SENATE BILL REPORT

ESSB 5018

BYSenate Committee on Agriculture (originally sponsored by Senators Newhouse, Vognild, Barr, Hansen, Benitz and Rasmussen;by request of Secretary of State)

Revising provisions for cooperative associations.

Senate Committee on Agriculture

Senate Hearing Date(s):January 19, 1989; January 20, 1989

Majority Report:  That Substitute Senate Bill No. 5018 be substituted therefor, and the substitute bill do pass.

      Signed by Senators Barr, Chairman; Anderson, Vice Chairman; Bailey, Gaspard, Hansen, Madsen, Newhouse.

Senate Staff:David Monthie (786-7198)

                  April 12, 1989

House Committe on Agriculture & Rural Development

AS PASSED SENATE, FEBRUARY 8, 1989

BACKGROUND:

State law contains different statutes governing agricultural cooperatives (RCW 24.32), nonprofit cooperatives in general (RCW 23.86), and nonprofit corporations (RCW 24.06).  The cooperative statutes have not been updated by the Legislature with the same frequency as the state's corporation statutes.  Concerns have been expressed over outdated provisions in the cooperative statutes, as well as over inconsistent provisions.

SUMMARY:

The provisions of the general cooperative statute are revised, and agricultural cooperatives operating under RCW 24.32 are placed under the further jurisdiction of this revised general statute.  The laws governing cooperatives are consolidated into one title in RCW 23.86 and RCW 24.32 is repealed.  Existing organizations legally using the "cooperative" name will continue to be able to do so.

Among the major changes for agricultural cooperatives are the following:

      (1) Sales of co-op memberships or shares are exempt from state Securities Act registration.

      (2) The authority of the director of the Department of Agriculture to approve marketing contract terms, appoint a member to the board of directors of any cooperative, and to ask for a court-appointed receiver for insolvent cooperatives is eliminated.

      (3) As of January 1, 1990, each cooperative must have a registered agent and office, and must file an annual report with the Secretary of State by March 1 of each year.  Requirements for an annual audit, and the procedure for conducting an audit upon request of 10 percent of the cooperative's members, are deleted.

      (4) A cooperative may incorporate with as few as one person.  The minimum number of directors is reduced to three.  Geographic districts for directors are permitted.  Vacancies on the board of directors are filled by the remaining directors, and a minimum of 10 percent of members in a district may petition for removal of a director.  Either of these latter two provisions may be changed in the articles of incorporation or the by-laws.

      (5) For newly-formed associations (and associations amending articles of association or by-laws), articles of incorporation must include property and voting rights of each member, whether equal or unequal; the classes of stock, and their par value; and provisions for distribution of assets upon dissolution, or for paying the fair value or less for a dissenting member.  Amendments are by majority vote.

      (6) The right of a member to vote may be limited or enlarged in the articles of incorporation or by-laws; otherwise, each member has one vote.  Membership may be terminated under provisions in the articles of incorporation or by-laws, or under procedures adopted by the board.

      (7)  Any member may dissent from a proposed merger with another association, a conversion to a regular business corporation, or dissolution or sale of substantially all assets, but the articles of incorporation may provide that such a dissenter be limited to less than a fair return on the member's equity interest.

Auctions of fur pelts conducted by a cooperative association organized under RCW 23.86, except in some circumstances, are exempt from the requirements of the Auctioneer Registration Act.

Appropriation:    none

Revenue:    none

Fiscal Note:      requested on January 11, 1989

Senate Committee - Testified: Don Franklin, Washington State Bar Association; Don Whiting, Secretary of State; Karl Kottman, Washington State Council of Farmer Cooperatives; Mike Stevenson, Department of Licensing

HOUSE AMENDMENT:

Drafting errors are corrected.  Technical changes are made to clarify the applicability and intent of several sections.