worker coop bill provisions as of february 2nd, 2014

8/12/2019 Worker Coop Bill Provisions as of February 2nd, 2014

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DRAFT- DO NOT DISTRIBUTE 2.26.14

Worker Cooperative Bill Provisions

A bill to establish a legal entity for worker cooperatives, and standardize the definition

and basic operating rules for worker cooperatives.

1. Global Provisions: This Act can be added to the LLC Section (Corporations Code Title2.6, Sections 17000 et. seq.), as a new special purpose LLC.

2. Name: This Bill shall be called the Limited Liability Worker Cooperative Act.3. Cooperative Purpose: A company may be formed under this part for any lawful purpose

provided that it shall be organized and shall conduct its business primarily for the mutual

benefit of its members as patrons of the company. The earnings, savings, or benefits ofthe company shall be used for the general welfare of the members or shall be

proportionately and equitably distributed to some or all of its members or its patrons,

based upon their patronage of the company, in the form of cash, property, evidences ofindebtedness, capital credits, memberships, or services.

a. Such companies are democratically controlled and are not organized to make aprofit for themselves, as such, or for their members, as such, but primarily fortheir members as patrons.

4. Definition: A worker cooperative (hereinafter cooperative or company) is a businessmajority-controlled by its worker-members.

5. Definition of member: A member has the same meaning as member in Section17701.02(p) of the California Corporations Code. A member may also be a patron of the

cooperative.

6. Definition of worker:A worker is a natural person who provides labor to thecooperative with the expectation of receiving compensation.

7. Definition of worker-member:A worker-member is a worker and a member of acooperative whose patronage consists of, but not limited to, providing labor to thecooperative.

8. Definition of patron: A patron is a member who provides labor to, purchases goodsfrom, or uses the services of the cooperative. A patron may also be a person who uses the

cooperative to market, process or handle their products or services. The cooperativesprimary class of patrons shall be the worker-members.

9. Definition of distribution: The term distribution shall apply to dividend distributionsand patronage distributions.

10.Definition of majority of the members: majority of the member unless otherwiseprovided in the operating agreement, means more than 50 percent of the membership

interests of members in current profits of the limited liability company.11.Definition of majority of the worker-members: majority of the worker-members

unless otherwise provided in the operating agreement, means more than 50 percent of the

worker-member class.12.Operating agreement: This bill imposes additional requirements beyond Corporations

Code Section 17701.10 as to provisions that may not be modified beyond the operating

agreement.

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13.Agency: Notwithstanding Corporations Code Section 17703.01(a), only worker-membersare presumed to be agents of the company, unless the articles indicate that the LLC is

manager-managed.14.Equal voting rights:Each member shall have an equal vote in their membership class,

but the worker-member class shall have ultimate decision making authority, as described

in section 23. Notwithstanding Corporations Code Section 17704.07(r), voting bymembership class is always permitted.

15.Unequal proprietary rights: If the proprietary interests of the members are unequal, thecooperative must state this in its articles.

16.Membership without a transferable interest:Notwithstanding Corporations CodeSection 17704.01(d), a person may not become a member without acquiring a

transferable interest or being obligated to make a contribution unless such a membership

is provided for in the operating agreement.

17.Minimum number of worker-members required:In addition to the requirements setforth in Corporations Code Section 17707.01(c) (that an LLC is dissolved if it has no

members for 90 days), a cooperative shall consist of at least 3 worker-members, but it is

permitted to have fewer than 3 worker-members for a maximum of 12 months during any36 month period.

18.Percentage of workers required to be worker-members:In a typical year:a. at least a simple majority (50% + 1) of all the workers in a cooperative company

shall be worker-members; and

b. the majority of labor or hours shall be contributed by the worker-members19.Worker membership required:The cooperatives members shall include a class of

worker-members. Only current workers in a cooperative are eligible for membership in

the worker-member class.

20.Presumption of member-management: Unless otherwise specified in the operatingagreement, a worker cooperative is presumed to be member-managed.

21.Additional member classes permitted:The cooperative may create other classes ofmembers in addition to the worker-member class, and such other classes may include

non-patron members; provided, however, that the powers and authority of such otherclasses shall be subject to the limitations of section 23.

22.Qualifications for membership: Qualification requirements and the process foraccepting and terminating all members shall be reflected in the cooperatives organizingarticles or operating agreement. Upon resignation, termination, or death, the individuals

membership in the cooperative shall immediately cease.

23.Ultimate decision-making authority:a. Subject to the provisions of subsection (b), the activities and affairs of the

cooperative shall be conducted, and all company powers shall be exercised, by orunder the ultimate direction of the worker-member class, including

representatives elected pursuant to section 24. Subject to the provisions ofsubsection (b), at no point shall other classes of members created pursuant to

section 21 have greater voting power, collectively, than the worker-member class

when voting as a combined membership is called for, except for the election ofrepresentatives in accordance with section 17.

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b. The cooperative may grant other classes of members created pursuant to Section14 veto power over decisions that are outside the ordinary course of the

cooperatives business or that affect the membership, proprietary or votinginterests of such other classes in a manner that is different from or

disproportionate to their effect on the interests of the worker-member class.

24.Representative governance: The worker-member class may delegate authority to amanager, managers, board of managers, or other elected decision-making body or

individuals (the representatives). The worker-member class may allocate the power to

elect such representatives among the various classes of members; provided, however, that

at least the majority of such representatives shall be elected by, and subject to removalby, the worker-member class.

25.Membership Meetings:A cooperative shall hold an annual membership meeting. Thecooperative may hold any other meetings on a frequency decided by the worker-member

class and reflected in the articles or operating agreement.

26.Quorum:Notwithstanding Corporations Code Section 17704.07(m)(1), a minimum of20% of the members of the cooperative shall constitute a quorum for the purpose of

conducting general business at a meeting of the members.

a. Where a cooperative is authorized to conduct a meeting with a quorum of lessthan 51% of the membership, matters that may be voted upon at such meeting

shall be listed in the notice of the meeting.

b. If there is a quorum present at the beginning of a meeting and then some membersleave so that less than a quorum remains, the remaining members may continue to

conduct business, as long as any actions they take (other than adjournment) reflect

at least a simple majority of the members required to constitute a quorum.

c. In the absence of quorum, a majority of present members can vote to adjourn themeeting, and no other business may be transacted, except as provided above.

27.Decision making:Except for the decisions listed in sections 44 and 45, decisions shall bemade by at least a simple majority of the quorum required for a meeting.

28.Notice:Notwithstanding Corporations Code Section 17704.07 (h), all meetings of theworker-member class shall have a minimum of 48 hours notice and a maximum of 60

days notice. All meetings that include other classes shall have a minimum of 10 days

notice and a maximum of 60 days notice.

29.Who may call a meeting:Notwithstanding Corporations Code Section 17704.07(g), anymember of the worker-member class may call a meeting. The cooperatives articles may

allow non-worker-members to call a meeting.

30.Action without meeting: Any action that may be taken at any meeting of the membersmay be taken without a meeting if a consent in writing, setting forth the action so taken,

is signed and delivered to the cooperative within 60 days of the record date for that action

by members having not less than the minimum number of votes that would be necessary

to authorize or take that action at a meeting at which at least a quorum of members

entitled to vote thereon were present and voted.

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31.Voting by proxy: The use of proxies in connection with this section shall be governed inthe same manner as in the case of corporations formed under the General Corporation

Law, Division 1 (commencing with Section 100) of Title 1.

32.Inspection rights: In accordance with Corporations Code Section 17704.10, all worker-members shall have access to all financial and governance information of the worker

cooperative, related to their needs as members, including articles, operating agreement,

policies, bookkeeping and the membership list. The details of these inspection rights may

be reflected in the cooperatives articles or operating agreement.

33.Availability of worker-membership: Worker-membership shall be available to allworkers in a worker cooperative, excluding temporary workers.

34.Membership candidacy period: The cooperative may have a candidacy period for allworkers on the track to worker-membership, which shall not exceed three years.

35.Base compensation ratio: At no time shall the highest-compensated worker-member oremployee receive more than seven times the compensation of the lowest-paid worker-

member or employee. For purposes of this section, compensation shall not includepatronage distributions.

36.Resignation, termination, or death of worker-members:a. A decision to terminate a worker-member requires a minimum of 51% vote of the

quorum of the worker-member class or a delegated decision-making body, as

provided in the cooperatives bylaws/operating agreement. If the decision to

terminate a worker-member was made by a group comprising less than the entire

worker-member class, the terminated worker member has the right to appeal the

decision to the entire worker-member class, or a delegated decision-making body.

Upon termination, resignation or death, a worker-members account shall be

returned to the worker-member in the manner prescribed by the articles oroperating agreement. If no manner is prescribed, the account shall be converted to

debt and repaid over a maximum of five years with interest accruing at the

discount rate as set by the Federal Reserve Bank of San Francisco.

b. Notwithstanding Corporations Code Section 17704.03, a worker-membersobligation to make a contribution to the LLC is excused by death, disability, or

inability to perform personally.

37.Suspension of membership upon bankruptcy: A persons membership in thecooperative shall be suspended when the member becomes a debtor in bankruptcy.

38.Transfer of membership rights:Notwithstanding Corporations Code Section17705.02(b), members generally may not transfer their governance or economic rights,

but the cooperatives articles of incorporation may allow members to transfer only their

right to dividend distributions.

39.Dividend Distributions: In addition to the distribution requirements set out inCorporations Code Section 17704.04(a), dividend distributions on individual member

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accounts, not including patronage distributions, shall not exceed 15% of invested capital

in any fiscal year. A dividend is a return on member capital.

40.Patronage distributions:Patronage distribution means any transfer of the companysearnings, or allocation of company income, made to a member of the company, the

amount of which is computed with reference to the members patronage of the company.

Patronage shall be distributed solely to worker-members unless the worker-members

elect to distribute patronage according to other members on the basis of those members

patronage of the cooperative.

41.Patronage: Patronage of a member is primarily measured by the volume or value, orboth, of the members contribution of labor to the cooperative. Contribution of labor may

include hours worked, wages earned, jobs created, or other measures of value. Patronage

may also be measured by a patrons purchase of goods from or use of the services of the

cooperative.

42. Patronage rules apply to coops taxed as partnerships or corporations: A cooperativeshall comply with Sections 40 and 42, without regard to its choice of taxation as acorporation or a partnership.

43.Member and capital accounts:a. A cooperative shall have individual member accounts; and may create a

cooperative account.

b. Individual member accounts may include any of the following, as provided in theoperating agreement: the members initial capital contribution, the members

share of undistributed patronage, founders credit, or any other credit reflected in

the cooperatives operating agreement.

c. The cooperative account may reflect retained earnings and other cooperativeequity. The articles or operating agreement may authorize the worker-memberclass, or its representatives, to assign a portion of annual earnings to the

cooperative account. Earnings assigned to the cooperative account may be used

for any and all company purposes, as determined by the worker-member class or

its representatives.

d. A cooperative may designate a portion of its cooperative account as anindivisible reserve account that is prohibited from being distributed to the

members. A cooperative may only distribute or allocate non-member-sourced

income to the indivisible reserve account.

e. The indivisible reserve account shall, in a manner determined by the operatingagreement or the worker-member class, or its representatives, be used as capital

for the cooperative or, notwithstanding Corporations Code Section 17707.05,

distributed to one more organizations that are either: (i) worker cooperatives

organized under this Act; or (ii) International Cooperative Alliance-approved

national federation or its designated regional body in California.

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44.Amendment of Governing Documents:Only worker-members can amend the articlesor operating agreement of the cooperative. Amendment may only take place at a

properly-noticed meeting at which a quorum of worker-members is present. Amendments

require at least a two-thirds vote of the worker-member class.

45.Dissolution/merger/revocation/demutualization/sale of major assets:NotwithstandingCorporations Code Sections 17704.07(c)(4), 17707.01(b), 17710.03(b)(1), and

17710.12(a), only the worker-member class can vote to dissolve, merge, revoke or

demutualize the cooperative; or sell, lease, convey, exchange, transfer or otherwise

dispose of all or substantially all of its assets. Dissolution, merger, revocation,

demutualization, or sale of major assets requires at least a two-thirds vote of the worker-

member class. The worker-member class may permit other classes voting rights on such

decisions, and such rights which may be provided in the cooperatives articles or

operating agreement.

46.Securities exemptions:

a. Worker-member capital contributions to the cooperative do not constitutesecurities under California law.

b. Investments by non-worker-members qualify for the exemption found in 25100(r)of the Corporations Code (which provision shall be amended to reflect this

change).

47.Use of the name cooperative: Companies formed under this Part may use the namecooperative, and Corporations Code Section 12311(b) and Corporations Code Section

17701.08(a) shall be amended to reflect this change.

48.Secretary of State: The Secretary of State shall provide information and sampledocuments for forming worker cooperatives on its website.

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