SSB 3124 (LSB 5968XC (4) 89)

SENATE FILE _____ 

BY  (PROPOSED COMMITTEE ON COMMERCE BILL BY CHAIRPERSON SCHULTZ)

A BILL FOR

An Act relating to multiple housing cooperatives, including by providing for the conversion to a cooperative under the Iowa cooperative associations Act and merger with a limited liability company.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

    Section 1.  Section 489.102, subsection 6, Code 2022, is amended to read as follows:
   6.  “Domestic cooperative” means an entity organized on a cooperative basis under chapter 497, 498, or 499, a cooperative organized under chapter 499A, or a cooperative organized under chapter 501 or 501A.
    Sec. 2.  Section 501A.102, subsections 10 and 26, Code 2022, are amended to read as follows:
   10.  “Domestic cooperative” means a cooperative association or other cooperative organized under this chapter or chapter 497, 498, 499, 499A, or 501.
   26.  “Traditional cooperative” means a cooperative or cooperative association organized under chapter 497, 498, 499, 499A, or 501.
EXPLANATION
The inclusion of this explanation does not constitute agreement with
the explanation’s substance by the members of the general assembly.
   BACKGROUND. This bill amends provisions in the Iowa cooperative associations Act (ICAA) (Code chapter 501A) that allows a cooperative association organized under that Code chapter (501A cooperative) to operate as a hybrid between an entity organized on a cooperative basis and a limited liability company (LLC) that operates on principles of investment and the return of profits (distributions) to investor-owners (members) under the revised uniform limited partnership Act (RULPA) (Code section 489.102(24)). A 501A cooperative is organized to produce, store, process, and market agricultural commodities (Code section 501A.501).
   Under general principles of agricultural cooperative law, shares of common stock (memberships) must be held by patrons, and specifically persons who meet certain requirements: (1) producing a product marketed by the association, (2) customarily consuming or using the supplies or commodities that the association handles, or (3) using the services that the association renders. Savings (margins) generated from these arrangements (patronage) are refunded to members or used to provide capital for the cooperative’s operations. Thus, an important restriction is based on a principle of member participation, control, and benefits which also restricts outside investment. Under the ICAA, an investor (nonpatron member) is allowed to hold a nonpatron membership interest in the domestic cooperative (Code section 501A.102) which may involve limited member voting rights (Code section 501A.810). 
   The ICAA provides for traditional cooperatives which are agricultural cooperatives organized under Code chapters 497, 498, 499, and 501. A domestic cooperative includes a 501A cooperative as well as a traditional cooperative. The ICAA allows a traditional cooperative to convert into a 501A cooperative and for a 501A cooperative or traditional cooperative to consolidate or merge with an LLC (Code section 501A.1101). Code chapter 489 also provides that a domestic cooperative (defined in the same manner as in Code chapter 501A) may merge with an LLC (Code section 489.1015). In the case of a merger of a domestic cooperative with an LLC, the converting domestic cooperative must comply with requirements in the ICAA (Code section 501A.1101) and the RULPA (Code sections 489.1002 through 489.1005) which includes the adoption of a plan of merger.
   BILL’S PROVISIONS. The bill provides for a nonagricultural cooperative organized for purposes of owning multiple housing residential properties under Code chapter 499A (499A cooperative). The bill provides that a 499A cooperative is defined as both a traditional and domestic cooperative under the ICAA and as a domestic cooperative under the RULPA.  However, the bill does not amend a number of corresponding provisions in the ICAA relating to domestic business entities, foreign cooperatives, securities and liens held in connection with a conversion, and a 501A’s organizational purposes.