|James B. Dean|
Chair of Colorado ULCAA Drafting Committee
Reporter for NCCUSL ULCAA Drafting Committee
The discussion that follows provides a brief outline of the background and provisions of Colorado’s newly enacted Colorado Uniform Limited Cooperative Association Act. In appropriate situations, this Act can provide a very flexible type of entity through which its members can conduct operations for their mutual benefit.
General Background on ULCAA
The Uniform Limited Cooperative Association Act (ULCAA), adopted by the National Conference of Commissioners on Uniform State Laws (NCCUSL) in 2007, was adopted in Colorado, with modifications, as Senate Bill 11-191 in the 2011 Colorado General Assembly and was signed by the Governor on May 23, 2011. It will be known in Colorado as the “Colorado Uniform Limited Cooperative Association Act” (Colorado ULCAA). It will be codified as Article 58 of Title 7, Colorado Revised Statutes (CRS). Colorado ULCAA is effective April 2, 2012.
References to sections of Colorado ULCAA in this discussion are to Colorado ULCAA as codified. References to specific provisions of the NCCUSL version that differ from Colorado ULCAA will be to “NCCUSL ULCAA Sec. ____.” Where there are generally common provisions or comments referenced in this discussion with respect to Colorado ULCAA and NCCUSL ULCAA, references will simply be to “ULCAA.”
What is unique about ULCAA?
A cooperative organization is one owned by persons who join together (1) to utilize the organization to provide themselves with goods, services or other items, (2) to have democratic control over the association, (3) to provide the basic equity financing for the association, and (4) to share in the financial benefits of the organization in accordance with their respective use of the association. It is not a “not for profit” organization because its profits are returned to its members at the end of each year in cash, evidence of equity investment, rebates or in other forms. Unlike “for profit” organizations, however, traditional cooperatives do not permit outside investment from persons who would have a vote in the governance of the cooperative.
ULCAA provides for a new and unique form of cooperative organization that provides for the organization of unincorporated limited cooperative associations, or “LCAs,” that can have outside investors to be admitted as members of the organization. Many attributes of LCAs under ULCAA are similar to other forms of cooperative organizations such as those organized under Article 55 or Article 56 of Title 7, CRS.
What makes ULCAA different from other cooperative entity statutes in Colorado and elsewhere is the ability of a limited cooperative association to admit outside investors as members with voting rights and participation in the financial gains or losses from the operations of the LCA. This is a significant change from traditional cooperatives of all kinds and from the cooperative models on which much federal law related to cooperatives has been developed. To what extent federal laws relating to cooperatives will apply or be available to LCAs organized under an ULCAA-type state statute will only be determined as LCAs come into wider use. These federal laws include, among many others, cooperative provisions in the Internal Revenue Code and limited exemptions from federal antitrust laws for agricultural cooperatives.
Background information for understanding Colorado ULCAA
This discussion is intended to outline leading provisions for Colorado ULCAA and note where Colorado ULCAA differs significantly from NCUSSL ULCAA. The discussion is not intended to be a thorough discussion of Colorado ULCAA or of cooperative organizations in general.
For a good understanding of ULCAA, knowledge of cooperative organizations in general is helpful. Overviews of cooperative organizations can be found in James B. Dean and Donald A. Frederick, “Business Cooperatives: Characteristics, Opportunities and Legal Foundation,” 22 Colo. Lawyer 953 (May 1993); James B. Dean and Donald A. Frederick, “Business Cooperatives: Taxes, Finances and Other Legal Issues,” 22 Colo. Lawyer 1685 (Aug. 1993); James B. Dean, John J. Conway, and Charles F. Holum, “The New Colorado Cooperative Act: A Setting for a Business Structure,” 25 Colo. Lawyer 3 (Dec. 1996); and with respect to worker owned cooperatives, Linda D. Phillips, “Worker Cooperatives: Their Time Has Arrived,” 40 Colo. Lawyer 33 (Sept. 2011). A comparison of Colorado cooperatives with other types of Colorado entities is found at Robert R. Keatinge et al., Choice of Entity in Colorado: An Update,” 25 Colo. Lawyer 3 (Oct. 1996).
ULCAA endeavors to balance traditional cooperative principles with the concept of having non-user investors as voting members of the cooperative organization (“investor members”) together with the traditional members who utilize the services of the cooperative (“patron members”). The Prefatory Note and Official Comments to NCCUSL ULCAA provide information on how this has been approached and how the sections of ULCAA are intended to operate. The Note and Comments can be found at the NCCUSL website (www.nccusl.org) under “Limited Cooperative Association Act.” A detailed discussion of ULCAA, including extensive references to various cooperative literature and places in ULCAA that may require interpretation by the courts, can be found in Thomas Earl Geu & James B. Dean, “The New Uniform Limited Cooperative Association Act: A Capital Idea for Principled Self-help Value Added Firms, Community-based Economic Development, and Low-profit Joint Ventures,” 44 Real Property, Trust and Estate L. J. 55 (Spring 2009).
Before one undertakes to utilize Colorado ULCAA, it is strongly recommended that some or all of these materials be examined.
Colorado ULCAA provides for the creation of a statutorily defined entity, the limited cooperative association or LCA, that combines traditional cooperative values with modern financing mechanisms by providing two distinct categories of members: patron members and investor members. An LCA is an unincorporated association of individuals or businesses that unite to meet their mutual interests by creating and using a jointly owned enterprise. The Act contemplates the formation of various types of limited cooperative associations, for marketing, advertising, bargaining, processing, purchasing, real estate, worker-owned cooperatives, or any other lawful purpose, but other statutes and regulations (such as those applicable to banking) may make it difficult for a LCA to be used for some purposes.
An LCA is not required to have investor members; more traditional cooperatives may use Colorado ULCAA to organize and may wish to do so to take advantage of the flexibility of ULCAA, but in doing so these cooperatives need to examine the potential effect of organizing under ULCAA rather than traditional cooperative statutes with respect to relationships to other laws that may not recognize an LCA as a “cooperative” for purposes of those laws.
Colorado ULCAA combines concepts from the Colorado Cooperative Act, for profit and non-profit corporate statutes, limited liability companies, and various types of partnerships. To preserve a foundation in cooperative principles, there are some areas of the Act that contain required provisions, but generally the Act contemplates that its organizational documents and the relationships among the members are contractual in ways similar to limited liability companies. Colorado ULCAA contains default provisions for most aspects of a limited cooperative association if the organizational documents do not provide otherwise. Some of the default provisions must be varied, if at all, in the articles of organization, Sec. 7-58-303(3). Others may be varied in the articles of organization or the bylaws, Sec. 7-58-305(3). The articles and bylaws constitute an LCA’s organizational documents.
The Act provides:
Differences between Colorado ULCAA and NCCUSL ULCAA
An MS Word document comparison between Colorado ULCAA and NCCUSL ULCAA would make it appear that Colorado’s drafting committee made an extremely large number of changes to NCCUSL ULCAA in arriving at Colorado ULCAA. There are indeed a large number of changes but the appearance is deceiving.
In Article 90 of Title 7, CRS, many provisions of Colorado’s entity statutes in Title 7 are harmonized for various entities (corporations, limited liability companies, partnerships, cooperatives and other forms of entities). To be consistent with other entities in Colorado, provisions covered in Article 90 were removed from NCCUSL ULCAA in drafting Colorado ULCAA. This removed many pages from the Colorado version.
There are many words in NCCUSL ULCAA that are not words used in Colorado’s statutory drafting. These words were changed from the NCCUSL version to the Colorado version. There were other words throughout NCCUSL ULCAA that the Colorado drafting committee believed were either unclear or did not follow typical Colorado approaches. An example of perhaps both of these is the changing of “organic rules” in NCCUSL ULCAA to “articles [of organization] and bylaws” in Colorado ULCAA. Colorado ULCAA makes it clear in a number of places that notices or other communications must be in a “record” as in Sec. 7-58-1101(4)(a), CRS, that requires a notice by a member of voluntary withdrawal to be in a record while NCCUSL ULCAA simply says a member may withdraw “by express will.”
Some provisions of NCCUSL ULCAA were relocated in Colorado ULCAA where the Colorado drafting committee believed the relocation helped make it easier to find a provision or make it more easily understood in the context of other provisions.
None of the changes described in the preceding three paragraphs were intended to make any material change to NCCUSL ULCAA as adopted in Colorado. Rather the changes were intended to harmonize NCCUSL ULCAA with Colorado’s statutory scheme for all entities or to clarify places where the Colorado drafting committee believed it would be helpful for users of Colorado ULCAA.
The Colorado drafting committee did make a few material changes to NCCUSL ULCAA.
Summary comments regarding ULCAA generally
ULCAA is a new approach to cooperatives by permitting membership to voting investors who do not patronize the cooperative. It is a lengthy and complex statute as are corporate and many partnership statutes, but just as familiarity with corporate statutes results in an ease of use, familiarity with ULCAA allows one to work within its parameters with a fair degree of ease. Colorado’s version of ULCAA has hopefully removed some ambiguities that appear to exist in NCCUSL ULCAA, but may not have eliminated all of them or may have created other ambiguities.
Colorado ULCAA can offer opportunities through its flexibility for the creation of cooperative-type entities, both with and without investor members, that can serve their members in new and innovative ways.
A portion of the preceding discussion is taken (with some alterations) from “Legislation Passed During 2011 Legislative Session,” compiled by Machael Valdez, 40 Colo. Lawyer 33 at 34 (Aug. 2011). Substantial input on the drafting of Colorado ULCAA was provided by Thomas Morris of Colorado’s Office of Legislative Legal Services.
The Colorado drafting committee for ULCAA consisted of:
James B. Dean, chair (and a reporter on NCCUSL ULCAA)