AB 353

This bill makes various changes related to the organization and operation of

cooperatives and includes provisions applicable to extensions of credit by electric

cooperatives.

Under current law, a cooperative may be formed by filing articles of

incorporation with the Department of Financial Institutions. A cooperative is

organized and owned by its members and managed by a board of directors. Directors

are elected by the members and each director must be a member or, if the member

is an entity and not an individual, a representative of that member.

This bill allows a cooperative to have a director that is not a member or member

representative (outside director) if the total number of outside directors does not

exceed two outside directors or 20 percent of all directors, whichever is less. A person

may not serve as an outside director on the board unless a majority of directors who

are not outside directors votes to approve the person as a director.

Current law generally provides that only cooperative members may vote at

member meetings and each member has one vote, regardless of the member's degree

of financial interest in the cooperative. Because a cooperative is formed to provide

services to its members, current law also requires a cooperative's board of directors,

at least once each year, to distribute the cooperative's proceeds, after deducting

various costs, other distributions, and reserves, to members based on their

patronage, which means business done with the cooperative. Some or all of this

distribution may be retained by the cooperative for future capital needs and credited

to a patronage equity account of the member.

This bill allows a cooperative holding company and its cooperative subsidiaries

to base members' voting power in whole or in part on members' current or recent

patronage activity, or on members' patronage equity in the cooperative, or on a

combination of both. The bill defines a “cooperative holding company” as a

cooperative that owns or controls subsidiaries operating on a cooperative basis as the

primary part of their business and activities.

Current law allows a cooperative to be organized with or without capital stock,

but if the cooperative issues stock any dividend on the stock cannot exceed 8 percent

per year. Current law also defines a “foreign cooperative" as a cooperative that is

incorporated under another state's cooperative law, that has members residing

within this state, and that meets certain operating requirements, including that no

member of the foreign cooperative who is an individual is allowed more than one vote

because of the amount of stock or membership capital the member owns or the

foreign cooperative does not pay dividends on stock or membership capital in excess

of 8 percent per year.

This bill removes the 8 percent dividend limit for domestic cooperatives and

removes the reference to an 8 percent dividend in the definition of “foreign

cooperative.”