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The Law of Cooperative Corporations University of Arkansas LLM Program, Agricultural Law, 2007 Fayetteville, Arkansas April, 2007 James R. Baarda Statutes.

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Presentation on theme: "The Law of Cooperative Corporations University of Arkansas LLM Program, Agricultural Law, 2007 Fayetteville, Arkansas April, 2007 James R. Baarda Statutes."— Presentation transcript:

1 The Law of Cooperative Corporations University of Arkansas LLM Program, Agricultural Law, 2007 Fayetteville, Arkansas April, 2007 James R. Baarda Statutes

2 5. Federal statutes and programs 4. Proposed uniform law 3. New statutes 2. Incorporation and principles 1. Statutory development Statutes Syllabus: Statutes

3 1. Statutory development

4 Criteria for a “Good” Statute Authorize entity Authorize entity Describe qualifying entities Describe qualifying entities Exclude non-qualifying entities Exclude non-qualifying entities Flexible framework Flexible framework Administration, regulation Administration, regulation Educational, supportive Educational, supportive

5 Syllabus: Statutes, pp. 5-8 Michigan – 1865 Michigan – 1865 Wisconsin – 1911 Wisconsin – 1911 California non-stock – 1909 California non-stock – 1909 “Standard Act” – Sapiro “Standard Act” – Sapiro Uniform Act – 1936 Uniform Act – 1936 Wisconsin -- 1955 Wisconsin -- 1955 Highlights of Statutory History

6 Syllabus: Statutes, pp. 8-20 ~ 85 statutes ~ 85 statutes Farmer cooperatives Farmer cooperatives Corporate entity Corporate entity Corporate law application Corporate law application The “Standard Act” The “Standard Act” Current Status

7 Syllabus: Statutes, pp. 1-5 2. Incorporation and principles

8 Syllabus: Statutes, pp. 1-5 Implementation of Principles Principles identified Principles identified Variations Variations Specificity Specificity Enabling, mandatory Enabling, mandatory Standard Act example Standard Act example

9 Syllabus: Statutes, p. 2 General Character Purposes Purposes Mutual benefit of members Mutual benefit of members Deemed “nonprofit” Deemed “nonprofit”

10 Syllabus: Statutes, p. 3 User-contro User-control Membership Membership Voting Voting Boards of directors Boards of directors Management structure Management structure

11 Syllabus: Statutes, p. 4 User-benefit Distributed, not retained Distributed, not retained Distributed to users Distributed to users Allocation on patronage basis Allocation on patronage basis Limits on business Limits on business

12 Syllabus: Statutes, pp. 4, 5 User-ownership Membership stock Membership stock Limits on dividends Limits on dividends

13 Syllabus: Statutes, pp. 18 - 21 Criticism of Standard Act Provisions not mandatory Provisions not mandatory Permissive bylaws Permissive bylaws Membership agreement Membership agreement

14 “Cooperation is not dead! The legal structure is tired, worn out and needs to be buried.” -- Partner in Lindquist and Vennum, a Minneapolis law firm, quoted in Taking Ownership of Grain Belt Agriculture, National Corn Growers Association, task force report Criticism of Standard Act

15 Syllabus: Statutes, pp. 21-49 3. New statutes

16 Syllabus: Statutes, pp. 21-49 Flexibility Flexibility Impetus for New Statutes Capital demands Capital demands Return on investment Return on investment Attitudes toward cooperatives Attitudes toward cooperatives Lawyer driven? Lawyer driven?

17 Syllabus: Statutes, pp. 21-34 Wyoming, Minnesota, Iowa “Investor-members” “Investor-members” Outside ownership limits Outside ownership limits Distribution to non-patrons Distribution to non-patrons Board of directors Board of directors Voting rights Voting rights

18 Syllabus: Statutes, pp. 35-48 4. Proposed uniform law

19 Syllabus: Statutes, pp. 35-48 Uniform Law Process National Conference of National Conference of Commissioners on Uniform State Laws Study Committee on Business Study Committee on BusinessCooperatives Expansion from agriculture to Expansion from agriculture to all forms of cooperatives

20 Syllabus: Statutes, pp. 35-48 Uniform Law Highlights Focus on principles Focus on principles

21 Review the “Rules” Rule setsRule sets Interests recognizedInterests recognized ObjectivesObjectives ImplementationImplementation

22 Control Benefit Finance USE

23 User-Control+++-+--- User-Ownership+ +- + - + - - User-Benefit+-++--+- Rule sets ?

24 User-Control+++-+--- User-Ownership+ +- + - + - - User-Benefit+-++--+- Preferred stock, non-voting Preferred stock, voting Voting common, non-patronage Proportion of equity Compensation for equity Expectations and obligations ?

25 Syllabus: Statutes, pp. 49-50 Challenges to New Statutes Do they describe cooperatives? Do they describe cooperatives? Lack of clarity Lack of clarity Opportunities for misuse Opportunities for misuse Undermine patron protections Undermine patron protections Emphasize wrong criteria Emphasize wrong criteria

26 Syllabus: Statutes, p. 50 Challenges to New Statutes “Cooperative leaders need to stop for a moment and ask themselves, “Is a law that permits this much deviation from the cooperative norms of user-ownership and user-control coupled with a provision that only 15 percent of earnings must be returned to users based on patronage really a law authorizing the formation of cooperatives? -

27 Challenges to New Statutes If someone can answer this question ‘yes,’ a second question needs to be addressed: ‘Just what, if anything, does the term cooperative mean?’” Randall E. Torgerson If someone can answer this question ‘yes,’ a second question needs to be addressed: ‘Just what, if anything, does the term cooperative mean?’” Randall E. Torgerson Syllabus: Statutes, p. 50

28 Challenges to New Statutes “Many in the cooperative business community are uncertain about the benefit of new statutes allowing non-patron investors to claim governance and financial rights in a cooperative. The cooperative model is intended to provide goods or services at an affordable rate and maintain the core principle of democratic control. - Syllabus: Statutes, p. 50

29 Challenges to New Statutes We are concerned that undue manipulation of the cooperative business structure will jeopardize the interests of the members that a cooperative is intended to serve.” -- Letter from six major national cooperative associations to NCCUSL, June 7, 2005 We are concerned that undue manipulation of the cooperative business structure will jeopardize the interests of the members that a cooperative is intended to serve.” -- Letter from six major national cooperative associations to NCCUSL, June 7, 2005 Syllabus: Statutes, p. 50

30 Syllabus: Statutes, pp. 49-50 Challenges to New Statutes Do they describe cooperatives? Do they describe cooperatives? Lack of clarity Lack of clarity Opportunities for misuse Opportunities for misuse Undermine patron protections Undermine patron protections Emphasize wrong criteria Emphasize wrong criteria

31 Criteria for a “Good” Statute Authorize entity Authorize entity Describe qualifying entities Describe qualifying entities Exclude non-qualifying entities Exclude non-qualifying entities Flexible framework Flexible framework Administration, regulation Administration, regulation Educational, supportive Educational, supportive

32 Deep Problems What is a cooperative? What is a cooperative? What about the principles? What about the principles? What authority for principles? What authority for principles? - Inductive - Deductive - Beliefs and philosophy - History and experience Principles or pragmatism? Principles or pragmatism?

33 Present and Future Evolution of policy Evolution of policy Reliance on statutes Reliance on statutes Reliance on private law Reliance on private law Foundations of policy change Foundations of policy change Participants in policy change Participants in policy change Uncertainty Uncertainty

34 Syllabus: Statutes, pp. 51-80 5. Federal statutes and programs

35 Federal Statutes Based on cooperative characteristicsBased on cooperative characteristics Based on support for farmersBased on support for farmers Based on support for cooperativesBased on support for cooperatives Rural economic developmentRural economic development Cooperative Marketing Act of 1926Cooperative Marketing Act of 1926 Syllabus: Statutes, pp. 51-80

36 Federal Statutes Cooperative purposesCooperative purposes Cooperative definitionsCooperative definitions Grants programsGrants programs Syllabus: Statutes, pp. 51-80

37 5. Federal statutes and programs 4. Proposed uniform law 3. New statutes 2. Incorporation and principles 1. Statutory development Statutes Syllabus: Statutes

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