FINAL BILL REPORT

SHB 430

                                  C 457 L 87

BYHouse Committee on Trade & Economic Development (originally sponsored by Representatives Fisch, Jacobsen, B. Williams, Schoon, Lux, P. King, Day, Kremen, Basich, Unsoeld, Pruitt and Hargrove)

Authorizing creation of employee cooperatives.

House Committe on Trade & Economic Development

Senate Committee on Commerce & Labor

SYNOPSIS AS ENACTED

BACKGROUND:

Washington state laws do not explicitly authorize employee cooperatives as a separate form of corporation.  Existing state law recognizes cooperative associations under provisions of law drafted in 1913 to regulate agricultural cooperatives.  These provisions were drafted to meet the needs of associations of independent producers rather than those of cooperatives composed of a firm's employees.  Employee cooperatives have been incorporated under existing state laws, most notably the state's cooperative plywood firms, but the laws are not well suited to the nature of the cooperative firms.

Employee ownership has been used as a tool to retain jobs lost in plant closures in recent years, especially in economically distressed areas. Firms organized in this way have experienced a significant success rate nationally.  Studies of such firms report substantial productivity gains following the adoption of employee ownership.  The federal Deficit Reduction Act of 1984 contained important financial incentives for employee stock ownership plans.  A percentage of dividend and interest income is deductible under these provisions.  The Tax Reform Act of 1986 retained the financial incentives for employee ownership.

SUMMARY:

The Employee Cooperative Corporations Act is created.  A Washington corporation may incorporate as an employee cooperative by filing articles of incorporation under the act.  Membership in an employee cooperative is limited to employees of the cooperative.  Employee cooperatives must issue a class of voting stock designated as "membership shares."  A member may own only one share of stock in the cooperative.  Only membership shares will be given voting power in an employee cooperative.

The net earnings of an employee cooperative will be allocated according to the amount of work performed by a cooperative member.  The earnings must be paid according to the ratio of the member's work for the cooperative to the total work performed by all cooperative members.  An employee cooperative may establish a system of internal capital accounts to reflect the value of membership shares.  An employee cooperative is required to provide for the redemption of its shares upon an employee's termination of membership. Earnings and losses may also be assigned to a collective reserve account and used for corporate purposes as determined by the directors.  Employee cooperatives may only merge with other employee cooperatives.  Cooperative membership shares are exempted from regulation as securities.

The Department of Community Development is directed to establish an employee ownership program.  The program must provide technical assistance to employee cooperatives and conduct educational programs on employee ownership.  The program must maintain a listing of resources on employee ownership and cooperate with and utilize existing state resources in delivering services.  The director of the department is directed to form an employee ownership advisory panel to assist in the development of the program.  The department is directed to report annually to the governor and legislature on program accomplishments.

VOTES ON FINAL PASSAGE:

      House 97   0

      Senate    46     0(Senate amended)

      House 98   0(House concurred)

EFFECTIVE:July 26, 1987