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June 7, 2006Client Alert

New Law Authorizes Unincorporated Cooperative Associations to Spur Rural Economic Development

A new breed of cooperative is authorized in Wisconsin as of June 6, 2006. On May 23, 2006 Governor Jim Doyle signed Assembly Bill 1186 into law (2005 WI Act 441), which creates chapter 193 of the statutes and authorizes the creation of a new type of business organization called an unincorporated cooperative association (UCA). The new law aims to spur investment in Wisconsin agriculture by enabling cooperatives to raise additional capital and pursue value-added processing facilities.

Act 441

The Act authorizes a UCA to be organized to, among other things, market, process, or otherwise change the form or marketability of products, including crops, livestock, and other agricultural products, to manufacture products, to accomplish other purposes that are necessary or convenient to facilitate the production or marketing or products, and to provide products, supplies, and services to its members. The Act prohibits a UCA from being organized for the purpose of furnishing natural gas, heat, light, power, or water to its members.

With respect to UCA's, among other things, Act 441 does all of the following:

  • Authorizes a UCA to have nonpatron members. All patron membership interests, collectively, must not have less than 51% of the UCA's financial rights to profit allocations and distributions, provided, the patron members may authorize that patron membership interest, collectively, have less than 51%, but not less than 30%, of the UCA's financial rights to profit allocations and distributions.
  • Provides that the directors elected by patron members have collectively at least 51% of the voting authority on the board on general matters of the UCA. The patron directors' vote must be voted collectively as determined by a majority vote of the patron directors. The UCA articles or bylaws may not reduce the collective patron member vote to less than 51% of the total member vote.
  • Provides that a UCA may be organized by one or more individuals over age 18, who are not required to be members of the UCA. If the UCA's first board of directors is not named in the articles, the organizers may elect the first board of directors or act as directors themselves until directors are elected or a contribution is accepted, whichever occurs first. The UCA organizers must file articles of organization with the Department of Financial Institutions. The Act specifies the types of information that must be included in the articles.
  • Provides that the board of directors governs the UCA and that no director or group of directors may act for or on behalf of the UCA unless authorized by the board. The UCA is required to have at least five directors; however a UCA with 50 or fewer members may have at least three directors. A majority of the directors must be UCA members and must be elected exclusively by patron members, unless otherwise provided in the articles or bylaws. The patron members may elect an outside director who is an expert in financial matters but who has no financial interest in the UCA.
  • Requires the board to establish an audit committee consisting of members who will ensure an independent review of the UCA's finances, to review the financial information and accounting reports of the UCA. The Act also requires a director on the board to annually attend financial education courses offered by a recognized provider of cooperative director education.
  • Effective Date: Act 441 takes effect on June 6, 2006.

Background

Governor Doyle has indicated that the agribusiness industry is a top priority for his administration. From new refining facilities for ethanol and biodiesel to innovative cooperative housing developments, this new law will foster the development of cooperative high-tech business ventures in the biotechnology and bio-medical areas.

For more information regarding the impact of this new law, please contact Greg Lynch at 608.283.2267, or gjlynch@michaelbest.com; Dave Crass at 608.283.2267, or dacrass@michaelbest.com; or Porter Martin at 608.283.0116, or pjmartin@michaelbest.com.

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