UNIFORM LIMITED COOPERATIVE
ASSOCIATION ACT
drafted by the
NATIONAL CONFERENCE OF COMMISSIONERS
ON UNIFORM STATE LAWS
and by it
APPROVED AND RECOMMENDED FOR ENACTMENT
IN ALL THE STATES
at its
ANNUAL CONFERENCE
MEETING IN ITS ONE-HUNDRED-AND-SIXTEENTH YEAR
PASADENA, CALIFORNIA
July 27 – August 3, 2007
WITH PREFATORY NOTE AND COMMENTS
Copyright ©2007
By
NATIONAL CONFERENCE OF COMMISSIONERS
ON UNIFORM STATE LAWS
February 26, 2008
ABOUT NCCUSL
The National Conference of Commissioners on Uniform State Laws (NCCUSL), also known as Uniform Law Commission (ULC), now in its 116th year, provides states with non-partisan, well-conceived and well-drafted legislation that brings clarity and stability to critical areas of state statutory law.
ULC members must be lawyers, qualified to practice law. They are practicing lawyers, judges, legislators and legislative staff and law professors, who have been appointed by state governments as well as the District of Columbia, Puerto Rico and the U.S. Virgin Islands to research, draft and promote enactment of uniform state laws in areas of state law where uniformity is desirable and practical.
• ULC strengthens the federal system by providing rules and procedures that are consistent from state to state but that also reflect the diverse experience of the states.
• ULC statutes are representative of state experience, because the organization is made up of representatives from each state, appointed by state government.
• ULC keeps state law up-to-date by addressing important and timely legal issues.
• ULC’s efforts reduce the need for individuals and businesses to deal with different laws as they move and do business in different states.
• ULC’s work facilitates economic development and provides a legal platform for foreign entities to deal with U.S. citizens and businesses.
• Uniform Law Commissioners donate thousands of hours of their time and legal and drafting expertise every year as a public service, and receive no salary or compensation for their work.
• ULC’s deliberative and uniquely open drafting process draws on the expertise of commissioners, but also utilizes input from legal experts, and advisors and observers representing the views of other legal organizations or interests that will be subject to the proposed laws.
• ULC is a state-supported organization that represents true value for the states, providing services that most states could not otherwise afford or duplicate.
DRAFTING COMMITTEE ON UNIFORM LIMITED COOPERATIVE
ASSOCIATION ACT
The Committee appointed by and representing the National Conference of Commissioners on Uniform State Laws in drafting this Act consists of the following individuals:
PETER F. LANGROCK, P.O. Drawer 351, Middlebury, VT 05753, Chair
LOYD BENSON, P.O. Box 486, 124 N. Ninth St., Frederick, OK 73542
LYLE W. HILLYARD, 595 S. Riverwood Parkway, Suite 100, Logan, UT 84321
GENE N. LEBRUN, P.O. Box 8250, 909 St. Joseph St., Suite 900, Rapid City, SD 57709
REED L. MARTINEAU, P.O. Box 45000, 10 Exchange Pl., Salt Lake City, UT 84145
JAMES R. PENDER, 4001 N. Rodney Parham Rd., Suite 101, Little Rock, AR 72211
MARILYN E. PHELAN, Texas Tech University, School of Law, 1802 Hartford, Lubbock, TX
79409
HIROSHI SAKAI, 3773 Diamond Head Circle, Honolulu, HI 96815
KEVIN P. H. SUMIDA, 735 Bishop St., Suite 411, Honolulu, HI 96813
JAMES B. DEAN, 4155 E. Jewell Ave., Suite 703, Denver, CO 80222, Associate Reporter
THOMAS EARL GEU, University of South Dakota, School of Law, 414 E. Clark St., Suite 214,
Vermillion, SD 57069-2390, Reporter
EX OFFICIO
HOWARD J. SWIBEL, 120 S. Riverside Plaza, Suite 1200, Chicago, IL 60606, President
LEVI J. BENTON, State of Texas, 201 Caroline, 13th Floor, Houston, TX 77002, Division Chair
AMERICAN BAR ASSOCIATION ADVISOR
CRAIG A. HOUGHTON, 5260 N. Palm, Suite 421, Fresno, CA 93704, ABA Advisor
EXECUTIVE DIRECTOR
JOHN A. SEBERT, 211 E. Ontario St., Suite 1300, Chicago, IL 60611, Executive Director
Copies of this Act may be obtained from:
NATIONAL CONFERENCE OF COMMISSIONERS
ON UNIFORM STATE LAWS
211 E. Ontario Street, Suite 1300
Chicago, Illinois 60611
312/915-0195
www.nccusl.org
UNIFORM LIMITED COOPERATIVE ASSOCIATION ACT
TABLE OF CONTENTS
[ARTICLE] 1
GENERAL PROVISIONS
SECTION 103. LIMITED COOPERATIVE ASSOCIATION SUBJECT TO
AMENDMENT OR REPEAL OF [ACT]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
SECTION 104. NATURE OF LIMITED COOPERATIVE ASSOCIATION
SECTION 105. PURPOSE AND DURATION OF LIMITED COOPERATIVE
ASSOCIATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
SECTION 108. SUPPLEMENTAL PRINCIPLES OF LAW
SECTION 109. REQUIREMENTS OF OTHER LAWS
SECTION 110. RELATION TO RESTRAINT OF TRADE AND ANTITRUST LAWS
SECTION 112. RESERVATION OF NAME
SECTION 113. EFFECT OF ORGANIC RULES
SECTION 114. REQUIRED INFORMATION
SECTION 115. BUSINESS TRANSACTIONS OF MEMBER WITH LIMITED COOPERATIVE ASSOCIATION
SECTION 117. DESIGNATED OFFICE AND AGENT FOR SERVICE OF PROCESS
SECTION 118. CHANGE OF DESIGNATED OFFICE OR AGENT FOR SERVICE OF PROCESS
SECTION 119. RESIGNATION OF AGENT FOR SERVICE OF PROCESS
SECTION 120. SERVICE OF PROCESS
[ARTICLE] 2
FILING AND ANNUAL REPORTS
SECTION 201. SIGNING OF RECORDS DELIVERED FOR FILING TO [SECRETARY
OF STATE]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
SECTION 202. SIGNING AND FILING OF RECORDS PURSUANT TO JUDICIAL
ORDER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 203. DELIVERY TO AND FILING OF RECORDS BY [SECRETARY OF STATE]; EFFECTIVE TIME AND DATE
SECTION 204. CORRECTING FILED RECORD
SECTION 205. LIABILITY FOR INACCURATE INFORMATION IN FILED RECORD
SECTION 206. CERTIFICATE OF GOOD STANDING OR AUTHORIZATION
SECTION 207. ANNUAL REPORT FOR [SECRETARY OF STATE]
[ARTICLE] 3
FORMATION AND INITIAL ARTICLES OF ORGANIZATION OF LIMITED
COOPERATIVE ASSOCIATION
SECTION 302. FORMATION OF LIMITED COOPERATIVE ASSOCIATION;
ARTICLES OF ORGANIZATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61
SECTION 303. ORGANIZATION OF LIMITED COOPERATIVE ASSOCIATION
[ARTICLE] 4
AMENDMENT OF ORGANIC RULES OF LIMITED COOPERATIVE ASSOCIATION
SECTION 401. AUTHORITY TO AMEND ORGANIC RULES
SECTION 402. NOTICE AND ACTION ON AMENDMENT OF ORGANIC RULES
SECTION 403. METHOD OF VOTING ON AMENDMENT OF ORGANIC RULES
SECTION 404. VOTING BY DISTRICT, CLASS, OR VOTING GROUP.
SECTION 405. APPROVAL OF AMENDMENT
SECTION 406. RESTATED ARTICLES OF ORGANIZATION
SECTION 407. AMENDMENT OR RESTATEMENT OF ARTICLES OF
ORGANIZATION; FILING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
SECTION 502. BECOMING A MEMBER
SECTION 503. NO POWER AS MEMBER TO BIND ASSOCIATION
SECTION 504. NO LIABILITY AS MEMBER FOR ASSOCIATION’S OBLIGATIONS
SECTION 505. RIGHT OF MEMBER AND FORMER MEMBER TO INFORMATION
SECTION 506. ANNUAL MEETING OF MEMBERS
SECTION 507. SPECIAL MEETING OF MEMBERS
SECTION 508. NOTICE OF MEMBERS MEETING
SECTION 509. WAIVER OF MEMBERS MEETING NOTICE
SECTION 510. QUORUM OF MEMBERS
SECTION 511. VOTING BY PATRON MEMBERS
SECTION 512. DETERMINATION OF VOTING POWER OF PATRON MEMBER.
SECTION 513. VOTING BY INVESTOR MEMBERS.
SECTION 514. VOTING REQUIREMENTS FOR MEMBERS.
SECTION 516. ACTION WITHOUT A MEETING
SECTION 517. DISTRICTS AND DELEGATES; CLASSES OF MEMBERS.
[ARTICLE] 6
MEMBER’S INTEREST IN LIMITED COOPERATIVE ASSOCIATION
SECTION 601. MEMBER’S INTEREST
SECTION 602. PATRON AND INVESTOR MEMBERS’ INTERESTS
SECTION 603. TRANSFERABILITY OF MEMBER’S INTEREST
SECTION 604. SECURITY INTEREST AND SET-OFF.
SECTION 605. CHARGING ORDERS FOR JUDGMENT CREDITOR OF MEMBER
OR TRANSFEREE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
[ARTICLE] 7
MARKETING CONTRACTS
SECTION 702. MARKETING CONTRACTS
SECTION 703. DURATION OF MARKETING CONTRACT
SECTION 704. REMEDIES FOR BREACH OF CONTRACT
[ARTICLE] 8
DIRECTORS AND OFFICERS
SECTION 801. BOARD OF DIRECTORS
SECTION 802. NO LIABILITY AS DIRECTOR FOR LIMITED COOPERATIVE ASSOCIATION’S OBLIGATIONS
SECTION 803. QUALIFICATIONS OF DIRECTORS
SECTION 804. ELECTION OF DIRECTORS AND COMPOSITION OF BOARD
SECTION 806. RESIGNATION OF DIRECTOR
SECTION 807. REMOVAL OF DIRECTOR
SECTION 808. SUSPENSION OF DIRECTOR BY BOARD.
SECTION 810. REMUNERATION OF DIRECTORS
SECTION 812. ACTION WITHOUT MEETING
SECTION 813. MEETINGS AND NOTICE
SECTION 814. WAIVER OF NOTICE OF MEETING
SECTION 818. STANDARDS OF CONDUCT AND LIABILITY
SECTION 819. CONFLICT OF INTEREST
SECTION 820. OTHER CONSIDERATIONS OF DIRECTORS
SECTION 821. RIGHT OF DIRECTOR OR COMMITTEE MEMBER TO
INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141
SECTION 822. APPOINTMENT AND AUTHORITY OF OFFICERS
SECTION 823. RESIGNATION AND REMOVAL OF OFFICERS
[ARTICLE] 10
CONTRIBUTIONS, ALLOCATIONS, AND DISTRIBUTIONS
SECTION 1001. MEMBERS’ CONTRIBUTIONS
SECTION 1002. CONTRIBUTION AND VALUATION
SECTION 1003. CONTRIBUTION AGREEMENTS
SECTION 1004. ALLOCATIONS OF PROFITS AND LOSSES
SECTION 1006. REDEMPTION OR REPURCHASE
SECTION 1007. LIMITATIONS ON DISTRIBUTIONS
SECTION 1008. LIABILITY FOR IMPROPER DISTRIBUTIONS; LIMITATION OF ACTION
[SECTION 1009. RELATION TO STATE SECURITIES LAW
SECTION 1101. MEMBER’S DISSOCIATION
SECTION 1102. EFFECT OF DISSOCIATION AS MEMBER
SECTION 1103. POWER OF ESTATE OF MEMBER.
SECTION 1201. DISSOLUTION AND WINDING UP
SECTION 1202. NONJUDICIAL DISSOLUTION
SECTION 1203. JUDICIAL DISSOLUTION
SECTION 1204. VOLUNTARY DISSOLUTION BEFORE COMMENCEMENT OF ACTIVITY
SECTION 1205. VOLUNTARY DISSOLUTION BY THE BOARD AND MEMBERS.
SECTION 1207. DISTRIBUTION OF ASSETS IN WINDING UP LIMITED
COOPERATIVE ASSOCIATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178
SECTION 1208. KNOWN CLAIMS AGAINST DISSOLVED LIMITED
COOPERATIVE ASSOCIATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179
SECTION 1209. OTHER CLAIMS AGAINST DISSOLVED LIMITED COOPERATIVE ASSOCIATION.
SECTION 1210. COURT PROCEEDING
SECTION 1211. ADMINISTRATIVE DISSOLUTION
SECTION 1212. REINSTATEMENT FOLLOWING ADMINISTRATIVE
DISSOLUTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .185
SECTION 1213. DENIAL OF REINSTATEMENT; APPEAL
SECTION 1214. STATEMENT OF DISSOLUTION
SECTION 1215. STATEMENT OF TERMINATION
[[ARTICLE] 13
ACTION BY MEMBER
SECTION 1301. DERIVATIVE ACTION
SECTION 1302. PROPER PLAINTIFF
SECTION 1304. APPROVAL FOR DISCONTINUANCE OR SETTLEMENT.
SECTION 1305. PROCEEDS AND EXPENSES
[ARTICLE] 14
FOREIGN COOPERATIVES
SECTION 1402. APPLICATION FOR CERTIFICATE OF AUTHORITY
SECTION 1403. ACTIVITIES NOT CONSTITUTING TRANSACTING BUSINESS
SECTION 1404. ISSUANCE OF CERTIFICATE OF AUTHORITY
SECTION 1405. NONCOMPLYING NAME OF FOREIGN COOPERATIVE
SECTION 1406. REVOCATION OF CERTIFICATE OF AUTHORITY
SECTION 1407. CANCELLATION OF CERTIFICATE OF AUTHORITY; EFFECT OF FAILURE TO HAVE CERTIFICATE
SECTION 1408. ACTION BY [ATTORNEY GENERAL]
[ARTICLE] 15
DISPOSITION OF ASSETS
SECTION 1501. DISPOSITION OF ASSETS NOT REQUIRING MEMBER
APPROVAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202
SECTION 1502. MEMBER APPROVAL OF OTHER DISPOSITION OF ASSETS.
SECTION 1503. NOTICE AND ACTION ON DISPOSITION OF ASSETS.
SECTION 1504. DISPOSITION OF ASSETS.
[ARTICLE] 16
CONVERSION AND MERGER
SECTION 1603. ACTION ON PLAN OF CONVERSION BY CONVERTING LIMITED COOPERATIVE ASSOCIATION.
SECTION 1604. FILINGS REQUIRED FOR CONVERSION; EFFECTIVE DATE.
SECTION 1605. EFFECT OF CONVERSION.
SECTION 1607. NOTICE AND ACTION ON PLAN OF MERGER BY CONSTITUENT LIMITED COOPERATIVE ASSOCIATION
SECTION 1608. APPROVAL OR ABANDONMENT OF MERGER BY MEMBERS.
SECTION 1609. FILINGS REQUIRED FOR MERGER; EFFECTIVE DATE
SECTION 1610. EFFECT OF MERGER
SECTION 1612. [ARTICLE] NOT EXCLUSIVE
[ARTICLE] 17
MISCELLANEOUS PROVISIONS
SECTION 1701. UNIFORMITY OF APPLICATION AND CONSTRUCTION
SECTION 1702. RELATION TO ELECTRONIC SIGNATURES IN GLOBAL AND NATIONAL COMMERCE ACT
UNIFORM LIMITED COOPERATIVE ASSOCIATION ACT
Introduction to ULCAA
This Act (ULCAA) combines an unincorporated and flexible organizational structure with cooperative principles and values in order to obtain increased equity investment opportunity for capital intensive and start-up cooperative enterprises. It encourages equity investment by allowing, but not requiring, a limited cooperative association to have voting investor members in addition to patron members. Giving equity investors even limited voice in operations on an on-going basis is the biggest defining feature distinguishing this Act from other cooperative acts. Nonetheless, it is possible to view the distinction between debt and equity as one of degree rather than of kind. In effect this Act allows a limited cooperative association to substitute equity capital with limited, but real, governance rights for debt capital and lenders, through loan covenants, can control some activities of any kind of entity.
Another defining feature of this Act is that it is based in large part on unincorporated law and entities formed under it are intended to be unincorporated entities for state law purposes in the style of limited liability companies and limited partnerships. This feature may lead to rather sophisticated tax planning flexibility but is important, too, because cooperatives have historically functioned for specific purposes in a way analogous to, and sometimes in fact as, unincorporated associations. On the other hand, the names, but not necessarily the function, of the organic documents of a limited cooperative association are borrowed from corporate law based “traditional” cooperative statutes.
Limited cooperative associations are an alternative to other cooperative and unincorporated structures already available under state law. The Act is a free-standing act separate and apart from current cooperative acts and, therefore, is not a statutory replacement of other law. It is simply another statutory option under which to form an entity.
At the time of the promulgation of this Act, it is possible to qualify as a “cooperative” for some federal purposes without being organized as a cooperative under state law. That is, other forms of business organizations may be used for cooperative purposes. This Act, however, provides an efficient default template that encourages planners to utilize tested cooperative principles that reflect traditional cooperative values at a deeper level than provided in those other organizational structures. ULCAA may be correctly perceived as protecting cooperative principles within state law in ways not possible under more general organizational statutes.
The Act draws from existing statutes in Minnesota, Tennessee, Iowa, and Wisconsin, and, to a lesser extent, Wyoming which contemplate unincorporated cooperative entities and which encourage a greater use of outside equity furnished by “investors”. These laws began with Wyoming in 2001 and continued from Minnesota in 2003 through Nebraska in 2007. ULCAA seeks to provide a template for uniformity and further evolution in this area of law. In some ways, this Act is more protective of patron members than most of the existing statutes. Even before the enactment of these enabling laws, however, combinations of entities were being used to address equity capital concerns in cooperatives. See, e.g., Michael L. Cooke, Constantine Iliopoulis, Beginning to Inform the Theory of the Cooperative Firm: Emergence of the New Generation Cooperative 1999 Finn. J. Bus. Econ. 525 (Issue 4).
At the time of the promulgation of this Act, combination entities continue to be used to pair cooperatives with other entities in partnerships and joint ventures. Typically the “other entity” provides financing and the joint venture agreement provides for the allocation of profits and losses between the venturers and for the payment of fees for the provision of necessary inputs such as management services. The use of these multiple entity structures builds on the practical experience of “New Generation” cooperatives. The “New Generation” cooperative model differs from the historical cooperative model because it requires substantial up-front investment by patron members, connects equity investment with the right and obligation to deliver specified quantities of product to the cooperative, and allows patron members to transfer their equity in the cooperative by private sale to another person eligible to become a patron member.
The broad definition of “person” (Section 102(24)), the manner in which a person becomes a member (Section 502), and the flexibility provided by broadly allowing the purpose of a limited cooperative association to encompass activities that may (or may not) be for-profit (Section 105), continue a trend in unincorporated entity law. It is possible for ULCAA limited cooperative associations, therefore, to serve as joint venture conduits between and among for-profit entities, not-for-profit entities, and governmental divisions, if the organic law (and tax law) of those other entities allows them to do so; and, if the other law makes such ventures practicable. This use is consistent with several traditional cooperative values because cooperatives are self-help organizations that in some states are, or may be, formed under not-for-profit statues. Moreover, the federal income taxation of specific types of cooperatives is based on exempt organization concepts (though it is unlikely a limited cooperative association can comply with that scheme of taxation as currently formulated). If a limited cooperative association is able to navigate regulatory and tax complexity, the limited cooperative association might be an alternative entity for organizations in the growing social sector.
There are two final introductory matters concerning nomenclature and citation in the following comments to ULCAA. Throughout the comments it is necessary or helpful to contrast limited cooperative associations from cooperative organizations formed under other law. A convention adopted for purposes of the comments is that “cooperative organizations formed under other law” are termed “traditional cooperatives”. Reference and citation to frequently cited uniform or model acts are as follows: Revised Uniform Limited Liability Company Act is referenced as RULLCA (2006); Uniform Limited Partnership Act is referenced as ULPA (2001); Revised Uniform Partnership Act is referenced as RUPA (1997); Revised Uniform Limited Partnership Act with 1985 Amendments is referenced as RULPA (1976/1985); Model Entity Transaction Act is referenced as META; Revised Model Business Corporation Act (Model Business Corporation Act) is referenced as RMBCA.
Cooperative Principles
Cooperatives are unique organizations. Israel Packel emphasized the unique nature of the cooperative through four editions of his book on cooperatives from 1940 to 1970. He criticized attempts to interpret cooperatives solely by comparative classification as either “corporations” or “partnerships” by stating:
Instead of a direct approach as to whether a particular rule, in the light of the reason for the rule, should be applied to cooperatives, courts in the past tended to create the preliminary hurdle of determining whether cooperatives are to be treated as corporations, partnerships, or other joint ventures. [He later discussed Moore v. Hillsdale County Tel. Co., 137 N.W. 241 (Mich. 1912) (categorizing an unincorporated telephone cooperative as a joint venture).]
The uselessness of such an analysis becomes even more apparent when it leads to a statement that cooperatives “are somewhat of a hybrid, partaking both of the nature of a corporation and a partnership” [citing Philadelphia School Dist. v. Frankford Grocery Co., 103 A.2d 738 (Penn. 1954)].
Israel packel, The Organization and Operation of Cooperatives p. 5-6 (4th ed. 1970); contra, David Barton, What is a Cooperative, in Cooperatives in Agriculture, p. 1 (David Cobia, ed., 1989).
Even so, entity comparisons can be helpful for understanding the limited cooperative association. The basic features of limited cooperative associations formed under this Act (ULCAA) are flexible within bounds and largely based in contract consistent with other cooperative and unincorporated entity law. The organic rules, however, consistent with traditional cooperatives and corporations, are articles and bylaws though the articles are styled articles of organization, a term used in many limited liability company statutes. Member governance rights under the default rules share some aspects similar to those of limited partners in limited partnerships. For example, members do not have agency authority on behalf of the association. The governance structure is centralized with a board of directors like traditional cooperative statutes and, as a necessary result, the Act contains machinery necessary to support representational central authority.
Transferability of members’ interests and entity duration are similar to traditional cooperative and limited liability companies. Members’ liability is limited like both corporate and unincorporated limited liability entities. Allocation and distribution provisions are sui generis to this Act but are consistent with broad unincorporated concepts because they contemplate equity capital accounts in the names of the members.
Mechanical operation aside, the Act reflects cooperative principles except to the extent necessary to accommodate investor members for those limited cooperative associations choosing to have investor members. It is worth repeating that this Act does not require a limited cooperative association to have investor members. The Act results in an entity that is designed to function in close proximity to the way traditional cooperatives function in the absence of investor members.
Cooperative principles have historical roots that can be traced to the pre-revolutionary period in Pennsylvania where Benjamin Franklin helped form “what is considered the first formal cooperative business in the United States” in 1752. It was a mutual fire insurance company. Gene Ingalsbe & Frank Groves, Historical Development, in Cooperatives in Agriculture, 106 at 110-11 (David Cobia, ed., 1989).
The Rochdale Society of Equitable Pioneers, Ltd., however, is recognized as having “singular impact”on the cooperative movement. Id. at 109. It was a consumer cooperative formed in Rochdale, England, in 1844. The “Rochdale Principles” grew out of the experience of the Rochdale Society and probably “evolved from ‘rules of conduct and points of organization’” published by the Society in 1860. The number of “Rochdale Principles” varies depending on source probably “because the rules enumerated by the Rochdale Society continued to evolve from its founding... up to its publication in 1860 and thereafter.” David Barton, Principles in Cooperatives in Agricultures p. 22 (1989).
The number of stated enumerated principles varies between three and fourteen. In 1995, for example, the International Co-operative Alliance (ICA) listed the following seven cooperative principles: (1) voluntary and open membership; (2) democratic member control; (3) member economic participation; (4) autonomy and independence; (5) education, training and information for members; (6) cooperation among cooperatives; and, (7) concern for community. The 1995 list varies from ICA’s list promulgated in 1966. The 1995 list deleted “business at cost” and “limited return on capital” but added numbers (3), (4) and (7) as enumerated above. See Barton, supra, at pp. 31-2. Packel used the term “characteristics” rather than principles and suggested: “No single characteristic is necessarily all-controlling.” Packel, supra, at p. 5.
A frequently quoted passage from a dissent written by Justice Brandeis (and joined by Justice Holmes) concerning whether a stock cooperative was the same as a non-stock cooperative for purposes of an Oklahoma regulatory statute stated:
That no one plan of organization is to be labeled as truly co-operative to the exclusion of others was recognized by Congress in connection with co-operative banks and building and loan associations [citation omitted]. With the expansion of agricultural co-operatives it has been recognized repeatedly.
Frost v. Corporation Comm. (Oklahoma), 278 U.S. 515 at 546 (1929) (Brandeis, J., dissenting).
Justice Brandeis further stated:
And experts in the Department of Agriculture, charged with disseminating information to farmers and Legislatures, have warned against any crystallization of the co-operative plan, so as to exclude any type of co-operation.
Id.
The interpretation of cooperative principles has evolved under other law, too. For example, the Internal Revenue Service changed its interpretation of whether operating on a cooperative basis required more than 50 percent of the cooperative’s business be done with members on a patronage basis to qualify for tax treatment afforded one specific kind of cooperative. Rev. Rul. 93-21, 1993-1 C.B. 188 (stating that the 50 percent threshold is not necessary).
Cooperative principles undergird and animate many of ULCAA’s provisions. As a result, understanding the Act at a fundamental level is aided by an overview of cooperative values and principles.
One of the fulcrums in this Act regarding cooperative values is Section 104 (“Nature of Limited Cooperative Association”). It addresses the values of member economic participation, autonomy, and independence. Autonomy, however, must be placed within the practical context of long-term debt, equity, and the use of combination entities. Voluntary membership remains voluntary in the sense that this Act requires the “consent” of both the person seeking to become a member and the association. See Section 113(a). Open membership has been compromised under existing law establishing entities similar to limited cooperative associations and remains so in ULCAA to allow (but not require) the formation of “closed” cooperatives. Closed cooperative structure assists patron members to share the increased value of the entity they helped build and provides member liquidity.
Section 1004 (“Allocations of Profits and Losses”) expressly provides for the values of member economic participation; education, training and information, and; cooperation among cooperatives. One of the key balancing points of the Act concerns “democratic member control.” Sections 405, 511(a) through 514, 804, and 816(a) (as well as the other voting provisions on fundamental changes) all concern the patron member control principle.
“Concern for community” is directly addressed by Section 820 which varies the law generally applicable to corporate directors, for example, to allow the directors of a limited cooperative association to consider cooperative principles as well as a number of community constituencies in making decisions. See also Section 1004(a)(2).
In sum, the Act expressly considers important traditional cooperative values and provides reasoned departures from those values only where necessary for purposes of reducing the cost of capital to limited cooperative associations in furtherance of the other cooperative principles.
Selected Features of the
Uniform Limited Cooperative Association Act (ULCAA)
The features and provisions discussed in this portion of the Prefatory Note are particularly important to understand and use the Act. They include:
• Structure and Interpretation of ULCAA
• Organic Rules
• Investor Members
• Voting Control
• Board of Directors: “Fiduciary” Duties
• Formation of a Limited Cooperative Association
• Financial Rights
• Allocations and Distributions
• Marketing Contracts
• Interrelationship with Other Law
Structure and Interpretation of ULCAA
The structure of ULCAA follows, in a general way, the structure of RULLCA (2006), ULPA (2001), and RUPA (1997). Wherever appropriate, similar captions to those acts are used.
Sections 107 (“Governing Law”), 108 (“Supplemental Principles of Law”) and 113 (“Effect of Organic Rules”) relate to the application and interpretation of the Act. The first two sections are common with other uniform acts.
Section 113 underpins the contractual unincorporated nature of ULCAA. In the first instance the fluidness (or ambiguity) caused by the strong influence of contract law on the organic rules may seem troublesome. This fluidness, however, is generally consistent with member based entities and is fundamental to unincorporated entities. Indeed, whatever ambiguity exists concerning the boundary of the interpretation of the organic rules and contract in ULCAA should provide no more practical consternation than does the definition of “operating agreement” in RULLCA (2006) which states, in relevant part, that “operating agreement”:
means the agreement, whether or not referred to as an operating agreement and whether oral, in a record, implied, or in any combination thereof, of all the members of a limited liability company. . . .
RULLCA (2006) § (13).
By way of overview Section 113(a) provides that the organic rules govern relationships internal to the association. The balance of Section 113 performs two functions. The first function is that it indirectly establishes the interpretive primacy of the organic rules both within Section 113(a) and other sections elsewhere in the Act that restrict, limit, qualify, or emphasize that primacy. Subsections (b) and (c) identify sections which limit the flexibility of the organic rules. Subsection (b) identifies provisions by section number that may be modified only in the articles of organization. Subsection (c), like subsection (b), identifies provisions by section number in which limitations exist; but, which may be modified in either the articles of organization or bylaws within those limitations. Thus, subsections (b) and (c) provide the necessary background rule for those sections that expressly limit the broad flexibility recognized in subsection (a). In addition to providing this negative definition to subsection (a), subsections (b) through (d) provide practical guidance for those drafting organic rules similar to the way provisions in RULLCA (2006), RULPA (2001), RUPA (1997) and RMBCA provide the same guidance.
On the other hand, many provisions that would clearly be interpreted as “flexible” under the application of the general rule of Section 113(a) contain an express statement that the organic rules may “otherwise provide.” When used in this manner the quoted phrase is for emphasis and for the convenience of those using the Act, for example, opinion givers. The use of the phrase should not be interpreted as a negative implication about the flexibility of provisions that govern the internal affairs of the association but which do not contain the phrase. Nonetheless, like other organizational acts, this Act contains administrative provisions. For example, Section 111 (“Name”) deals with the name of a limited cooperative association. Also, similar to other acts, these administrative provisions are mandatory even though they do not expressly so state.
Finally, as an introductory matter of interpretation, ULCAA does not contain restrictions concerning the effect of the organic rules on third parties as contained in some unincorporated laws; nor does it expressly state that the organic rules may be directly applicable to third parties as stated in others. There are two reasons for this treatment of the matter by this Act. First, at some level, expressly stating that the organic rules may not affect nonsignatory third parties seems to state the obvious. Second, and at the opposite interpretive extreme, cooperatives are somewhat unique among entities because their customers (patrons) are also typically their owners (patron members). Thus, whether the member is (or is not) a third party for a particular purpose will depend on unique facts and the organic rules themselves. This is not imprecision. It is recognition of the importance of context.
Moreover, some users of the cooperative may be “non-member patrons” (in the vernacular of the industry) and some items of the contract with “non-member patrons” may, in somewhat unusual circumstances, be addressed in the organic rules. These patrons may, under contract, share in “profits” or “savings.” As a result of these unique relationships concerning “contracts” among and between the constituencies requires careful case-by-case scrutiny of what is meant by “third parties” for particular purposes. Such determinations, particularly at this early developmental stage of limited cooperative association law, are ill-suited to be addressed by statutory mandate.
Organic Rules
The organic rules of a limited cooperative association are its articles of organization and bylaws. They are modified versions of similar governing schemes in corporate law but in some ways are similar to the governing records and schemes found in a few early limited liability company statutes. See, e.g., Tex. Civ. Code Ann. § 2.09 (1992) (articles of organization and regulations).
The articles of organization are the highest authority of organic rules and may be amended only with a super-majority vote of the members. See Section 405 (“Approval of Amendment”). They are filed publicly. The bylaws, as a matter of default, may be amended only by a majority vote of the members but the power to amend most bylaw provisions may be delegated to the board of directors by the articles of organization. Id. The exceptions to the delegation of authority to the board for purposes of amending the bylaws include five fundamental matters (amending equity structure; transferability of a member’s interest; allocation of profits and losses; quorum and voting rights; and, under certain circumstances, admission of new members). Id. Those five matters require super majority member vote whether located in the articles of organization or the bylaws.
Certain items must be contained in the articles of organization, some may be in the articles or bylaws. There is no penalty or adverse consequence under the Act if a limited cooperative association does not adopt bylaws even though the Act could be interpreted as requiring bylaws. See Comment to Section 304 (“Bylaws”).
Investor Members
The introduction of voting investor members requires ULCAA to expressly guard cooperative principles and values which focus on user-owners (patron members) and their cooperative entity while at the same time balancing control and financial return in such a way as to encourage equity investment by investor members. Article 5 (“Members”) contains the primary balancing point concerning voting rights and, relatedly, Article 8 (“Directors and Officers”) requires that the majority of the board be elected by patron members. Article 10 (“Contributions, Allocations, and Distributions”) contains the primary balancing point concerning capital, profits, and losses.
While the provisions of Articles 5 and 10 are flexible, they contain protections for both patron member and investor members. The general voting provisions favor patron members through a two-tiered voting structure but the organic rules can provide for significant influence, and possible blocking power, to investor members. Article 10 provides protections for patron members with respect to allocation of the association’s profits and losses by establishing a baseline for patron members that is to be met in making allocations. There remains, however, great flexibility in structuring the financial arrangements among the patron members and the investor members by defining “profits”and through commercial arrangements among the members.
Voting Control
Control by members is a gravaman of cooperative theory and regulation. Cooperative principles require control by patron members. This Act allows for investor members. As a result it contains provisions that balance the need for patron member control with the enhanced ability of the association to obtain equity from investor members. The most basic provision for patron member control in limited cooperative associations with investor members requires that a majority of the voting power be held by patron members. See Section 514.
Voting control is addressed in three places in the Act: (1) election of the board of directors; (2) amendment of the organic rules; and, (3) fundamental changes such as mergers and conversions.
A strong measure of control is vested in patron members by the provisions addressing election and composition of the board of directors. The Act requires that a specified number of directors be patron members relative to the size of the board. For example, if the board has nine or more members at least one-third of the members must be patron members. Further, and at least as important as the number of patron members on the board, a majority of the board of directors must be elected by patron members. See Section 804. Patron member “control” provided by the election of a majority of directors is leveraged by the default rule that directors may be removed without cause. See Section 807. ULCAA, however, allows more flexibility than in other law for the election of independent directors whose use is becoming more popular in traditional cooperatives. In summary, the director election provisions assure patron members have a significant place at the board table and “control” over the composition of the board while at the same time providing investor members the minimum electoral voice believed necessary as a matter of policy to encourage their equity investment.
Amendment of the articles of organization, voting on proposed fundamental changes, and the amendment of bylaws are consistent with patron member control. As compared to amendment of the articles, however, the percentage of the vote is lowered in the case of bylaw amendments except for specified provisions. See “Organic Rules” in this Prefatory Note. The mandatory minimum vote required for fundamental changes and amendment of the articles of organization is two-thirds vote. See, e.g., Section 405.
In associations with investor members the Act requires the vote for fundamental changes meet two tests:
(1) A majority of patron member voting power present must vote for the matter; and
(2) the total vote must meet either the two-thirds or majority default requirements, as appropriate.
See Comment to Section 405.
Patron member voting under ULCAA is not “block voting” as is provided by existing statutes similar to ULCAA. The difference is that under ULCAA a majority of the patron vote does not control the entire patron member voting power. Therefore, the Act changes the voting dynamic between patron members and investor members as compared to similar laws but still requires that a majority of patron members have, in effect, a veto power. The Act allows the association to provide similar “veto power” to investor members which is similar to the power frequently demanded by lenders in loan covenants and by venture capitalists for their equity investments. See Section 514(3). The requirement that patrons have at least a majority of the voting power also differs from most, but not all, of the existing statutes on which this Act is based which allow for lower quantums of voting power for patron members (as low as 15 percent). As a result the Act can be seen as both more flexible and more protective of “control” by patron members than most (but again not all) of the similar statutes existing as of the promulgation of ULCAA.
The Act specifically addresses patron member district voting, voting by classes, proxy voting, quorum requirements, and other matters related to voting as is common in traditional cooperative statutes.
Board of Directors: “Fiduciary” Duty
The application of corporate based concepts such as the business judgment rule is controversial within unincorporated entities. See Elizabeth S. Miller and Thomas E. Rutledge, The Duty of Finest Loyalty and Reasonable Decisions: The Business Judgment Rule in Unincorporated Business Organizations? 30 Del. J. Corp. L. 343 (2005). Even so, RULLCA (2006) Section 409 references the business judgment rule in the context of limited liability companies. There is no necessity for this Act to fuel or even enter this policy debate because the limited cooperative association, though intended to be an unincorporated association, also draws upon the long tradition and customary law applicable to cooperatives which for the past five decades has borrowed duties and standards from business and not-for-profit corporation law to identify the appropriate duties and measuring standards for its non-agent directors. These sources provide the context and flexibility necessary for judicial review in the broad range of entities that may be formed as limited cooperative associations under this Act.
States have had the opportunity to develop specific statutory policy regarding traditional cooperatives in the context of elected centralized management. This Act adopts those legislative formulations, as uniquely interpreted by the courts of individual states, as the appropriate starting place for the determination and continued evolution of the duties, responsibilities, and standards of directors of limited cooperative associations. As a result, ULCAA incorporates the preexisting law of the adopting state by reference in Sections 818 (“Standards of Conduct and Liability”), 819 (“Conflict of Interest”) and 901 (“Indemnification”). The standards of conduct of officers, on the other hand, are left to agency law as a matter of affirmative policy, not of omission.
This Act, however, contains an important modification concerning the matters that may be appropriately considered by the board of directors. Unless the articles of organization otherwise provide, directors may consider other constituencies, the community, and cooperative principles and values, without breaching their duties. See Section 820 (“Other Considerations of Directors”). It is only a default rule, but this modification is intended to reflect the traditional notion that cooperatives serve interests beyond narrowly defined constituencies. It provides a touch stone to the concern for public good as historically reflected by special treatment afforded cooperatives under some regulatory statutes and, more generally, helps explain the influence of not-for-profit law on traditional cooperatives.
Finally and as a more general matter, incorporation of material provisions by reference, while somewhat novel, is consistent with a nascent general trend to attempt to standardize like features of entity statutes for improved efficiency and predictability. E.g., Model Entity Transactions Act, Model Registered Agent Act.
Formation of a Limited Cooperative Association
The formation of a limited cooperative association is more formal than some other unincorporated associations though it shares with other statutes the requirement of a public filing. The required filing under this Act is the articles of organization. See Section 302 (“Formation of Limited Cooperative Association; Articles of Organization”).
The centralized management structure of a limited cooperative association includes a board of directors. The Act, therefore, has provisions dealing with the initial board as well as other provisions generally found in statutes governing traditional cooperatives.
ULCAA contemplates an unincorporated entity and unincorporated entities are governed principally by contract. This creates a theoretical issue about whether the entity can exist without members. See Comment to Section 301 (“Organization”). Mitigation of this important theoretical concern, which goes to the fundamental nature of an organization, is in contrast to practical filing considerations which sometimes necessitate filing before members are identified or known. The compromise solution is to allow filing but to require the association to have members before it commences business. See Section 501 (“Directors and Officers”). While mitigating the theoretical concern, these provisions may create practical formation issues that need to be carefully attended by advisors.
With one exception an association must have at least two members and the provisions concerning what happens when an association has but one member are functionally similar to the provisions found in ULPA (2001). The exception to the two member requirement is where another cooperative is the sole member. The exception is typical of traditional cooperative law.
One or more “organizers” may form the association and those organizers need not be members. See Article 3 (“Formation and Initial Articles of Organization of Limited Cooperative Association”).
Financial Rights
A member’s interest in a limited cooperative association consists of three clearly delineated rights: (1) governance rights; (2) financial rights; and, (3) the right or obligation, if any, to do business with the association. See Section 601. Of the three rights only financial rights are transferable as a matter of default under the Act. Financial rights serve the same function as “transferable interests” under other unincorporated law. See, e.g., ULPA (2001) Art. 7. As a result of this functional equivalency, ULCAA addresses the same issues concerning financial rights as other unincorporated law addresses under the rubric of “transferable interests.” See, e.g., Section 605 (“Charging Orders for Judgment Creditor of Member or Transferee”).
ULCAA, unlike unincorporated acts since the original UPA, delineates and identifies non-transferable rights. The identification is a practical necessity because patron members in a cooperative also use the cooperative. That is, cooperative organizations contract with their patron members for the purchase or sale of goods or services and this contract may be the primary reason a patron member becomes a member. Under other unincorporated law such contracts are analyzed either as third party contracts or, conceivable as subsumed under the concept of “transferable interest.” This Act must address these contracts apart from financial rights because of the central role they play in cooperatives.
Allocations and Distributions
The general trend among statutes governing unincorporated entities is to address distributions but to allow allocation of profits and losses to follow the agreement between the owners subject to the law of taxation and generally accepted accounting principles. State statutes relating to the formation and operation of traditional cooperatives have taken a minimalist approach to this matter focusing on the identity of those owning equity capital and by limiting return and voting rights for “non-patron” owners consistent with federal regulatory law. Illustratively, some traditional state cooperative statutes simply require cooperatives to operate in accordance with a “cooperative plan” without much further statutory definition or delineation.
ULCAA takes a different approach to allocations than either unincorporated law or traditional state cooperative statutes. It contains a more transparent fixed concept of the types of entities that can be reasonably called a kind of a cooperative by providing a framework that governs allocations for state law purposes. Thus, the Act addresses what it means to be a limited cooperative association. This finer treatment is necessary because ULCAA provides for investor members who are not limited to the users of the services provided by the association. One of two leverage points for this distributed definition of a limited cooperative association appears in the allocation provisions of profits and losses among members and, uniquely, members and the association as an entity. The other leverage point is a series of provisions surrounding member voting. See Prefatory Note (“Investor Members”, “Voting Control”).
Provisions addressing allocations and distributions appear in Sections 1004 (“Allocations of Profits and Losses”), 1005 (“Distributions”) and 1006 (“Redemption and Repurchases”). Two provisions are central to both allocations and the definitional function of allocations. The first provision is Section 1004(b). It states the default rule that all profits and losses must be allocated to patron members (the “users” of the limited cooperative association). This formulation of the default rule is intended to shift the burden of negotiation to prospective investor members.
The second central and defining provision concerning allocation is the mandatory rule that patron members be allocated at least 50 percent of the profits and losses. See Section 1004(c). The definition of profits to be allocated provided by Section 1004 is flexible. It contemplates structures and arrangements currently possible using multi-entity combinations but enables the structure to exist in a single entity. Distributions under the Act, on the other hand, have few restrictions consistent with the flexibility necessary for equity redemption plans common in traditional cooperatives. See Section 1005 (“Distributions”).
Section 1006 (“Redemption or Repurchase”) may be of special interest to those familiar with the role that redemption of equity plays in traditional cooperative business models. Although stated in slightly different terms than those typically used in the context of traditional cooperatives, Section 1006 attempts to coordinate unincorporated entity distributions with equity redemption under the cooperative model.
The allocation and distribution provisions in ULCAA are purely a matter of state law, a point that is difficult to overemphasize. Financial reporting requirements, regulatory law, and tax law apply independently from the state law requirements of the Act. Benefits under other law may (or may not) be available to limited cooperative associations formed pursuant to ULCAA.
Marketing Contracts
A key feature of some types of traditional cooperatives is the right or obligation of a member to sell product to or through the cooperative. See Prefatory Note (“Financial Rights”). Special statutory provisions applicable to “marketing contracts” are usually contained in the state statute under which these types of traditional cooperatives are formed. The provisions frequently apply only to agricultural marketing cooperatives.
In practice, the terms of the marketing contract are sometimes distributed in several “places” possibly including the organic rules or separate agreements denominated “membership agreement.” See Preliminary Comment to Article 7.
This Act, too, addresses marketing contracts. See Article 7 (“Marketing Contracts”). The ULCAA provisions are not limited in application to agricultural commodities but are limited to contracts where customers “sell, or deliver for sale or marketing on the person’s behalf . . . products, commodities or goods” to the limited cooperative association. See Section 701(1). The Article addresses breach, remedies for breach, and anticipatory repudiation of the marketing contract. An important aspect of these provisions is they may apply to non-member third persons. It is a matter of contract, context, and interpretation as to whether contractual terms contained in the organic rules will bind or apply to third persons. See Preliminary Comment to Article 7.
Although the marketing contract provisions contained in this Act address the same issues as addressed in traditional cooperative statutes they are not as protective of the limited cooperative association as older statutes, in part, because of the refinement of that other law over the decades.
The mere existence of provisions relating to marketing contracts in ULCAA and in the law of traditional cooperatives underscores the self-help and mutual benefit aspects of cooperatives. That is, in some contexts, one member’s breach of the marketing contract will cause the cooperative’s downstream contract with purchasers to be breached for failure to deliver the required quantity or quality of the commodity. This, in turn, effects the price each member receives under its contract and sounds in mutually dependent relationships stereotypical of unincorporated entities even extending to general partnerships.
Interrelationship with Other Law
Several sections of this Act expressly deal with the interrelation of this Act with other law. First, and as necessary background, ULCAA is a free standing act and its terms neither repeal nor modify existing state cooperative statutes nor entities formed under them. Neither does the Act change any regulatory or tax law. As a matter of general legal principle, regulatory law is simply outside the scope and jurisdiction of this Act just as it is outside the scope of other statutes addressing the formation and operation of a specific entity. See generally, Section 108. This common legal understanding is made explicit by Section 109 (“Requirements of Other Laws”) to avoid unintended interpretations because limited cooperative associations are a relatively new and unfamiliar entity.
Four other sections, however, directly address the relationship between ULCAA and specific provisions of other law because those provisions are included, at least in some states, within traditional cooperative statutes. These four sections (or portions of sections) are bracketed in the text of the Act meaning an adopting jurisdiction needs to be aware of the law governing traditional cooperatives in that jurisdiction.
One of these sections, Section 111(c), provides that the required use of the word “cooperative” within the context of “limited cooperative association” does not violate a specific law restricting the use of the word “cooperative” found in the traditional cooperative statutes of many states. This provision, like the rest of the provisions discussed here, should be adopted only by jurisdictions whose other law contains such a restriction. Another section that addresses the relationship of entities formed under this Act with other law involves exemptions to state restraint of trade and antitrust law for “cooperatives”. See Section 110 (“Relation of Trade and Antitrust Laws”).
A third section addressing a specific interrelationship issue is Section 1009 (“Relation to State Securities Law”). Section 1009 addresses the application of exemptions from state securities law and regulation for traditional cooperatives to the limited cooperative association. The fourth section concerns the law of a few states that allows cooperatives an alternative to the more generally applicable distribution of unclaimed property statutes. See Section 1010 (“Alternative Distributions of Unclaimed Property, Distributions, Redemptions, or Payments”).
A final section expressly addresses other law, but it is different in kind and approach from the sections previously discussed. It provides detail about the coordination between security interests in members’ interests under ULCAA and the Uniform Commercial Code. See Section 604 (“Security Interest and Setoff”).
UNIFORM LIMITED COOPERATIVE ASSOCIATION ACT
GENERAL PROVISIONS
SECTION 101. SHORT TITLE. This [act] may be cited as the Uniform Limited Cooperative Association Act.Comment
The title of this Act indicates a limited cooperative association is a type of cooperative different from cooperatives modeled on a corporate form, is an unincorporated association, and has aspects of limited partnerships and other unincorporated limited liability entities combined with features of cooperative organizations thought by many to be the “traditional” cooperative.
SECTION 102. DEFINITIONS. In this [act]:
(1) “Articles of organization” means the articles of organization of a limited cooperative association required by Section 302. The term includes the articles as amended or restated.
(2) “Board of directors” means the board of directors of a limited cooperative association.
(3) “Bylaws” means the bylaws of a limited cooperative association. The term includes the bylaws as amended or restated.
(4) “Certificate of authority” means a certificate issued by the [Secretary of State] for a foreign cooperative to transact business in this state.
(5) “Contribution,” except as used in Section 1008(c), means a benefit that a person provides to a limited cooperative association to become or remain a member or in the person’s capacity as a member.
(6) “Cooperative” means a limited cooperative association or an entity organized under any cooperative law of any jurisdiction.
(7) “Designated office” means the office that a limited cooperative association or a foreign cooperative is required to designate and maintain under Section 117(a)(1).
(8) “Director” means a director of a limited cooperative association.
(9) “Distribution,” except as used in Section 1007(e), means a transfer of money or other property from a limited cooperative association to a member because of the member’s financial rights or to a transferee of a member’s financial rights.
(10) “Entity” means a person other than an individual.
(11) “Financial rights” means the right to participate in allocations and distributions as provided in [Articles] 10 and 12 but does not include rights or obligations under a marketing contract governed by [Article] 7.
(12) “Foreign cooperative” means an entity organized in a jurisdiction other than this state under a law similar to this [act].
(13) “Governance rights” means the right to participate in governance of a limited cooperative association.
(14) “Investor member” means a member that has made a contribution to a limited cooperative association and
(A) is not required by the organic rules to conduct patronage with the association in the member’s capacity as an investor member in order to receive the member’s interest; or