SENATE BILL REPORT

SB 5018

BYSenators 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)

                  January 20, 1989

AS REPORTED BY COMMITTEE ON AGRICULTURE, JANUARY 20, 1989

BACKGROUND:

Existing state law contains different statutes governing the organization of 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  Concerns have been expressed over outdated provisions in the cooperative statutes, as well as over inconsistent provisions contained in them.

SUMMARY:

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The provisions of law governing cooperatives are consolidated into one title in RCW 23.86, and RCW 24.32 is essentially repealed.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

Among the major changes for agricultural cooperatives (from current requirements under RCW 24.32) are the following:

      (1) An explicit statutory exemption from state Securities Act registration for sales of co-op memberships or shares is added.

      (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.  Existing requirements for an annual audit, and the procedure that permits the director of the Office of Financial Management to conduct 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 their articles of association or by-laws), their 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 the voting rights; 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.

EFFECT OF PROPOSED SUBSTITUTE:

Two technical changes are made to the original language that correct drafting errors but do not change the substance of the original bill.

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