting notice.  Failure of a member to receive a special or regular members’ meeting notice does not invalidate an action that is taken by the members at a members’ meeting.

§ 506.  QUORUM

(a)  Quorum.  The quorum for a members’ meeting to transact business shall be:

(1)  ten percent of the total number of members for a cooperative with 500 or fewer members; or

(2)  50 members for cooperatives with more than 500 members.

(b)  Quorum for voting by mail.  In determining a quorum at a meeting, on a question submitted to a vote by mail or an alternative method, members present in person or represented by mail vote or the alternative voting method shall be counted.  The attendance of a sufficient number of members to constitute a quorum shall be established by a registration of the members of the cooperative present at the meeting.  The registration shall be verified by the chair or the records officer of the cooperative and shall be reported in the minutes of the meeting.

(c)  Meeting action invalid without quorum.  An action by a cooperative is not valid or legal in the absence of a quorum at the meeting at which the action was taken.

§ 507.  REMOTE COMMUNICATIONS FOR MEMBER MEETINGS 

(a)  Construction and application.  This section shall be construed and applied to:

(1)  facilitate remote communications consistent with other applicable law; and

(2)  be consistent with reasonable practices concerning remote communications and with the continued expansion of those practices.

(b)  Member meetings held solely by means of remote communications.  To the extent authorized in the articles, a member control agreement, or the bylaws, and determined by the board of directors, a regular or special meeting of members may be held solely by any combination of means of remote communications through which the members may participate in the meeting, if notice of the meeting is given to every owner of membership interests entitled to vote as would be required by this title for a meeting, and if the membership interests held by the members participating in the meeting would be sufficient to constitute a quorum at a meeting.  Participation by a member by that means constitutes presence at the meeting in person or by proxy if all the other requirements of this title for the meeting are met. 

(c)  Participation in member meetings by means of remote communications.  To the extent authorized in the articles or the bylaws, and determined by the board of directors, a member not physically present in person or by proxy at a regular or special meeting of members may, by means of remote communications, participate in a meeting of members held at a designated place.  Participation by a member by that means constitutes presence at the meeting in person or by proxy if all the other requirements of this title for the meeting are met. 

(d)  Requirements for meetings held solely by means of remote communications and for participation by means of remote communications.  In any meeting of members held solely by means of remote communications under subsection (b) of this section or in any meeting of members held at a designated place in which one or more members participate by means of remote communications under subsection (c) of this section:

(1)  the cooperative shall implement reasonable measures to verify that each person deemed present and entitled to vote at the meeting by means of remote communications is a member; and

(2)  the cooperative shall implement reasonable measures to provide each member participating by means of remote communications with a reasonable opportunity to participate in the meeting, including an opportunity to:

(A)  read or hear the proceedings of the meeting substantially concurrently with those proceedings;

(B)  if allowed by the procedures governing the meeting, have the member’s remarks heard or read by other participants in the meeting substantially concurrently with the making of those remarks; and

(C)  if otherwise entitled, vote on matters submitted to the members.

(e)  Notice to members.

(1)  Any notice to members given by the cooperative under any provision of this title, the articles, or the bylaws by a form of electronic communications consented to by the member to whom the notice is given is effective when given.  The notice is deemed given:

(A)  if by facsimile communication, when directed to a telephone number at which the member has consented to receive notice;

(B)  if by electronic mail, when directed to an electronic mail address at which the member has consented to receive notice;

(C)  if by a posting on an electronic network on which the member has consented to receive notice, together with separate notice to the member of the specific posting, upon the later of:

(i)  the posting; and

(ii)  the giving of the separate notice; and

(D)  if by any other form of electronic communications by which the member has consented to receive notice, when directed to the member.

(2)  An affidavit of the secretary, other authorized officer, or authorized agent of the cooperative, that the notice has been given by a form of electronic communications is, in the absence of fraud, prima facie evidence of the facts stated in the affidavit.

(3)  Consent by a member to notice given by electronic communications may be given in writing or by authenticated electronic communications.  The cooperative is entitled to rely on any consent so given until revoked by the member, provided that no revocation affects the validity of any notice given before receipt by the cooperative of revocation of the consent.

(f)  Revocation.  Any ballot, vote, authorization, or consent submitted by electronic communications under this title may be revoked by the member submitting the ballot, vote, authorization, or consent so long as the revocation is received by a director or the chief executive officer of the cooperative at or before the meeting or before an action without a meeting is effective.

(g)  Waiver.  Waiver of notice by a member of a meeting by means of authenticated electronic communications may be given in the manner provided for the regular or special meeting.  Participation in a meeting by means of remote communications described in subsections (b) and (c) of this section is a waiver of notice of that meeting, except where the member objects at the beginning of the meeting to the transaction of business because the meeting is not lawfully called or convened, or objects before a vote on an item of business because the item may not lawfully be considered at the meeting and does not participate in the consideration of the item at that meeting.

§ 508.  ACT OF MEMBERS

(a)  Action by affirmative vote of members.

(1)  The members shall take action by the affirmative vote of the members of the greater of: 

(A)  a majority of the voting power of the membership interests present and entitled to vote on that item of business; or

(B)  a majority of the voting power that would constitute a quorum for the transaction of business at the meeting, except where this title, the articles or bylaws, or a member control agreement require a larger proportion. 

(2)  If the articles, bylaws, or a member control agreement requires a larger proportion than is required by this title for a particular action, the articles, bylaws, or the member control agreement shall control over the provisions of this title.

(b)  Class or series of membership interests.  In any case where a class or series of membership interests is entitled by this title, the articles, bylaws, a member control agreement, or the terms of the membership interests to vote as a class or series, the matter being voted upon must also receive the affirmative vote of the owners of the same proportion of the membership interests present of that class or series; or of the total outstanding membership interests of that class or series, as the proportion required pursuant to subsection (a) of this section, unless the articles, bylaws, or the member control agreement requires a larger proportion.  Unless otherwise stated in the articles, bylaws, or a member control agreement, in the case of voting as a class or series, the minimum percentage of the total voting power of membership interests of the class or series that must be present is equal to the minimum percentage of all membership interests entitled to vote required to be present under section 506 of this title.

(c)  Greater quorum or voting requirements. 

(1)  The articles or bylaws adopted by the members may provide for a greater quorum or voting requirement for members or voting groups than is provided for by this title. 

(2)  An amendment to the articles or bylaws that adds, changes, or deletes a greater quorum or voting requirement shall meet the same quorum requirement and be adopted by the same vote and voting groups required to take action under the quorum and voting requirements then in effect or proposed to be adopted, whichever is greater.

§ 509.  ACTION WITHOUT A MEETING 

(a)  Method.  An action required or permitted to be taken at a meeting of the members may be taken by written action signed or consented to by authenticated electronic communications by all of the members.  If the articles, bylaws, or a member control agreement so provides, any action may be taken by written action signed or consented to by authenticated electronic communications by the members who own voting power equal to the voting power that would be required to take the same action at a meeting of the members at which all members were present.

(b)  Effective time.  The written action is effective when signed or consented to by authenticated electronic communications by the required members, unless a different effective time is provided in the written action.

(c)  Notice and liability.  When written action is permitted to be taken by fewer than all members, all members shall be notified immediately of its text and effective date.  Failure to provide the notice does not invalidate the written action.  A member who does not sign or consent to the written action has no liability for the action or actions taken by the written action.

§ 510.  MEMBER VOTING RIGHTS

(a)  Member has one vote; patronage voting.  A patron member of a cooperative is only entitled to one vote on an issue to be voted upon by members holding patron membership interests, except that if authorized in the articles or bylaws, a patron member may be entitled to additional votes based on patronage criteria in section 511 of this title.  On any matter of the cooperative, the entire patron members’ voting power shall be voted collectively based upon the vote of the majority of patron members voting on the issue, and the collective vote of the patron members shall be a majority of the vote cast unless otherwise provided in the bylaws.  The bylaws may not reduce the collective patron member vote to less than 15 percent of the total vote on matters of the cooperative.  A nonpatron member has the voting rights in accordance to his or her nonpatron membership interests as granted in the bylaws, subject to the provisions of this title.

(b)  Right to vote at meeting.  A member or delegate may exercise voting rights on any matter that is before the members as prescribed in the articles or bylaws at a members’ meeting from the time the member or delegate arrives at the members’ meeting, unless the articles or bylaws specify an earlier and specific time for closing the right to vote.

(c)  Voting method.  A member’s vote at a members’ meeting shall be in person or by mail if a mail vote is authorized by the board or by alternative method if authorized by the board, and not by proxy, except as provided in subsection (d) of this section.

(d)  Members represented by delegates.

(1)  The provisions of this subdivision apply to members represented by delegates;

(2)  A cooperative may provide in the articles or bylaws that units or districts of members are entitled to be represented at members’ meetings by delegates chosen by the members of the unit or district.  The delegates may vote on matters at the members’ meeting in the same manner as a member.  The delegates may only exercise the voting rights on a basis and with the number of votes as prescribed in the articles or bylaws;

(3)  If the approval of a certain portion of the members is required for adoption of amendments, a dissolution, a merger, a consolidation, or a sale of assets, the votes of delegates shall be counted as votes by the members represented by the delegate;

(4)  Patron members may be represented by the proxy of other patron members; and

(5)  Nonpatron members may be represented by proxy if authorized in the bylaws.

(e)  Absentee ballots.

(1)  The provisions of this subsection apply to absentee ballots.

(2)  A member who is or will be absent from a members’ meeting may vote by mail or by an approved alternative method on the ballot prescribed in this subsection on any motion, resolution, or amendment that the board submits for vote by mail or alternative method to the members.

(3)  The ballot shall be in the form prescribed by the board, and contain:

(A)  the exact text of the proposed motion, resolution, or amendment to be acted on at the meeting; and

(B)  the text of the motion, resolution, or amendment for which the member may indicate an affirmative or negative vote.

(4)  The member shall express a choice by marking an appropriate choice on the ballot and mail, deliver, or otherwise submit the ballot to the cooperative in a plain, sealed envelope inside another envelope bearing the member’s name or by an alternative method approved by the board.

(5)  A properly executed ballot shall be accepted by the board and counted as the vote of the absent member at the meeting.

§ 511.  PATRON MEMBER VOTING BASED ON PATRONAGE

(a)  Patron members to have an additional vote.  A cooperative may authorize by the articles or the bylaws patron members to have an additional vote for:

(1)  a stipulated amount of business transacted between the patron member and cooperative;

(2)  a stipulated number of patron members in a member cooperative;

(3)  a certain stipulated amount of equity allocated to or held by a patron member cooperative in the cooperative’s central organization; or

(4)  a combination of methods in subdivisions (1) through (3) of this subsection.

(b)  Delegates elected by patrons to have an additional vote.  A cooperative that is organized into units or districts of patron members may, by the articles or the bylaws, authorize the delegates elected by its patron members to have an additional vote for:

(1)  a stipulated amount of business transacted between the patron members in the units or districts and the cooperative;

(2)  a certain stipulated amount of equity allocated to or held by the patron members of the units or districts of the cooperative; or

(3)  a combination of methods in subdivisions (1) and (2) of this subsection.

§ 512.  VOTING RIGHTS

(a)  Determination.  The board of directors may fix a date not more than 60 days, or a shorter time period provided in the articles or bylaws, before the date of a meeting of members as the date for the determination of the owners of membership interests entitled to notice of and entitled to vote at the meeting.  When a date is so fixed, only members on that date are entitled to notice of and permitted to vote at that meeting of members.

(b)  Voting power.  Unless otherwise provided in the articles, bylaws, or a member control agreement, members have voting power as provided in section 510 of this title. 

(c)  Nonmembers.  The articles or bylaws may give or prescribe the manner of giving a creditor, security holder, or other person a right to vote on patron membership interests under this section.

(d)  Jointly owned membership interests.  Membership interests owned by two or more members may be voted by any one of them unless the cooperative receives written notice from any one of them denying the authority of that person to vote those membership interests.

(e)  Manner of voting and presumption.  Except as provided in subsection (d) of this section, an owner of a nonpatron membership interest or a patron membership interest with more than one vote that is entitled to vote may vote any portion of the membership interest in any way the member chooses.  If a member votes without designating the proportion voted in a particular way, the member is considered to have voted all of the membership interest in that way. 

§ 513.   VOTING BY ORGANIZATIONS AND LEGAL

             REPRESENTATIVES

(a)  Membership interests held by another organization.  Membership interests of a cooperative reflected in the required records as being owned by another domestic or foreign business entity may be voted by the chair, chief executive officer, or another legal representative of that organization.

(b)  Membership interests held by subsidiary.  Except as provided in subsection (c) of this section, membership interests of a cooperative reflected in the required records as being owned by a subsidiary are not entitled to be voted on any matter.

(c)  Membership interests controlled in a fiduciary capacity.  Membership interests of a cooperative in the name of, or under the control of, the cooperative or a subsidiary in a fiduciary capacity are not entitled to be voted on any matter, except to the extent that the settlor or beneficiary possesses and exercises a right to vote or gives the cooperative or, with respect to membership interests in the name of or under control of a subsidiary, the subsidiary, binding instructions on how to vote the membership interests.

(d)  Voting by certain representatives.  Subject to section 510 of this title, membership interests under the control of a person in a capacity as a personal representative, administrator, executor, guardian, conservator, or the like may be voted by the person, either in person or by proxy, without reflecting in the required records those membership interests in the name of the person.

(e)  Voting by trustees in bankruptcy or receiver.  Membership interests reflected in the required records in the name of a trustee in bankruptcy or a receiver may be voted by the trustee or receiver either in person or by proxy.  Membership interests under the control of a trustee in bankruptcy or a receiver may be voted by the trustee or receiver without reflecting in the required records the name of the trustee or receiver, if authority to do so is contained in an appropriate order of the court by which the trustee or receiver was appointed.  The right to vote of trustees in bankruptcy and receivers is subject to section 510 of this title. 

(f)  Membership interests held by other organizations.  Membership interests reflected in the required records in the name of a business entity not described in subsections (a) through (e) of this section may be voted either in person or by proxy by the legal representative of that business entity.

(g)  Grant of security interest.  The grant of a security interest in a membership interest does not entitle the holders of the security interest to vote. 

§ 514.  PROXIES

(a)  Authorization.

(1)  A patron member may only grant a proxy to vote to another patron member.

(2)  A member may cast or authorize the casting of a vote by:

(A)  filing a written appointment of a proxy with the board of directors at or before the meeting at which the appointment is to be effective; or

(B)  telephonic transmission or authenticated electronic communication, whether or not accompanied by written instructions of the member, of an appointment of a proxy with the cooperative or the cooperative’s duly authorized agent at or before the meeting at which the appointment is to be effective. 

(3)  The telephonic transmission or authenticated electronic communication shall set forth or be submitted with information from which it can be determined that the appointment was authorized by the member.  If it is reasonably concluded that the telephonic transmission or authenticated electronic communication is valid, the inspectors of election or, if there are not inspectors, the other persons making that determination shall specify the information upon which they relied to make that determination.  A proxy so appointed may vote on behalf of the member, or otherwise participate, in a meeting by remote communication under section 507 of this title, to the extent the member appointing the proxy would have been entitled to participate by remote communications if the member did not appoint the proxy.

(4)  A copy, facsimile, telecommunication, or other reproduction of the original writing or transmission may be substituted or used in lieu of the original writing or transmission for any purpose for which the original transmission could be used, if the copy, facsimile, telecommunication, or other reproduction is a complete and legible reproduction of the entire original writing or transmission.

(5)  An appointment of a proxy for membership interests owned jointly by two or more members is valid if signed or consented to by authenticated electronic communication by any one of them unless the cooperative receives from any one of those members written notice or an authenticated electronic communication either denying the authority of that person to appoint a proxy or appointing a different proxy.

(b)  Duration.  The appointment of a proxy is valid for 11 months, unless a longer period is expressly provided in the appointment.  No appointment is irrevocable unless the appointment is coupled with an interest in the membership interests or the cooperative.

(c)  Termination.  An appointment may be terminated at will, unless the appointment is coupled with an interest, in which case it shall not be terminated except in accordance with the terms of an agreement, if any, between the parties to the appointment.  Termination may be made by filing written notice of the termination of the appointment with a manager of the cooperative, or by filing a new written appointment of a proxy with a manager of the cooperative.  Termination in either manner revokes all prior proxy appointments and is effective when filed with a manager of the cooperative.

(d)  Revocation by death or incapacity.  The death or incapacity of a person appointing a proxy does not revoke the authority of the proxy, unless written notice of the death or incapacity is received by a manager of the cooperative before the proxy exercises the authority under that appointment.

(e)  Multiple proxies.  Unless the appointment specifically provides otherwise, if two or more persons are appointed as proxies for a member, any one of them may vote the membership interests on each item of business in accordance with specific instructions contained in the appointment; and if no specific instructions are contained in the appointment with respect to voting the membership interests on a particular item of business, the membership interests shall be voted as a majority of the proxies determine.  If the proxies are equally divided, the membership interests shall not be voted.

(f)  Vote of proxy accepted and liability.  Unless the appointment of a proxy contains a restriction, limitation, or specific reservation of authority, the cooperative may accept a vote or action taken by a person named in the appointment.  The vote of a proxy is final, binding, and not subject to challenge, but the proxy is liable to the member for damages resulting from a failure to exercise the proxy or from an exercise of the proxy in violation of the authority granted in the appointment.

(g)  Limited authority.  If a proxy is given authority by a member to vote on fewer than all items of business considered at a meeting of members, the member is considered to be present and entitled to vote by the proxy only with respect to those items of business for which the proxy has authority to vote.  A proxy who is given authority by a member who abstains with respect to an item of business is considered to have authority to vote on the item of business for purposes of this subsection.

§ 515.  SALE OF PROPERTY AND ASSETS

(a)  Member approval not required.  A cooperative may, by affirmative vote of a majority of the board present, upon those terms and conditions and for those considerations, which may be money, securities, or other instruments for the payment of money or other property, as the board of directors considers expedient, and without member approval:

(1)  sell, lease, transfer, or otherwise dispose of all or substantially all of its property and assets in the usual and regular course of its business;

(2)  sell, lease, transfer, or otherwise dispose of all or substantially all of its property and assets not in the usual and regular course of its business if:

(A)  the cooperative’s accountant has given an opinion that the cooperative cannot continue as an ongoing business, and the cooperative is under financial duress;

(B)  the cooperative has given notice to the members of the impending or potential disposition prior to the disposition; and

(C)  the board has determined that failure to proceed with the disposition would be adverse to the interests of the members and the cooperative.

(3)  grant a security interest in all or substantially all of its property and assets whether or not in the usual and regular course of its business;

(4)  transfer any or all of its property to a business entity, all the ownership interests of which are owned by the cooperative; or

(5)  for purposes of debt financing, transfer any or all of its property to a special purpose entity owned or controlled by the cooperative for an asset securitization.

(b)  Member approval required.  Except as provided in subsection (a) of this section, a cooperative, by affirmative vote of a majority of the board of directors present, may sell, lease, transfer, or otherwise dispose of all or substantially all of its property and assets, including its good will, not in the usual and regular course of its business, upon those terms and conditions and for those considerations, which may be money, securities, or other instruments for the payment of money or other property, as the board of directors considers expedient, when approved at a regular or special meeting of the members by the affirmative vote of the owners of a majority of the voting power of the interests entitled to vote.  Written notice of the meeting shall be given to all members whether or not they are entitled to vote at the meeting.  The written notice shall state that a purpose of the meeting is to consider the sale, lease, transfer, or other disposition of all or substantially all of the property and assets of the cooperative.

(c)  Confirmatory documents.  Confirmatory deeds, assignments, or similar instruments to evidence a sale, lease, transfer, or other disposition may be signed and delivered at any time in the name of the transferor by its current chair of the board of directors or authorized agents.

(d)  Liability of transferee.  The transferee is liable for the debts, obligations, and liabilities of the transferor only to the extent provided in the contract or agreement between the transferee and the transferor or to the extent provided by law.

§ 516.  VOTE OF OWNERSHIP INTERESTS HELD BY COOPERATIVE

A cooperative that holds ownership interests of another business entity may, by direction of the cooperative’s board, elect or appoint a person to represent the cooperative at a meeting of the business entity.  The representative has authority to represent the cooperative and may cast the cooperative’s vote at the business entity’s meeting.

CHAPTER 6.  MEMBERSHIP INTERESTS

§ 601.  MEMBERSHIP INTERESTS

(a)  Amounts and divisions of membership interests.  The authorized amount and divisions of patron membership interests and, if authorized, nonpatron membership interests may be increased or decreased or established or altered, in accordance with the restrictions in this title, by amending the articles or bylaws at a regular members’ meeting or at a special members’ meeting called for the purpose of the amendment.

(b)  Issuance of membership interests.  Authorized membership interests may be issued on terms and conditions prescribed in the articles, bylaws, or if authorized in the articles or bylaws as determined by the board.  The cooperative shall disclose to any person or entity acquiring membership interests to be issued by the cooperative, the organization, capital structure, and known business prospects and risks of the cooperative, the nature of the governance and financial rights of the membership interest being acquired and of other classes of membership and membership interests.  The cooperative shall notify all members of the membership interests being issued by the cooperative.  A membership interest may not be issued until the subscription price of the membership interest has been paid for in money or property with the value of the property to be contributed approved by the board.

(c)  Patron membership interests.  The patron membership interests collectively shall have not less than 50 percent of the cooperative’s financial rights to profit allocations and distributions, except that if authorized in the original articles as filed or articles or bylaws adopted by an affirmative vote of the patron members or the articles or bylaws are amended by the affirmative vote of patron members, the financial rights to the cooperative’s financial rights to profit allocations and distributions to patron members collectively may be not less than 15 percent.

(d)  Transferring or selling membership interests.  After issuance by the cooperative, membership interests in a cooperative may only be sold or transferred with the approval of the board.  The board may adopt resolutions prescribing procedures to prospectively approve transfers.

(e)  Nonpatron membership interests.  If authorized by the articles, the cooperative may solicit and issue nonpatron membership interests on terms and conditions determined by the board and disclosed in the articles or bylaws or by separate disclosure to the members.  Each member acquiring nonpatron membership interests shall sign a member control agreement or agree to the conditions of the bylaws, either of which shall describe the rights and obligations of the member as it relates to the nonpatron membership interests, the financial and governance rights, the transferability of the nonpatron membership interests, the division and allocations of profits and losses among the membership interests and membership classes, and financial rights upon liquidation.  If the articles or bylaws do not otherwise provide for the allocation of the profits and losses between patron membership interests and nonpatron membership interests, the allocation of profits and losses among nonpatron membership interests individually and patron membership interests collectively shall be allocated on the basis of the value of contributions to capital made according to the patron membership interests collectively and the nonpatron membership interests individually to the extent the contributions have been accepted by the cooperative.  Distributions of cash or other assets of the cooperative shall be allocated among the membership interests as provided in the articles and bylaws, subject to the provisions of this title.  If not otherwise provided in the articles or bylaws, distributions shall be made on the basis of value of the capital contributions of the patron membership interests collectively and the nonpatron membership interests to the extent the contributions have been accepted by the cooperative.

(f)  Cooperative first right to purchase membership interests.  The articles or bylaws may provide that the cooperative or the patron members, individually or collectively, have the first privilege of purchasing the membership interests of any class of membership interests offered for sale.  The first privilege to purchase membership interests may be satisfied by notice to other members that the membership interests are for sale and a procedure by which members may proceed to attempt to purchase and acquire the membership interests.  A membership interest acquired by the cooperative may be held to be reissued or may be retired and canceled.

(g)  Payment for nonpatron membership interests.  Subject to the provisions in the articles and bylaws, a member may dissent from and obtain payment for the fair value of the member’s nonpatron membership interests in the cooperative if the articles or bylaws are amended in a manner that materially and adversely affects the rights and preferences of the nonpatron membership interests of the dissenting member.  The dissenting member shall file a notice of intent to demand fair value of the membership interest with the records officer of the cooperative within 30 days after the amendment of the bylaws and notice of the amendment to members; otherwise, the right of the dissenting member to demand payment of fair value for the membership interest is deemed to be waived.  If a proposed amendment of the articles or bylaws shall be approved by the members, a member who is entitled to dissent and who wishes to exercise dissenter’s rights shall file a notice to demand fair value of the membership interest with the records officer of the cooperative before the vote on the proposed action and shall not vote in favor of the proposed action; otherwise, the right to demand fair value for the membership interest by the dissenting member is deemed waived.  After receipt of the dissenting member’s demand notice and approval of the amendment, the cooperative has 60 days to rescind the amendment, or otherwise the cooperative shall remit the fair value for the member’s interest to the dissenting member by 180 days after receipt of the notice.  Upon receipt of the fair value for the membership interest, the member has no further member rights in the cooperative.

(h)  Securities act.  The provisions of chapter 131 of Title 9 shall not apply to the issuance of membership certificates by a cooperative organized under this title.

§ 602.  ASSIGNMENT OF FINANCIAL RIGHTS

(a)  Assignment of financial rights permitted.  Except as provided in subsection (c) of this section, a member’s financial rights are transferable in whole or in part. 

(b)  Effect of assignment of financial rights.  An assignment of a member’s financial rights entitles the assignee to receive, to the extent assigned, only the share of profits and losses and the distributions to which the assignor would otherwise be entitled.  An assignment of a member’s financial rights does not dissolve the cooperative and does not entitle or empower the assignee to become a member, to exercise any governance rights, to receive any notices from the cooperative, or to cause dissolution.  The assignment may not allow the assignee to control the member’s exercise of governance or voting rights. 

(c)  Restrictions of assignment of financial rights.

(1)  A restriction on the assignment of financial rights may be imposed in the articles, in the bylaws, in a member control agreement, by a resolution adopted by the members, or by an agreement among or other written action by members or among them and the cooperative.  A restriction is not binding with respect to financial rights reflected in the required records before the adoption of the restriction, unless the owners of those financial rights are parties to the agreement or voted in favor of the restriction. 

(2)  Subject to subdivision (3) of this subsection, a written restriction on the assignment of financial rights that is not manifestly unreasonable under the circumstances and is noted conspicuously in the required records may be enforced against the owner of the restricted financial rights or a successor or transferee of the owner, including a pledgee or a legal representative.  Unless noted conspicuously in the required records, a restriction, even though permitted by this section, is ineffective against a person without knowledge of the restriction.

(3)  With regard to restrictions on the assignment of financial rights, a would-be assignee of financial rights is entitled to rely on a statement of membership interest issued by the cooperative under section 603 of this title.  A restriction on the assignment of financial rights, which is otherwise valid and in effect at the time of the issuance of a statement of membership interest but which is not reflected in that statement, is ineffective against an assignee who takes an assignment in reliance on the statement.

(4)  Notwithstanding any provision of law, articles, bylaws, member control agreement, other agreement, resolution, or action to the contrary, a security interest in a member’s financial rights may be foreclosed and otherwise enforced, and a secured party may assign a member’s financial rights without the consent or approval of the member whose financial rights are subject to the security interest. 

§ 603.  NATURE OF A MEMBERSHIP INTEREST AND STATEMENT OF

            INTEREST OWNED

(a)  Generally.  A membership interest is personal property.  A member has no interest in specific cooperative property.  All property of the cooperative is property of the cooperative itself.

(b)  Statement of membership interest.  At the request of any member, the cooperative shall state in writing the particular membership interest owned by that member as of the date the cooperative makes the statement.  The statement shall describe the member’s rights to vote, if any, to share in profits and losses, and to share in distributions, restrictions on assignments of financial rights under this title, or voting rights under chapter 5 of this title then in effect, as well as any assignment of the member’s rights then in effect other than a security interest.

(c)  Terms of membership interests.  All the membership interests of a cooperative shall: 

(1)  be of one class, without series, unless the articles or bylaws establish, or authorize the board of directors to establish, more than one class or series within classes;

(2)  be ordinary patron membership interests and if authorized nonpatron membership interest subject to this title entitled to vote as provided in chapter 5 of this title, and have equal rights and preferences in all matters not otherwise provided for by the board of directors unless and to the extent that the articles or bylaws have fixed the relative rights and preferences of different classes and series; and

(3)  share profits and losses and be entitled to distributions as provided in chapter 7 of this title.

(d)  Rights of judgment creditor.  On application to a court of competent jurisdiction by any judgment creditor of a member, the court may charge a member’s or an assignee’s financial rights with payment of the unsatisfied amount of the judgment with interest.  To the extent so charged, the judgment creditor has only the rights of an assignee of a member’s financial rights under section 602 of this title.  This title does not deprive any member or assignee of financial rights of the benefit of any exemption laws applicable to the membership interest.  This section is the sole and exclusive remedy of a judgment creditor with respect to the judgment debtor’s membership interest. 

(e)  Procedure for fixing terms.

(1)  Subject to any restrictions in the articles or bylaws, the power granted in this subsection may be exercised by a resolution or resolutions establishing a class or series, setting forth the designation of the class or series, and fixing the relative rights and preferences of the class or series.  Any of the rights and preferences of a class or series established in the articles, bylaws, or by resolution of the board of directors: 

(A)  may be made dependent upon facts ascertainable outside the articles or bylaws, or outside the resolution or resolutions establishing the class or series, if the manner in which the facts operate upon the rights and preferences of the class or series is clearly and expressly set forth in the articles or bylaws or in the resolution or resolutions establishing the class or series; and

(B)  may include by reference some or all of the terms of any agreements, contracts, or other arrangements entered into by the cooperative in connection with the establishment of the class or series if the cooperative retains at its principal executive office a copy of the agreements, contracts, or other arrangements, or the portions will be included by reference. 

(2)  A statement setting forth the name of the cooperative and the text of the resolution and certifying the adoption of the resolution and the date of adoption shall be given to the members before the acceptance of any contributions for which the resolution creates rights or preferences not set forth in the articles or bylaws.  The resolution is effective three days after delivery to the members or, if the statement is not required to be given to the members before the acceptance of contributions, on the date of its adoption by the directors. 

(f)  Specific terms.  Without limiting the authority granted in this section, a cooperative may have membership interests of a class or series:

(1)  subject to the right of the cooperative to redeem any of those membership interests at the price fixed for their redemption by the articles or bylaws or by the board of directors;

(2)  entitling the members to cumulative, partially cumulative, or noncumulative distributions;

(3)  having preference over any class or series of membership interests for the payment of distributions of any or all kinds;

(4)  convertible into membership interests of any other class or any series of the same or another class; or

(5)  having full, partial, or no voting rights, except as provided in section 511 of this title. 

(g)  Grant of a security interest.  For the purpose of any law relating to security interests, a membership interest, governance or voting rights, and financial rights are each to be characterized as provided in this title.

(h)  Powers of estate of a deceased or incompetent member.

(1)  If a member who is an individual dies or a court of competent jurisdiction adjudges the member to be incompetent to manage the member’s person or property, or an order for relief under the bankruptcy code is entered with respect to the member, the member’s executor, administrator, guardian, conservator, trustee, or other legal representative may exercise all of the member’s rights for the purpose of settling the estate or administering the member’s property.  If a member is a business entity, trust, or other entity and is dissolved, terminated, or placed by a court in receivership or bankruptcy, the powers of that member may be exercised by its legal representative or successor. 

(2)  If an event referred to in subdivision (1) of this subsection causes the termination of a member’s membership interest and the termination does not result in dissolution, then subject to the articles and bylaws: 

(A)  as provided in section 602 of this title, the terminated member’s interest will be considered to be merely that of an assignee of the financial rights owned before the termination of membership; and

(B)  the rights to be exercised by the legal representative of the terminated member will be limited accordingly.

(i)  Liability of subscribers and members with respect to membership interests.  A subscriber for membership interests or a member of a cooperative is under no obligation to the cooperative or its creditors with respect to the membership interests subscribed for or owned, except to pay to the cooperative the full consideration for which the membership interests are issued or to be issued. 

§ 604.  CERTIFICATED MEMBERSHIP INTERESTS

(a)  Certificated; uncertificated.  The membership interests of a cooperative shall be either certificated or uncertificated.  Each holder of certificated membership interests issued is entitled to a certificate of membership interest.

(b)  Signature required.  Certificates shall be signed by an agent or officer authorized in the articles or bylaws to sign share certificates or, in the absence of an authorization, by the chair or records officer of the cooperative.

(c)  Signature valid.  If a person signs or has a facsimile signature placed upon a certificate while the person is the chair, an officer, transfer agent, or records officer of a cooperative, the certificate may be issued by the cooperative, even if the person has ceased to have that capacity before the certificate is issued, with the same effect as if the person had that capacity at the date of its issue.

(d)  Form of certificate.  A certificate representing membership interests of a cooperative shall contain on its face:

(1)  the name of the cooperative;

(2)  a statement that the cooperative is organized under the laws of this state and this title;

(3)  the name of the person to whom the certificate is issued;

(4)  the number and class of membership interests, and the designation of the series, if any, that the certificate represents;

(5)  a statement that the membership interests in the cooperative are subject to the articles and bylaws of the cooperative; and

(6)  any restrictions on transfer, including approval of the board of directors, if applicable, first rights of purchase by the cooperative, and other restrictions on transfer, which may be stated by reference to the back of the certificate or to another document.

(e)  Limitations set forth.  A certificate representing membership interest issued by a cooperative authorized to issue membership interests of more than one class or series shall set forth upon the face or back of the certificate, or shall state that the cooperative will furnish to any member upon request and without charge, a full statement of the designations, preferences, limitations, and relative rights of the membership interests of each class or series authorized to be issued, so far as they have been determined, and the authority of the board to determine the relative rights and preferences of subsequent classes or series.

(f)  Prima facie evidence.  A certificate signed as provided in subsection (b) of this section is prima facie evidence of the ownership of the membership interests referred to in the certificate.

(g)  Uncertificated membership interests.  Unless uncertificated membership interests are prohibited by the articles or bylaws, a resolution approved by the affirmative vote of a majority of the directors present may provide that some or all of any or all classes and series of its membership interests will be uncertificated membership interests.  The resolution does not apply to membership interests represented by a certificate until the certificate is surrendered to the cooperative.  Within a reasonable time after the issuance or transfer of uncertificated membership interests, the cooperative shall send to the new member the information required by this section to be stated on certificates.  This information is not required to be sent to the new holder by a publicly held cooperative that has adopted a system of issuance, recordation, and transfer of its membership interests by electronic or other means not involving an issuance of certificates if the system complies with the Securities Exchange Act of 1934.  Except as otherwise expressly provided by statute, the rights and obligations of the holders of certificated and uncertificated membership interests of the same class and series are identical. 

§ 605.  LOST CERTIFICATES; REPLACEMENT

(a)  Issuance.  A new membership interest certificate may be issued pursuant to section 604 of this title in place of one that is alleged to have been lost, stolen, or destroyed.

(b)  Not overissue.  The issuance of a new certificate under this section does not constitute an overissue of the membership interests it represents.

§ 606.  RESTRICTION ON TRANSFER OR REGISTRATION OF

            MEMBERSHIP INTERESTS

(a)  How imposed.  A restriction on the transfer or registration of transfer of membership interests of a cooperative may be imposed in the articles, in the bylaws, by a resolution adopted by the members, or by an agreement among or other written action by a number of members or holders of other membership interests or among them and the cooperative.  A restriction is not binding with respect to membership interests issued prior to the adoption of the restriction, unless the holders of those membership interests are parties to the agreement or voted in favor of the restriction.

(b)  Restrictions permitted.

(1)  A written restriction on the transfer or registration of transfer of membership interests of a cooperative that is not manifestly unreasonable under the circumstances and is either noted conspicuously on the face or back of the certificate, included in this title or the articles, or bylaws, or included in information sent to the holders of uncertificated membership interests, may be enforced against the holder of the restricted membership interests or a successor or transferee of the holder, including a pledgee or a legal representative.

(2)  Unless a restriction is in this title, the articles or the bylaws and is noted conspicuously on the face or back of the certificate or is included in information sent to the holders of uncertificated membership interests, the restriction, even though permitted by this section, is ineffective against a person who has no knowledge of the restriction.  A restriction under this section is deemed to be noted conspicuously and is effective if the existence of the restriction is stated on the certificate and reference is made to a separate document creating or describing the restriction.

CHAPTER 7.  CONTRIBUTIONS, ALLOCATIONS,

AND DISTRIBUTIONS

§ 701.  AUTHORIZATION, FORM, AND ACCEPTANCE OF

            CONTRIBUTIONS

(a)  Board of directors may authorize.  Subject to any restrictions in this title regarding patron and nonpatron membership interests or in the articles or bylaws, and only when authorized by the board of directors, a cooperative: 

may accept contributions, which may be patron or nonpatron membership contributions as determined by the board under subsections (b) and (c) of this section; may make contribution agreements under section 703 of this title; and may make contribution rights agreements under section 704 of this title. 

(b)  Permissible forms.  A person may make a contribution to a cooperative: 

(1)  by paying money or transferring the ownership of an interest in property to the cooperative, or rendering services to or for the benefit of the cooperative; or

(2)  through a written obligation signed by the person to pay money or transfer ownership of an interest in property to the cooperative or to perform services to or for the benefit of the cooperative. 

(c)  Acceptance of contributions.  No purported contribution is to be treated or considered as a contribution, unless: 

(1)  the board of directors accepts the contribution on behalf of the cooperative and in that acceptance describes the contribution, including terms of future performance, if any, and states the value being accorded to the contribution; and

(2)  the fact of contribution and the contribution’s accorded value are both reflected in the required records of the cooperative. 

(d)  Valuation.  The determinations of the board of directors as to the amount of fair value or the fairness to the cooperative of the contribution accepted or to be accepted by the cooperative or the terms of payment or performance, including under a contribution agreement in section 703 of this title and a contribution rights agreement in section 704 of this title, are presumed to be proper if they are made in good faith and on the basis of accounting methods, or a fair valuation or other method, reasonable in the circumstances.  Directors who are present and entitled to vote, and who, intentionally or without reasonable investigation, fail to vote against approving a consideration that is unfair to the cooperative, or overvalue property or services received or to be received by the cooperative as a contribution, are jointly and severally liable to the cooperative for the benefit of the then members who did not consent to and are damaged by the action, to the extent of the damages of those members.  A director against whom a claim is asserted pursuant to this subsection, except in case of knowing participation in a deliberate fraud, is entitled to contribution on an equitable basis from other directors who are liable under this subsection. 

§ 702.  RESTATEMENT OF VALUE OF PREVIOUS CONTRIBUTIONS

(a)  Definition.  As used in this section, an “old” contribution is a contribution reflected in the required records of a cooperative before the time the cooperative accepts a new contribution. 

(b)  Restatement required.  Whenever a cooperative accepts a new contribution, the board shall restate, as required by this section, the value of all old contributions. 

(c)  Restatement as to the particular series or class to which the new contribution pertains.

(1)  Unless otherwise provided in the articles or bylaws, the method of restating the value of old contributions that pertain to the same series or class to which the new contribution pertains is to: 

(A)  state the value the cooperative has accorded to the new contribution under subdivision 701(c)(1) of this title;

(B)  determine what percentage the value stated under subdivision (A) of this subdivision (1) will constitute, after the restatement required by this subdivision (1), of the total value of all contributions that pertain to the particular series or class to which the new contribution pertains;

(C)  divide the value stated under subdivision (A) of this subdivision (1) by the percentage determined under subdivision (B) of this subdivision (1), yielding the total value, after the restatement required by this subdivision (1), of all contributions pertaining to the particular series or class;

(D)  subtract the value stated under subdivision (A) of this subdivision (1) from the value determined under subdivision (C) of this subdivision (1), yielding the total value, after the restatement required by this subdivision (1), of all the old contributions pertaining to the particular series or class;

(E)  subtract the value, as reflected in the required records before the restatement required by this subdivision (1), of the old contributions from the value determined under subdivision (D) of this subdivision (1), yielding the value to be allocated among and added to the old contributions pertaining to the particular series or class; and

(F)  allocate the value determined under subdivision (E) of this subdivision (1) proportionally among the old contributions pertaining to the particular series or class, add the allocated values to those old contributions, and change the required records accordingly. 

(2)  The values determined under subdivision (1)(E) of this subsection and allocated and added under subdivision (1)(F) of this subsection may be positive, negative, or zero. 

(d)  Restatement method for other series or classes.  Unless otherwise provided in the articles or bylaws, the method of restating the value of old contributions that do not pertain to the same series or class to which the new contribution pertains is to:

(1)  determine the percentage by which the restatement under subsection (c) of this section has changed the total contribution value reflected in the required records for the series or class to which the new contribution pertains; and

(2)  as to each old contribution that does not pertain to the same series or class to which the new contribution pertains, change the value reflected in the required records by the percentage determined under subdivision (1) of this subsection.  The percentage determined under subdivision (1) of this subsection may be positive, negative, or zero. 

(e)  New contributions may be aggregated.  If a cooperative accepts more than one contribution pertaining to the same series or class at the same time, for the purpose of the restatement required by this section, the cooperative may consider all those new contributions as if they were a single contribution. 

§ 703.  CONTRIBUTION AGREEMENTS

(a)  Signed writing.  A contribution agreement, whether made before or after the formation of the cooperative, is not enforceable against the would-be contributor unless it is in writing and signed by the would-be contributor. 

(b)  Irrevocable period.  Unless otherwise provided in the contribution agreement, or unless all of the would-be contributors and, if in existence, the cooperative, consent to a shorter or longer period, a contribution agreement is irrevocable for a period of six months.

(c)  Current and deferred payment.  A contribution agreement, whether made before or after the formation of a cooperative, must be paid or performed in full at the time or times, or in the installments, if any, specified in the contribution agreement.  In the absence of a provision in the contribution agreement specifying the time at which the contribution is to be paid or performed, the contribution must be paid or performed at the time or times determined by the board of directors, but a call made by the board of directors for payment or performance on contributions must be uniform for all membership interests of the same class or for all membership interests of the same series. 

(d)  Failure to pay remedies.

(1)  Unless otherwise provided in the contribution agreement, in the event of default in the payment or performance of an installment or call when due, the cooperative may proceed to collect the amount due in the same manner as a debt due the cooperative.  If a would-be contributor does not make a required contribution of property or services, the cooperative shall require the would-be contributor to contribute cash equal to that portion of the value, as stated in the cooperative required records, of the contribution that has not been made. 

(2)  If the amount due under a contribution agreement remains unpaid for a period of 20 days after written notice of demand for payment has been given to the delinquent would-be contributor, the membership interests that were subject to the contribution agreement may be offered for sale by the cooperative for a price in money equaling or exceeding the sum of the full balance owed by the delinquent would-be contributor plus the expenses incidental to the sale.

(3)  If the membership interests that were subject to the contribution agreement are sold according to subdivision (2) of this subsection, the cooperative shall pay to the delinquent would-be contributor or to the delinquent would-be contributor’s legal representative the lesser of:

(A)  the excess of net proceeds realized by the cooperative over the sum of the amount owed by the delinquent would-be contributor plus the expenses incidental to the sale, less any penalty stated in the contribution agreement which may include forfeiture of the partial contribution; and

(B)  the amount actually paid by the delinquent would-be contributor.  If the membership interests that were subject to the contribution agreement are not sold according to subdivision (2) of this subsection, the cooperative may collect the amount due in the same manner as a debt due the cooperative or cancel the contribution agreement according to subdivision (4) of this subsection. 

(4)  If the amount due under a contribution agreement remains unpaid for a period of 20 days after written notice of demand for payment has been given to the delinquent would-be contributor and the membership interests that were subject to the defaulted contribution agreement have not been sold according to subdivision (2) of this subsection, the cooperative may cancel the contribution agreement, the cooperative may retain any portion of the contribution agreement price actually paid as provided in the contribution agreement, and the cooperative shall refund to the delinquent would-be contributor or the delinquent would-be contributor’s legal representatives any portion of the contribution agreement price as provided in the contribution agreement. 

(e)  Restrictions on assignment.  Unless otherwise provided in the articles or bylaws, a would-be contributor’s rights under a contribution agreement may not be assigned, in whole or in part, to a person who was not a member at the time of the assignment, unless all the members approve the assignment by unanimous written consent. 

§ 704.  CONTRIBUTION RIGHTS AGREEMENTS

(a)  Agreements permitted.  Subject to any restrictions in the articles or bylaws, a cooperative may enter into contribution rights agreements under the terms, provisions, and conditions fixed by the board of directors. 

(b)  Writing required and terms to be stated.  Any contribution rights agreement must be in writing, and the writing must state in full, summarize, or include by reference all the agreement’s terms, provisions, and conditions of the rights to make contributions. 

(c)  Restrictions on assignment.  Unless otherwise provided in the articles or bylaws, a would-be contributor’s rights under a contribution rights agreement may not be assigned in whole or in part to a person who was not a member at the time of the assignment, unless all the members approve the assignment by unanimous written consent. 

§ 705.  ALLOCATIONS AND DISTRIBUTIONS TO MEMBERS

(a)  Allocation of profits and losses.  The bylaws shall prescribe the allocation of profits and losses between patron membership interests collectively and any other membership interests.  If the bylaws do not otherwise provide, the profits and losses between patron membership interests collectively and other membership interests shall be allocated on the basis of the value of contributions to capital made by the patron membership interests collectively and other membership interests and accepted by the cooperative.  The allocation of profits to the patron membership interests collectively shall not be less than 50 percent of the total profits in any fiscal year, except that if authorized in the original articles as filed or in articles or bylaws that are adopted by an affirmative vote of the patron members or the articles or bylaws are amended by the affirmative vote of the patron members, the allocation of profits to the patron membership interests collectively may not be less than 15 percent of the total profits in any fiscal year.

(b)  Distribution of cash or other assets.  The bylaws shall prescribe the distribution of cash or other assets of the cooperative among the membership interests of the cooperative.  If not otherwise provided in the bylaws, distribution shall be made to the patron membership interests collectively and other members on the basis of the value of contributions to capital made and accepted by the cooperative by the patron membership interests collectively and other membership interests.  The distributions to patron membership interests collectively shall not be less than 50 percent of the total distributions in any fiscal year, except that if authorized in the articles, or bylaws that are adopted by the affirmative vote of the patron members, or the articles or bylaws are amended by the affirmative vote of the patron members, the distributions to patron membership interests collectively shall not be less than 15 percent of the total distributions in any year.

§ 706.  ALLOCATIONS AND DISTRIBUTIONS TO PATRON MEMBERS

(a)  Distribution of net income.  A cooperative may set aside a portion of net income allocated to the patron membership interests as the board determines advisable to create or maintain a capital reserve.

(b)  Reserves.  In addition to a capital reserve, the board may, for patron membership interests:

(1)  set aside an amount not to exceed five percent of the annual net income of the cooperative for promoting and encouraging cooperative organization; and

(2)  establish and accumulate reserves for new buildings, machinery and equipment, depreciation, losses, and other proper purposes.

(c)  Patronage distributions.  Net income allocated to patron members in excess of dividends on equity and additions to reserves shall be distributed to patron members on the basis of patronage.  A cooperative may establish allocation units, whether the units are functional, divisional, departmental, geographic, or otherwise, and pooling arrangements and may account for and distribute net income to patrons on the basis of allocation units and pooling arrangements.  A cooperative may offset the net loss of an allocation unit or pooling arrangement against the net income of other allocation units or pooling arrangements.

(d)  Frequency of distribution.  Distribution of net income shall be made at least annually.  The board shall present to the members at their annual meeting a report covering the operations of the cooperative during the preceding fiscal year.

(e)  Form of distribution.  A cooperative may distribute net income to patron members in cash, capital credits, allocated patronage equities, revolving fund certificates, or its own or other securities.

(f)  Eligible nonmember patrons.  The cooperative may provide in the bylaws that nonmember patrons are allowed to participate in the distribution of net income payable to patron members on equal terms with patron members.

(g)  Patronage credits for ineligible members.  If a nonmember patron with patronage credits is not qualified or eligible for membership, a refund due may be credited to the patron’s individual account.  The board may issue a certificate of interest to reflect the credited amount.  After the patron is issued a certificate of interest, the patron may participate in the distribution of income on the same basis as a patron member.

§ 707.  MEMBER CONTROL AGREEMENTS

(a)  Authorization.  A written agreement among persons who are then members, including a sole member, or who have signed subscription or contribution agreements relating to the control of any phase of the business and affairs of the cooperative, its liquidation, dissolution, and termination, or the relations among members or persons who have signed subscription or contribution agreements is valid as provided in subsection (b) of this section.  Wherever this title provides that a particular result may or must be obtained through a provision in the articles or bylaws, the same result can be accomplished through a member control agreement valid under this section or through a procedure established by a member control agreement valid under this section. 

(b)  Valid execution.  Other than patron member voting control under section 511 of this title and patron member allocation and distribution provisions under sections 705 and 706 of this title, a written agreement among persons described in subsection (a) of this section that relates to the control of or the liquidation, dissolution, and termination of the cooperative, the relations among them, or any phase of the business and affairs of the cooperative, including, without limitation, the management of its business, the declaration and payment of distributions, the sharing of profits and losses, the election of directors, the employment of members by the cooperative, or the arbitration of disputes, is valid, if the agreement is signed by all persons who are then the members of the cooperative, whether or not the members all have voting power, and all those who have signed contribution agreements, regardless of whether those signatories will, when members, have voting power. 

(c)  Other agreements not affected.  This section does not apply to, limit, or restrict agreements otherwise valid, nor is the procedure set forth in this section the exclusive method of agreement among members or between the members and the cooperative with respect to any of the matters described.

§ 708.  DISTRIBUTION OF UNCLAIMED PROPERTY

(a)  Alternate procedure to disburse property.  A cooperative may, in lieu of paying or delivering to the state the unclaimed property specified in its report of unclaimed property, distribute the unclaimed property to a business entity or organization that is exempt from taxation.  A cooperative making the election to distribute unclaimed property shall file with the secretary of state:

(1)  a verified written explanation of the proof of claim of an owner establishing a right to receive the abandoned property;

(2)  any error in the presumption of abandonment;

(3)  the name, address, and exemption number of the business entity or organization to which the property was or is to be distributed; and

(4)  the approximate date of distribution.

(b)  Reporting and claiming procedure not affected.  This section does not alter the procedure provided by law for cooperatives to report unclaimed property to the state and the requirement that claims of owners are made to the cooperatives for a period following the publication of lists of abandoned property.

(c)  Owner’s right extinguished on disbursement.  The right of an owner to unclaimed property held by a cooperative is extinguished when the property is disbursed by the cooperative to a tax exempt organization in accordance with this section.

CHAPTER 8.  MERGER

§ 801.  MERGER AND CONSOLIDATION

(a)  Authorization.  Unless otherwise prohibited, cooperatives organized under the laws of this state, including cooperatives organized under this title or Title 11, may merge or consolidate with each other, a Vermont limited liability company under the provisions of section 3128 of Title 11, or other business entities organized under the laws of another state by complying with the provisions of this section and the law of the state where the surviving or new business entity will exist.  This subsection does not authorize a foreign business entity to do any act not authorized by the law governing the foreign business entity.

(b)  Plan.  To initiate a merger or consolidation of a cooperative, a written plan of merger or consolidation shall be prepared by the board or by a committee selected by the board to prepare a plan.  The plan shall:

(1)  state the names of the constituent domestic cooperatives and the name of the Vermont limited liability company that is a party to the merger, to the extent authorized under section 3128 of Title 11, and any foreign business entities;

(2)  state the name of the surviving or new domestic cooperative, Vermont limited liability company required under section 3128 of Title 11, or other foreign business entity;

(3)  state the manner and basis of converting membership or ownership interests of the constituent domestic cooperatives, the surviving Vermont limited liability company as provided in section 3128 of Title 11, or the foreign business entities into membership or ownership interests in the surviving or new domestic cooperative or foreign business entity;

(4)  state the terms of the merger or consolidation;

(5)  state the proposed effect of the consolidation or merger on the members and patron members of each constituent domestic cooperative; and

(6)  for a consolidation, contain the articles of the entity or organizational documents to be filed with the state in which the entity is organized or, if the surviving organization is a Vermont limited liability company, the articles of organization.

(c)  Notice.  The following shall apply to notice:

(1)  The board shall mail or otherwise transmit or deliver notice of the merger or consolidation to each member.  The notice shall contain:

(A)  the full text of the plan; and

(B)  the time and place of the meeting at which the plan will be considered.

(2)  A cooperative with more than 200 members may provide the notice in the same manner as a regular members’ meeting notice.

(d)  Adoption of plan.

(1)  A plan of merger or consolidation shall be adopted by the domestic cooperative as provided in this subsection.

(2)  A plan of merger or consolidation is adopted if:

(A)  a quorum of the members eligible to vote is registered as being present or represented by mail vote or alternative ballot at the meeting; and

(B)  the plan is approved by the patron members or, if otherwise provided in the articles or bylaws, is approved by a majority of the votes cast in each class of votes cast or, for a domestic cooperative with articles or bylaws requiring more than a majority of the votes cast or other conditions for approval, the plan is approved by a proportion of the votes cast or a number of total members as required by the articles or bylaws and the conditions for approval in the articles or bylaws have been satisfied.

(3)  After the plan has been adopted, articles of merger or consolidation stating the plan and that the plan was adopted according to this subsection shall be signed by the chair, vice chair, records officer, or documents officer of each cooperative merging or consolidating.

(4)  The articles of merger or consolidation shall be filed in the office of the secretary of state.

(5)  For a merger, the articles of the surviving domestic cooperative subject to this title are deemed amended to the extent provided in the articles of merger.

(6)  Unless a later date is provided in the plan, the merger or consolidation is effective when the articles of merger or consolidation are filed in the office of the secretary of state or the appropriate office of another jurisdiction.

(7)  The secretary of state shall issue a certificate of organization of the merged or consolidated cooperative.

(e)  Effect of merger.  The following shall apply to the effect of a merger:

(1)  After the effective date, the cooperative or other business entities that are parties to the plan become a single entity.  For a merger, the surviving business entity is the business entity designated in the plan.  For a consolidation, the new cooperative or other business entity is the business entity provided for in the plan.  Except for the surviving or new business entity, the separate existence of all business entities that are parties to the plan ceases on the effective date of the merger or consolidation.

(2)  The surviving or new business entity possesses all of the rights and property of each of the merged or consolidated business entities and is responsible for all the obligations of each of the merged or consolidated business entities.  The title to property of the merged or consolidated business entity is vested in the surviving or new business entity without reversion or impairment of the title caused by the merger or consolidation.

(3)  If a merger involves a Vermont limited liability company, this subsection is subject to the provisions of section 3128 of Title 11.

§ 802.  MERGER OF SUBSIDIARY

(a)  Definition.  For purposes of this section, “subsidiary” means a domestic cooperative, a Vermont limited liability company, or a foreign cooperative, and “cooperative” means a domestic cooperative. 

(b)  Authorization.

(1)  A parent domestic cooperative or a subsidiary that is a domestic cooperative may complete the merger of a subsidiary as provided in this section; provided, however, that if either the parent or the subsidiary is a business entity organized under the laws of this state, the merger of the subsidiary is not authorized under this section unless the law governing the business entity expressly authorizes merger with a cooperative.  A Vermont limited liability company may only participate in a merger under this section to the extent authorized under section 3128 of Title 11.

(2)  A parent owning at least 90 percent of the outstanding ownership interests of each class and series of a subsidiary directly, or indirectly through related organizations, other than classes or series that, absent this section, would otherwise not be entitled to vote on the merger, may:

(A)  merge the subsidiary into itself;

(B)  merge the subsidiary into any other subsidiary, at least 90 percent of the outstanding ownership interests of each class and series of which is owned by the parent directly, or indirectly through related organizations, other than classes or series that, absent this section, would otherwise not be entitled to vote on the merger, without a vote of the members of itself or any subsidiary; or

(C)  merge itself, or itself and one or more of the subsidiaries, into one of the subsidiaries as described under this section.

(c)  Contents of plan; resolution.

(1)  A resolution approved by the affirmative vote of a majority of the directors of the parent present shall set forth a plan of merger that contains:

(A)  the name of the subsidiary or subsidiaries, the name of the parent, and the name of the surviving cooperative;

(B)  the manner and basis of converting the membership interests of the subsidiary or subsidiaries or parent into securities of the parent, the subsidiary, or another cooperative or, in whole or in part, into money or other property;

(C)  if the parent is a constituent cooperative but is not the surviving cooperative in the merger, a provision for the pro rata issuance of membership interests of the surviving cooperative to the holders of membership interests of the parent on surrender of any certificates for shares of the parent; and

(D)  if the surviving cooperative is a subsidiary, a statement of any amendments to the articles of the surviving cooperative that will be part of the merger.

(2)  If the parent is a constituent cooperative and the surviving cooperative in the merger, it may change its cooperative name, without a vote of its members, by the inclusion of a provision to that effect in the resolution of merger setting forth the plan of merger that is approved by the affirmative vote of a majority of the directors of the parent present.  Upon the effective date of the merger, the name of the parent shall be changed.

(3)  If the parent is a constituent cooperative but is not the surviving cooperative in the merger, the resolution is not effective unless it is also approved by the affirmative vote of the holders of a majority of the voting power of all membership interests of the parent entitled to vote at a regular or special meeting if the parent is a cooperative or in accordance with the laws under which it is organized if the parent is a foreign business entity or cooperative.

(d)  Notice to members of subsidiary.  Notice of the action, including a copy of the plan of merger, shall be given to each member, other than the parent and any subsidiary of each subsidiary that is a constituent cooperative in the merger before, or within ten days after, the effective date of the merger.

(e)  Articles of merger; contents of articles.  Articles of merger shall be prepared that contain:

(1)  the plan of merger;

(2)  the number of outstanding membership interests of each class and series of each subsidiary that is a constituent cooperative in the merger, other than the classes or series that, absent this section, would otherwise not be entitled to vote on the merger, and the number of membership interests of each class and series of the subsidiary or subsidiaries, other than classes or series that, absent this section, would otherwise not be entitled to vote on the merger, owned by the parent directly, or indirectly through related organizations; and

(3)  a statement that the plan of merger has been approved by the parent under this section.

(f)  Articles signed, filed.  The articles of merger shall be signed on behalf of the parent and filed with the secretary of state.

(g)  Certificate.  The secretary of state shall issue a certificate of merger to the parent or its legal representative or, if the parent is a constituent cooperative but is not the surviving cooperative in the merger, to the surviving cooperative or its legal representative.

(h)  Nonexclusivity.  A merger among a parent and one or more subsidiaries or among two or more subsidiaries of a parent may be accomplished under section 801 of this title instead of this section, in which case this section does not apply.

§ 803.  ABANDONMENT

(a)  By members or plan.  After a plan of merger has been approved by the members entitled to vote on the approval of the plan and before the effective date of the plan, the plan may be abandoned by the same vote that approved the plan.

(b)  Abandonment of merger.

(1)  A merger may be abandoned:

(A)  if:

(i)  the members of each of the constituent domestic cooperatives entitled to vote on the approval of the plan have approved the abandonment at a meeting by the affirmative vote of the holders of a majority of the voting power of the membership interests entitled to vote;

(ii)  the merger is with a domestic cooperative, a Vermont limited liability company, or a foreign business entity, if abandonment is approved in such manner as may be required by section 3128 of Title 11 for the involvement of a Vermont limited liability company or by the laws of the state under which the foreign business entity is organized; and

(iii)  the members of a constituent domestic cooperative are not entitled to vote on the approval of the plan, and if the board of directors of the constituent domestic cooperative has approved the abandonment by the affirmative vote of a majority of the directors present;

(B)  if the plan itself provides for abandonment and all conditions for abandonment set forth in the plan are met; or

(C)  pursuant to subdivision (2) of this subsection.

(2)  A plan of merger may be abandoned before the effective date of the plan by a resolution of the board of directors of any constituent domestic cooperative abandoning the plan of merger approved by the affirmative vote of a majority of the directors present, subject to the contract rights of any other person under the plan.  If a plan of merger is with a domestic or foreign business entity, the plan of merger may be abandoned before the effective date of the plan by a resolution of the foreign business entity adopted according to the laws of the state under which the foreign business entity is organized, subject to the contract rights of any other person under the plan.  If the plan of merger is with a Vermont limited liability company, the plan of merger may be abandoned by the Vermont limited liability company as provided in section 3128 of Title 11, subject to the contractual rights of any other person under the plan. 

(3)  If articles of merger or exchange have been filed with the secretary of state but have not yet become effective, the constituent organizations, in the case of abandonment under subdivision (1)(A) of this subsection, the constituent organizations or any one of them, in the case of abandonment under subdivision (1)(B) of this subsection, or the abandoning organization in the case of abandonment under subdivision (2) of this subsection, shall file with the secretary of state articles of abandonment that contain:

(A)  the names of the constituent organizations;

(B)  the provisions of this section under which the plan is abandoned; and

(C)  if the plan is abandoned under subdivision (2) of this subsection, the text of the resolution abandoning the plan.

CHAPTER 9.  DISSOLUTION

§ 901.  METHODS OF DISSOLUTION

A cooperative may be dissolved by the members or by order of the court.

§ 902.  WINDING UP

(a)  Collection and payment of debts.  After the notice of intent to dissolve has been filed with the secretary of state, the board, or the officers acting under the direction of the board, shall proceed as soon as possible:

(1)  to collect or make provision for the collection of all debts due or owing to the cooperative, including unpaid subscriptions for shares; and

(2)  to pay or make provision for the payment of all debts, obligations, and liabilities of the cooperative according to their priorities.

(b)  Transfer of assets.  After the notice of intent to dissolve has been filed with the secretary of state, the board may sell, lease, transfer, or otherwise dispose of all or substantially all of the property and assets of the dissolving cooperative without a vote of the members.

(c)  Distribution to members.  Tangible and intangible property, including money, remaining after the discharge of the debts, obligations, and liabilities of the cooperative may be distributed to the members and former members as provided in the bylaws.  If previously authorized by the members, the tangible and intangible property of the cooperative may be liquidated and disposed of at the discretion of the board.

§ 903.  REVOCATION OF DISSOLUTION PROCEEDINGS

(a)  Authority to revoke.  Dissolution proceedings may be revoked before the articles of dissolution are filed with the secretary of state.

(b)  Revocation by members.  The chair may call a members’ meeting to consider the advisability of revoking the dissolution proceedings.  The question of the proposed revocation shall be submitted to the members at the members’ meeting called to consider the revocation.  The dissolution proceedings are revoked if the proposed revocation is approved at the members’ meeting by a majority of the members of the cooperative or for a cooperative with articles or bylaws requiring a greater number of members, the number of members required by the articles or bylaws.

(c)  Filing with the secretary of state.  Revocation of dissolution proceedings is effective when a notice of revocation is filed with the secretary of state.  After the notice is filed, the cooperative may resume business.

§ 904.  STATUTE OF LIMITATIONS

The claim of a creditor or claimant against a dissolving cooperative is barred if the claim has not been enforced by initiating legal, administrative, or arbitration proceedings concerning the claim by two years after the date the notice of intent to dissolve is filed with the secretary of state.

§ 905.  ARTICLES OF DISSOLUTION

(a)  Conditions to file.  Articles of dissolution of a cooperative shall be filed with the secretary of state after payment of the claims of all known creditors and claimants has been made or provided for and the remaining property has been distributed by the board.  The articles of dissolution shall state that:

(1)  all debts, obligations, and liabilities of the cooperative have been paid or discharged or adequate provisions have been made for them or time periods allowing claims have run and other claims are not outstanding;

(2)  the remaining property, assets, and claims of the cooperative have been distributed among the members or pursuant to a liquidation authorized by the members; and

(3)  legal, administrative, or arbitration proceedings by or against the cooperative are not pending or adequate provision has been made for the satisfaction of a judgment, order, or decree that may be entered against the cooperative in a pending proceeding.

(b)  Dissolution effective on filing.  The cooperative is dissolved when the articles of dissolution have been filed with the secretary of state.

(c)  Certificate.  The secretary of state shall issue to the dissolved cooperative or its legal representative a certificate of dissolution that contains:

(1)  the name of the dissolved cooperative;

(2)  the date the articles of dissolution were filed with the secretary of state; and

(3)  a statement that the cooperative is dissolved.

§ 906.  APPLICATION FOR COURT-SUPERVISED VOLUNTARY

            DISSOLUTION

After a notice of intent to dissolve has been filed with the secretary of state and before a certificate of dissolution has been issued, the cooperative or, for good cause shown, a member or creditor may apply to a court within the county where the registered address is located to have the dissolution conducted or continued under the supervision of the court.

§ 907.  COURT-ORDERED REMEDIES OR DISSOLUTION

(a)  Conditions for relief.  A court may grant equitable relief that it deems just and reasonable in the circumstances or may dissolve a cooperative and liquidate its assets and business:

(1)  In a supervised voluntary dissolution that is applied for by the cooperative.

(2)  In an action by a member when it is established that:

(A)  the directors or the persons having the authority otherwise vested in the board are deadlocked in the management of the cooperative’s affairs, and the members are unable to break the deadlock;

(B)  the directors or those in control of the cooperative have acted fraudulently, illegally, or in a manner unfairly prejudicial toward one or more members in their capacities as members, directors, or officers;

(C)  the members of the cooperative are so divided in voting power that, for a period that includes the time when two consecutive regular members’ meetings were held, they have failed to elect successors to directors whose terms have expired or would have expired upon the election and qualification of their successors;

(D)  the cooperative assets are being misapplied or wasted; or

(E)  the period of duration as provided in the articles has expired and has not been extended as provided in this title.

(3)  In an action by a creditor when:

(A)  the claim of the creditor against the cooperative has been reduced to judgment and an execution on the judgment has been returned unsatisfied; or

(B)  the cooperative has admitted in writing that the claim of the creditor against the cooperative is due and owing, and it is established that the cooperative is unable to pay its debts in the ordinary course of business; or

(C)  in an action by the attorney general to dissolve the cooperative in accordance with this title when it is established that a decree of dissolution is appropriate.

(b)  Condition of cooperative or association.  In determining whether to order equitable relief or dissolution, the court shall take into consideration the financial condition of the cooperative but may not refuse to order equitable relief or dissolution solely on the ground that the cooperative has accumulated operating net income or current operating net income.

(c)  Dissolution as remedy.  In deciding whether to order dissolution of the cooperative, the court shall consider whether lesser relief suggested by one or more parties, such as a form of equitable relief or a partial liquidation, would be adequate to permanently relieve the circumstances established under this section.  Lesser relief may be ordered if it would be appropriate under the facts and circumstances of the case.

(d)  Expenses.  If the court finds that a party to a proceeding brought under this section has acted arbitrarily, vexatiously, or otherwise not in good faith, the court may in its discretion award reasonable expenses, including attorney’s fees and disbursements, to any of the other parties.

(e)  Venue.  Proceedings under this section shall be brought in a court within the county where the registered address of the cooperative is located.

(f)  Parties.  It is not necessary to make members parties to the action or proceeding unless relief is sought against them personally.

§ 908.  PROCEDURE IN INVOLUNTARY OR COURT-SUPERVISED

            VOLUNTARY DISSOLUTION

(a)  Action before hearing.  In dissolution proceedings before a hearing can be completed, the court may:

(1)  issue injunctions;

(2)  appoint receivers with all powers and duties that the court directs;

(3)  take actions required to preserve the cooperative’s assets wherever located; and

(4)  carry on the business of the cooperative.

(b)  Action after hearing.  After a hearing is completed, on notice the court directs to be given to parties to the proceedings and to other parties in interest designated by the court, the court may appoint a receiver to collect the cooperative’s assets, including amounts owing to the cooperative by subscribers on account of an unpaid portion of the consideration for the issuance of shares.  A receiver has authority, subject to the order of the court, to continue the business of the cooperative and to sell, lease, transfer, or otherwise dispose of the property and assets of the cooperative either at public or private sale.

(c)  Discharge of obligations.  The assets of the cooperative or the proceeds resulting from a sale, lease, transfer, or other disposition shall be applied in the following order of priority:

(1)  the costs and expenses of the proceedings, including attorney’s fees and disbursements;

(2)  debts, taxes, and assessments due the United States, this state, and other states in that order;

(3)  claims duly proved and allowed to employees under the provisions of the workers’ compensation act, except that claims under this clause may not be allowed if the cooperative has carried workers’ compensation insurance, as provided by law, at the time the injury was sustained;

(4)  claims, including the value of all compensation paid in a medium other than money, proved and allowed to employees for services performed within three months preceding the appointment of the receiver, if any; and

(5)  other claims proved and allowed.

(d)  Remainder to members.  After payment of the expenses of receivership and claims of creditors are proved, the remaining assets, if any, may be distributed to the members or distributed pursuant to an approved liquidation plan.

§ 909.  RECEIVER QUALIFICATIONS AND POWERS

(a)  Qualifications.  A receiver shall be a natural person or a domestic business entity or a foreign business entity authorized to transact business in this state.  A receiver shall give a bond as directed by the court with the sureties required by the court.

(b)  Powers.  A receiver may sue and defend in all courts as receiver of the cooperative.  The court appointing the receiver has exclusive jurisdiction of the cooperative and its property.

§ 910.  DISSOLUTION ACTION BY ATTORNEY GENERAL;

            ADMINISTRATIVE DISSOLUTION

(a)  Conditions to begin action.  A cooperative may be dissolved involuntarily by a decree of a court in this state in an action filed by the attorney general if it is established that:

(1)  the articles and certificate of organization were procured through fraud;

(2)  the cooperative was organized for a purpose not permitted by this title or prohibited by state law;

(3)  the cooperative has flagrantly violated a provision of this title, has violated a provision of this title more than once, or has violated more than one provision of this title; or

(4)  the cooperative has acted, or failed to act, in a manner that constitutes surrender or abandonment of the cooperative’s franchise, privileges, or enterprise.

(b)  Notice to cooperative.  An action may not be commenced under subsection (a) of this section until 30 days after notice to the cooperative by the attorney general of the reason for the filing of the action.  If the reason for filing the action is an act that the cooperative has done, or omitted to do, and the act or omission may be corrected by an amendment of the articles or bylaws or by performance of or abstention from the act, the attorney general shall give the cooperative 30 additional days to make the correction before filing the action.

§ 911.  FILING CLAIMS IN COURT-SUPERVISED DISSOLUTION

            PROCEEDINGS

(a)  Filing under oath.  In proceedings to dissolve a cooperative, the court may require all creditors and claimants of the cooperative to file their claims under oath with the court administrator or with the receiver in a form prescribed by the court.

(b)  Date to file a claim.  If the court requires the filing of claims, the court shall:

(1)  set a date, by order, at least 120 days after the date the order is filed, as the last day for the filing of claims; and

(2)  prescribe the notice of the fixed date that shall be given to creditors and claimants.

(c)  Fixed date or extension for filing.  Before the fixed date, the court may extend the time for filing claims.  Creditors and claimants failing to file claims on or before the fixed date may be barred, by order of court, from claiming an interest in or receiving payment out of the property or assets of the cooperative.

§ 912.  DISCONTINUANCE OF COURT-SUPERVISED DISSOLUTION

            PROCEEDINGS

The involuntary or supervised voluntary dissolution of a cooperative may be discontinued at any time during the dissolution proceedings if it is established that cause for dissolution does not exist.  The court shall dismiss the proceedings and direct the receiver, if any, to redeliver to the cooperative its remaining property and assets.

§ 913.  COURT-SUPERVISED DISSOLUTION ORDER

(a)  Conditions for dissolution order.  In an involuntary or supervised voluntary dissolution, after the costs and expenses of the proceedings and all debts, obligations, and liabilities of the cooperative have been paid or discharged and the remaining property and assets have been distributed to its members or, if its property and assets are not sufficient to satisfy and discharge the costs, expenses, debts, obligations, and liabilities, when all the property and assets have been applied as far as they will go to their payment according to their priorities, the court shall enter an order dissolving the cooperative.

(b)  Dissolution effective on filing order.  When the order dissolving the cooperative or association has been entered, the cooperative or association is dissolved.

§ 914.  FILING COURT’S DISSOLUTION ORDER

After the court enters an order dissolving a cooperative, the court administrator shall cause a certified copy of the dissolution order to be filed with the secretary of state.  The secretary of state may not charge a fee for filing the dissolution order.

§ 915.  BARRING OF CLAIMS

(a)  Claims barred.  A person who is or becomes a creditor or claimant before, during, or following the conclusion of dissolution proceedings, who does not file a claim or pursue a remedy in a legal, administrative, or arbitration proceeding during the pendency of the dissolution proceeding or has not initiated a legal, administrative, or arbitration proceeding before the commencement of the dissolution proceedings and all those claiming through or under the creditor or claimant are forever barred from suing on that claim or otherwise realizing upon or enforcing it, except as provided in this section.

(b)  Certain unfiled claims allowed.  Within one year after articles of dissolution have been filed with the secretary of state pursuant to this title or a dissolution order has been entered, a creditor or claimant who shows good cause for not having previously filed the claim may apply to a court in this state to allow a claim:

(1)  against the cooperative to the extent of undistributed assets; or

(2)  if the undistributed assets are not sufficient to satisfy the claim, the claim may be allowed against a member to the extent of the distributions to members in dissolution received by the member.

(c)  Omitted claims allowed.  Debts, obligations, and liabilities incurred during dissolution proceedings shall be paid or provided for by the cooperative before the distribution of assets to a member.  A person to whom this kind of debt, obligation, or liability is owed but is not paid may pursue any remedy against the officers, directors, or members of the cooperative before the expiration of the applicable statute of limitations.  This subsection does not apply to dissolution under the supervision or order of a court.

§ 916.  RIGHT TO SUE OR DEFEND AFTER DISSOLUTION

After a cooperative has been dissolved, any of its former officers, directors, or members may assert or defend, in the name of the cooperative, a claim by or against the cooperative.

Sec. 2.  9 V.S.A. § 4202a (12) is amended to read:

As used in this chapter:

* * *

(12)  “Offer to sell” or “offer” includes every attempt or offer to dispose of, or solicitation of an offer to purchase a security or interest in a security for value, but does not include a dividend on equity distributed by a cooperative organized under Title 11C.

Sec. 3.  9 V.S.A. § 4204a (a)(5) and (10) are amended to read:

(a)  Except as hereinafter expressly provided, the provisions of this chapter with respect to registration of securities and broker-dealers shall not apply to the sale of any security in any of the following transactions:

* * *

(5)  A transaction involving the distribution of the securities of an issuer to the security holders of another person in connection with a merger, consolidation, exchange of securities, sale of assets, or other reorganization to which the issuer, or its parent or subsidiary, and the other person, or its parent or subsidiary, are parties.  For purposes of this subsection, the terms “issuer” and “person” include a cooperative organized under Title 11C.

* * *

(10)  Any security issued by a cooperative organized pursuant to chapter 7, 8, or 14 of  Title 11, Title 11C, or as a foreign cooperative association organized under the law of another state that has been duly qualified to do business in this state, when the securities are offered and sold only to its members, or when the purchase of the securities is necessary to incidental or establishing membership in such association, or when such securities are issued as dividends from earnings or surplus, patronage dividends, liquidating distributions, conversions of outstanding convertible interests, or pursuant to a division of membership interests.

Sec. 4.  11 V.S.A. § 3124(a) is amended to read:

(a)  Pursuant to a plan of merger approved under subsection (c) of this section, a limited liability company may be merged:

(1)  with or into one or more limited liability companies, foreign limited liability companies, corporations, foreign corporations, partnerships, foreign partnerships, limited partnerships, foreign limited partnerships, or other domestic or foreign entities; and

(2)  with one or more cooperatives organized under this title or Title 11C, in the manner provided by and subject to the limitations in section 3128 of this title.

Sec. 5.  11 V.S.A. § 3128 is added to read:

§ 3128.  MERGER OF DOMESTIC COOPERATIVE INTO A DOMESTIC                     LIMITED LIABILITY COMPANY

(a)  Definitions.  As used in this section, “domestic cooperative” means a cooperative organized under this title or Title 11C. 

(b)  Authorization; Limitations.

(1)  A limited liability company may merge with a domestic cooperative only as provided by this section.  A limited liability company may merge with one or more domestic cooperatives if:

(A)  Only one limited liability company and only one or more domestic cooperatives are parties to the merger.

(B)  When the merger becomes effective, the separate existence of each domestic cooperative ceases, and the limited liability company is the surviving organization.

(C)  As to each domestic cooperative, the plan of merger is initiated and adopted, and the merger is effectuated, as provided in section 801 of Title 11C.

(D)  As to the limited liability company, the merger complies with sections 3124 and 3125 of this title with respect to the contents of the plan of merger, approval of the plan of merger, and the preparation and filing of the articles of merger.

(2)  For purposes of a merger authorized by this section:

(A)  The term “entity” as used in sections 3124, 3215, and 3126 of this title includes a domestic cooperative; provided, however, the terms of section 801 of Title 11C shall control the process used by any domestic cooperative that is a party to a merger with a limited liability company.

(B)  The term “interests of each party” as used in subdivision 3124(b)(5) of this title, includes membership interests in a domestic cooperative.

(C)  Notwithstanding sections 3124, 3125, and 3126 of this title, the surviving organization must be the limited liability company.  

(D)  The term “owners” includes members of a domestic cooperative.

(c)  Abandonment.  Section 803 of Title 11C governs the abandonment by a domestic cooperative of a merger authorized by this section.  Subsection 3124(d) of this title governs the abandonment by a limited liability company of a merger authorized by this section.



Published by:

The Vermont General Assembly
115 State Street
Montpelier, Vermont


www.leg.state.vt.us