Ratchford, C. Brice

Robert, Janet M

English

University of Missouri: MOspace

MAY 24 798') R µ --Consumer Co-ops ---------------u.. --Incorporating Consumer Cooperatives in Missouri C. Brice Ratchford, Department of Agricultural Economics and Janet M. Robert, Member, Rhode Island Bar Consumer cooperatives must overcome high hurdles to incorporate in Missouri. In fact, some may not be able to incorporate as cooperatives under existing statutes. Efforts to change the stat-utes have been unsuccessful in the past two years. The Missouri Association of Consumer Coopera-tives, a trade association of consumer coopera-tives, will continue to promote changes in laws in the General Assembly that will facilitate incorpora-tion. The situation is unfortunate because every busi-ness enterprise that involves a group of people should be incorporated. Incorporation limits indi-vidual liability to the amount invested in the busi-ness and provides the organization perpetual life. The purpose of this publication is to explain the situation as it existed in 1982 and the options available to the many groups trying to form con-sumer cooperatives. Existing Statutes The root of the problem is that the existing statutes were written to facilitate agricultural coop-eratives. Th is situation reflects the fact that there was interest only in agricultural cooperatives at the time the laws were passed. Chapter 357, Missouri Statutes, authorizes in-corporation "for the purpose of conducting any agricultural or merchantile business." The law defines agriculture broadly to include "buying, selling, manufacturing, storage, transportation or other handling or dealing in or with, by associa-tions of agriculturalists, of agricultural , dairy, or similar products." The elaboration of merchantile is as follows: "purchasing of or selling-groceries, provisions and all other items of merchandise." Court cases have contributed I ittle to defining merchantile but the courts did rule that an electric cooperative association was not a merchantile business . This statute r~quires an organization to follow the essential cooperative principles. It was passed in 1922 and is similar to laws passed in most states at that time. The law has many desirable features; but requires capital stock. The stock provisions are practical and consistent with cooperative princi-ples; but most cooperatives, and particularly con-sumer cooperative groups, philosophically object to capital stock. This feature plus an unclear defini-tion of merchantile are the major problems with the statute. Chapter 274, Missouri Statutes, is labeled "The Non-Profit Cooperative Marketing Law." It differs from Chapter 357 by being restricted to agricultural producers and does not provide for capital stock. The law requires compliance with all accepted cooperative principles. It is not available, howev-er, to consumer cooperatives . Chapter 355, Missouri Statutes, is the general not-for-profit code for Missouri . The non-profit concept leads some people interested in coopera-tives to look to Chapter 355 to incorporate. Section 355 .025 specifically prohibits incorporation under the chapter of an "organization created for or engaged in business activity for profit or on the cooperative plan, provision for the incorporation of which is made by any of the incorporation laws of this state." A cooperative that cannot incorporate under any other chapter must also have as its primary purpose one of those listed in Chapter 355.025, which includes purposes such as chari-table, educational and trade associations. In addition to this prohibition for cooperatives there is a problem relating to the distribution of assets upon dissolution. Section 355.230(4) pro-hibits a distribution of assets that " will result in diversion of such assets from not-for-profit pur-poses as authorized in this chapter, to the pecuni-ary gain or profit of any person, organization, or corporation." Rather assets sh al I be delivered to another similar not-for-profit corporation or to the state. Section 355.015(9) defines a non-profit as "a corporation no part of the income or property of which is distributable to its members, directors or officers." Most successful cooperatives will accumulate equity. For some types, such as housing, a major EC 954 Published by University of Missouri-Columbia Extension Division Achive vsnpurpose is accumulating equity for the members. The severe restrictions imposed by Chapter 355 make it undesirable for cooperatives except for those providing public services such as education and recreation. Chapter 351, Missouri Statutes, is the General and Business Corporation code. It authorizes cor-porations for profit. Successful cooperatives intend to and do make a "profit" for members. It is true that the cooperative as an entity does not make a profit. This ambivalence may result in questions by the Secretary of State and others about a coopera-tive that attempts to use this chapter for incorpora-tion. If a group interested in a cooperative attempts to use Chapters 355 or 351, the word cooperative cannot be used. Also the statute requires stock and provides no guidance about cooperative princi-ples. In many other respects the chapter is similar to Chapter 357. The Options The brief review of present statutes indicates that options for incorporation by consumer coop-eratives are limited. Chapter 357 can be used for merchantile organizations. The accepted definition of merchantile is buying and selling goods. The term does not ordinarily include services and hous-ing. Since the word merchantile is added to the end of a long sentence defining agriculture, it was likely intended that the interpretation be restricted to agriculture broadly defined. Groceries are men-tioned specifically so no questions should be raised about food cooperatives. Such organizations are part of the agricultural industry. If a cooperative will not fit under Chapter 357, the only option is trying Chapter 351. If the chapter is used, the cooperative principles and procedures should be incorporated in the by-laws. A coopera-tive that used Chapter 351 will have to convince the Internal Revenue Service that it is operating as a cooperative and hence is entitled to file taxes under the rules specified for cooperative corporations. Both Chapters 357 and 351 require capital stock. The requirement should not in itself prove to be a serious obstacle. The statutes do not specify a number of shares, a par value or the distribution between common and preferred stock. Chapter 357 does limit ownership per share holder to not over 10 percent of the aggregate par value of all shares of stock. The chapter calls for one vote per stockholder regardless of the number of shares owned. Similar restrictions can be included in a Chapter 351 corporation. In fact, the by-laws can be even more restrictive than the statutes, even to limiting ownership to one share per member. Also the by-laws can specify that stock can be sold only to the corporation and at no more than par value. The requirement of capital stock can be beneficial to a cooperative. All types of business firms need capital and must have some evidence of owner-ship. Capital stock will accomplish both ends. While the concept of stock is not a serious barrier, the fact that Chapter 409 requires all securities to be registered is a major obstacle for small and poorly financed corporations. There is an exemption for agricultural cooperatives but the exemption is clearly limited to cooperatives that qualify as agricultural. Section 409.402(10) ex-empts an issuer who will have no more than 15 transactions with the conditions spelled out in the paragraph. Most cooperatives will want more than 15 shareholders. It is also possible that the stock issued by a cooperative would not be classified as a security if it does not pay capital dividends, cannot be sold except back to the corporation, cannot be sold at a profit, and can be owned only by patrons of the corporation. Caution The purpose of this publication is to alert people interested in forming a cooperative that problems will likely be encountered both in incor-porating and in issuing securities. It is necessary that competent legal counsel be secured by any group planning to incorporate a cooperative. ■ Issued in furtherance of Cooperative Extension Work Acts of May 8 and June 30, 1914 in cooperation with the United States Department of Agriculture. Leonard C. Douglas, Director, Cooperative Extension Service, University of Missouri and Lincoln University, Columbia, Missouri 65211. ■ An equal opportunity institution. New 4/83/lM ---University Libraries  University of Missouri  Digitization Information Page   Local identifier   EC954-1983  Source information      Format   Sheet      Content type   Text      Source ID   Gift copy not added to collection      Notes     Capture information      Date captured  September 2019     Scanner manufacturer Fujitsu     Scanner model  fi-7460      Scanning system software ScandAll Pro v. 2.1.5 Premium     Optical resolution  600 dpi     Color settings     8 bit grayscale     File types   tiff  Derivatives - Access copy      Compression   Tiff: LZW compression     Editing software  Adobe Photoshop CC     Resolution   600 dpi     Color    grayscale     File types   pdf created from tiffs Notes   Images cropped, straightened, and brightened      Canvas size: 8.5 x 11  

Incorporating consumer cooperatives in Missouri

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Incorporating consumer cooperatives in Missouri

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