Senate Study Bill 3124 - Introduced SENATE FILE _____ BY (PROPOSED COMMITTEE ON COMMERCE BILL BY CHAIRPERSON SCHULTZ) A BILL FOR An Act relating to multiple housing cooperatives, including 1 by providing for the conversion to a cooperative under the 2 Iowa cooperative associations Act and merger with a limited 3 liability company. 4 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 5 TLSB 5968XC (4) 89 da/jh
S.F. _____ Section 1. Section 489.102, subsection 6, Code 2022, is 1 amended to read as follows: 2 6. “Domestic cooperative” means an entity organized on a 3 cooperative basis under chapter 497 , 498 , or 499 , a cooperative 4 organized under chapter 499A, or a cooperative organized under 5 chapter 501 or 501A . 6 Sec. 2. Section 501A.102, subsections 10 and 26, Code 2022, 7 are amended to read as follows: 8 10. “Domestic cooperative” means a cooperative association 9 or other cooperative organized under this chapter or chapter 10 497 , 498 , 499 , 499A, or 501 . 11 26. “Traditional cooperative” means a cooperative or 12 cooperative association organized under chapter 497 , 498 , 499 , 13 499A, or 501 . 14 EXPLANATION 15 The inclusion of this explanation does not constitute agreement with 16 the explanation’s substance by the members of the general assembly. 17 BACKGROUND. This bill amends provisions in the Iowa 18 cooperative associations Act (ICAA) (Code chapter 501A) that 19 allows a cooperative association organized under that Code 20 chapter (501A cooperative) to operate as a hybrid between an 21 entity organized on a cooperative basis and a limited liability 22 company (LLC) that operates on principles of investment and the 23 return of profits (distributions) to investor-owners (members) 24 under the revised uniform limited partnership Act (RULPA) (Code 25 section 489.102(24)). A 501A cooperative is organized to 26 produce, store, process, and market agricultural commodities 27 (Code section 501A.501). 28 Under general principles of agricultural cooperative law, 29 shares of common stock (memberships) must be held by patrons, 30 and specifically persons who meet certain requirements: 31 (1) producing a product marketed by the association, (2) 32 customarily consuming or using the supplies or commodities 33 that the association handles, or (3) using the services that 34 the association renders. Savings (margins) generated from 35 -1- LSB 5968XC (4) 89 da/jh 1/ 2
S.F. _____ these arrangements (patronage) are refunded to members or used 1 to provide capital for the cooperative’s operations. Thus, 2 an important restriction is based on a principle of member 3 participation, control, and benefits which also restricts 4 outside investment. Under the ICAA, an investor (nonpatron 5 member) is allowed to hold a nonpatron membership interest in 6 the domestic cooperative (Code section 501A.102) which may 7 involve limited member voting rights (Code section 501A.810). 8 The ICAA provides for traditional cooperatives which 9 are agricultural cooperatives organized under Code chapters 10 497, 498, 499, and 501. A domestic cooperative includes a 11 501A cooperative as well as a traditional cooperative. The 12 ICAA allows a traditional cooperative to convert into a 13 501A cooperative and for a 501A cooperative or traditional 14 cooperative to consolidate or merge with an LLC (Code section 15 501A.1101). Code chapter 489 also provides that a domestic 16 cooperative (defined in the same manner as in Code chapter 17 501A) may merge with an LLC (Code section 489.1015). In the 18 case of a merger of a domestic cooperative with an LLC, the 19 converting domestic cooperative must comply with requirements 20 in the ICAA (Code section 501A.1101) and the RULPA (Code 21 sections 489.1002 through 489.1005) which includes the adoption 22 of a plan of merger. 23 BILL’S PROVISIONS. The bill provides for a nonagricultural 24 cooperative organized for purposes of owning multiple 25 housing residential properties under Code chapter 499A (499A 26 cooperative). The bill provides that a 499A cooperative 27 is defined as both a traditional and domestic cooperative 28 under the ICAA and as a domestic cooperative under the RULPA. 29 However, the bill does not amend a number of corresponding 30 provisions in the ICAA relating to domestic business entities, 31 foreign cooperatives, securities and liens held in connection 32 with a conversion, and a 501A’s organizational purposes. 33 -2- LSB 5968XC (4) 89 da/jh 2/ 2