Bill Text: CA AB2525 | 2013-2014 | Regular Session | Amended
Bill Title: Limited Liability Worker Cooperative Act.
Spectrum: Partisan Bill (Democrat 2-0)
Status: (Introduced - Dead) 2014-04-28 - In committee: Set, first hearing. Hearing canceled at the request of author. [AB2525 Detail]
Download: California-2013-AB2525-Amended.html
BILL NUMBER: AB 2525 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY APRIL 10, 2014
INTRODUCED BY Assembly Members Bonta and Levine
FEBRUARY 21, 2014
An act to amend Sections 12311 , 17701.01, and 25100
of, to amend the heading of Title 2.6 (commencing with Section
17701.01) of, to add the heading of Division 1 (commencing with
Section 17701.01) to, and to add Division 2 (commencing with Section
17801.01) to, Title 2.6 of, the Corporations Code, relating to worker
cooperative companies.
LEGISLATIVE COUNSEL'S DIGEST
AB 2525, as amended, Bonta. Limited Liability Worker Cooperative
Act.
Existing law, the California Revised Uniform Limited Liability
Company Act, governs the formation and operation of limited liability
companies. Existing law authorizes a limited liability company to
engage in any lawful business activity, except as specified, but
prohibits construing the act to permit a limited liability company to
render professional services, as defined. Existing law provides for
the filing of specified records and further provides that an
individual who signs such a record affirms under penalty of perjury
that the information in the record is accurate.
Existing law, the Consumer Cooperative Corporation Law, provides
for the organization and operation of primarily consumer
cooperatives, and is also applicable to other cooperatives. Existing
law provides for, among other things, information to be included in a
cooperative corporation's by laws, the definition of terms for
purposes of that law, and requirements as to voting rights of members
and time periods for sending notice of meetings at which members are
entitled to vote. Existing law requires a cooperative corporation to
include in its name the word "cooperative."
This bill would establish the Limited Liability Worker Cooperative
Act, which would provide for the organization and operation of
worker cooperative companies. The bill would authorize a worker
cooperative company to be formed for any lawful purpose provided that
it is organized and conducts its business primarily for the mutual
benefit of its members as patrons of the worker cooperative company.
The bill would authorize a worker cooperative company to engage in
any lawful business activity, except as specified, but would prohibit
construing the act to permit a worker cooperative company to render
professional services, as defined. The bill would provide for,
among other things, information to be included in a worker
cooperative company's articles of organization and operating
agreement, requirements as to voting rights of members, and time
periods for sending notice of meetings at which members are entitled
to vote and would require an individual who signs specified records
to affirm under penalty of perjury that the information in the record
is accurate. The bill would authorize certain classes of
membership in the worker cooperative company, including a
worker-member class. The bill would provide that members of the
worker cooperative company have equal votes, but would authorize the
worker-member class to have ultimate decisionmaking authority. The
bill would authorize members of a class to vote separately on any
matter. The bill would authorize a worker cooperative company to
include in its name the word "cooperative." The bill would
authorize a worker cooperative company to set aside portion of its
profits before distribution, as specified. The bill would
define certain terms for its purposes. The bill would
specify that the provisions of the California Revised Uniform Limited
Liability Act apply to worker cooperative companies, except as
provided. Because this bill would expand the scope of the
crime of perjury, the bill would impose a state-mandated local
program.
Existing law authorizes the majority of the members of a limited
liability company to vote to dissolve, merge, or sell the limited
liability company, or to convert the limited liability company to
another business entity.
This bill would require 2/3 of the worker-members of a worker
cooperative company to vote to dissolve, merge, or sell the worker
cooperative company, or to convert the worker cooperative company to
a business entity other than a worker cooperative company.
Existing law, the Corporate Securities Law of 1968, provides for
the regulation of the issuance of corporate securities, requires the
qualification of an offer or sale of securities, and provides for
exemptions from qualification.
This bill would exempt the issuance of a membership by a
limited liability worker cooperative company, as specified,
from certain securities requirements.
The California Constitution requires the state to reimburse local
agencies and school districts for certain costs mandated by the
state. Statutory provisions establish procedures for making that
reimbursement.
This bill would provide that no reimbursement is required by this
act for a specified reason.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: yes.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 12311 of the Corporations Code is amended to
read:
12311. (a) The names of all corporations formed under this part
shall include "cooperative." No corporation shall be formed under
this part unless there is affixed or prefixed to its name some word
or abbreviation which will indicate that it is a corporation, as
distinguished from a natural person, a firm, or an unincorporated
association.
(b) No person shall adopt or use the word "cooperative" or any
abbreviation or derivation thereof, or any word similar thereto, as
part of the name or designation under which it does business in this
state, unless incorporated as provided in this part or organized as a
worker cooperative company under Division 2 (commencing with Section
17801.01) of Title 2.6, or unless incorporated as a nonprofit
cooperative association under Chapter 1 (commencing with Section
54001) of Division 20 of the Food and Agricultural Code, as a stock
cooperative, as defined in Section 11003.2 of the Business and
Professions Code, as a limited-equity housing cooperative, as defined
in Section 817 of the Civil Code, as a credit union or organization
owned for the mutual benefit of credit unions, or under some other
law of this state enabling it to do so. However, the foregoing
prohibition shall be inapplicable to any credit union or organization
owned for the mutual benefit of credit unions, any housing
cooperative, the financing of which is insured, guaranteed, or
provided, in whole or in part, by a public or statutorily chartered
entity pursuant to a program created for housing cooperatives, a
nonprofit corporation, a majority of whose membership is composed of
cooperative corporations, or an academic institution that serves
cooperative corporations.
(c) A domestic or foreign corporation or association which did
business in this state under a name or designation including the word
"cooperative" prior to September 19, 1939, and which conducts
business on a cooperative basis substantially as set forth in this
part, may continue to do business under that name or designation.
(d) Any person, firm, individual, partnership, trust, domestic
corporation, foreign corporation, or association which did business
in this state under a name or designation including the word
"cooperative" prior to September 19, 1939, but which does not conduct
business on a cooperative basis as contemplated by Section 12201 of
this part, may continue to do business under that name or designation
if the words "not organized under the law relating to cooperative
corporations" are always placed immediately after the name or
designation wherever it is used.
(e) Any foreign corporation, organized under and complying with
the cooperative law of the state or other jurisdiction of its
creation, may use the term "cooperative" in this state if it has
complied with the laws of this state applicable to foreign
corporations, insofar as those laws are applicable to it, and if it
is doing business on a cooperative basis as contemplated by Section
12201.
SEC. 2. The heading of Title 2.6 (commencing with Section
17701.01) of the Corporations Code is amended to read:
TITLE 2.6. LIMITED LIABILITY COMPANIES
SEC. 3. The heading of Division 1 (commencing with Section
17701.01) is added to Title 2.6 of the Corporations Code, to read:
DIVISION 1. California Revised Uniform Limited Liability
Company Act
SEC. 4. Division 2 (commencing with Section
17801.01) is added to Title 2.6 of the Corporations Code, to read:
DIVISION 2. Limited Liability Worker Cooperative Act
Article 1. General Provisions
17801.01. (a) The Legislature finds and declares that the
formation of employee-owned businesses and the participation of
employees in the management of businesses in this state will promote
the stabilization of local economies, anchor business activity, and
increase productivity. The Legislature further finds that the
encouragement of employee-owned businesses will increase and broaden
community investments in this state and encourage new capital
formation through employee ownership.
(b) This division may be cited as the Limited Liability Worker
Cooperative Act.
(c) (1) A worker cooperative company may be formed under this
division for any lawful purpose provided that it is organized and
conducts its business primarily for the mutual benefit of its members
as patrons of the worker cooperative company.
(2) The earnings, savings, or benefits of the company shall be
used for the general welfare of the members or shall be
proportionately and equitably distributed to some or all of its
members or its patrons, based upon their patronage of the company, in
the form of cash, property, evidences of indebtedness, capital
credits, memberships, or services.
(3) Worker cooperative companies are democratically controlled and
are not organized to make a profit for themselves, as such, or for
their members, as such, but primarily for their members as patrons.
17801.02. (a) Except as provided in this section, the definitions
of Section 17701.02 shall apply to this division.
(b) For purposes of this division, the following definitions
apply:
(1) "Class" refers to those memberships that: (A) are identified
in the articles of organization or operating agreement as being a
different type of membership; or (B) have the same rights with
respect to voting, dissolution, redemption, distributions, and
transfer. For the purpose of this subdivision, rights shall be
considered the same if they are determined by a formula applied
uniformly.
(2) "Distribution" shall mean both dividend distribution and
patronage distribution.
(3) "Member" has the same meaning as in subdivision (p) of Section
17701.02. A member may also be a patron of the worker cooperative
company.
(4) "Patron" means any of the following:
(A) A member who provides personal services to, purchases goods
from, or uses the services of the worker cooperative company.
(B) A person who uses the worker cooperative company to market,
process, or handle their products or services.
(5) "Patronage" means the amount of value created by a member
measured as provided in the articles of organization or operating
agreement of the worker cooperative company. Value may include
personal services contributed, number of hours worked, job creation,
or any other measure as provided in the articles of organization or
operating agreement.
(6) "Patronage distribution" means any transfer of cash or
property made to a patron of the worker cooperative company, the
amount of which is computed with reference to the patron's patronage
of the worker cooperative company.
(7) "Worker" means a natural person who provides labor to the
worker cooperative company in exchange for compensation.
(8) "Worker cooperative company," means an entity formed under
this division or an entity that becomes subject to this division. A
worker cooperative company is majority-controlled by its
worker-members.
(9) "Worker-member" means a worker who is a member of the worker
cooperative company and whose patronage includes providing labor to
the worker cooperative company.
17801.03. (a) A worker cooperative company is an entity distinct
from its members.
(b) A worker cooperative company may have any lawful purpose,
regardless of whether for profit, except the banking business, the
business of issuing policies of insurance and assuming insurance
risks, or the trust company business. A worker cooperative company
may render services that may be lawfully rendered only pursuant to a
license, certificate, or registration authorized by the Business and
Professions Code, the Chiropractic Act, the Osteopathic Act, or the
Yacht and Ship Brokers Act, if the applicable provisions of the
Business and Professions Code, the Chiropractic Act, the Osteopathic
Act, or the Yacht and Ship Brokers Act authorize a worker cooperative
company to hold that license, certificate, or registration.
(c) A worker cooperative company has perpetual duration.
(d) Nothing in this division shall be construed to permit a worker
cooperative company to render professional services, as defined in
subdivision (a) of Section 13401 and in Section 13401.3, in this
state.
17801.04. (a) Each member of the worker cooperative company shall
have an equal vote in their membership class, but the worker-member
class shall have ultimate decisionmaking authority.
(b) Notwithstanding subdivision (r) of Section 17704.07, members
of a specified class or group of members may vote separately or with
all or any class or group of members on any matter.
(c) If the proprietary interests of the members are unequal, the
worker cooperative company must state this in its articles.
17801.05. The Secretary of State shall provide on its Internet
Web site information and sample documents for forming a worker
cooperative company.
17801.06. The provisions of Division 1 (commencing with Section
17701.01) shall apply to a worker cooperative company, except where a
provision is in conflict with, or inconsistent with the provisions
of this division.
SEC. 4. Section 17701.01 of the
Corporations Code is amended to read:
17701.01. This title division may
be cited as the California Revised Uniform Limited Liability Company
Act.
SEC. 5. Division 2 (commencing with Section
17801.01) is added to Title 2.6 of the Corporations Code
, to read:
DIVISION 2. Limited Liability Worker Cooperative Act
Article 1. General Provisions
17801.01. (a) The Legislature finds and declares that the
formation of employee-owned businesses and the participation of
employees in the management of businesses in this state will promote
the stabilization of local economies, anchor business activity, and
increase productivity. The Legislature further finds that the
encouragement of employee-owned businesses will increase and broaden
community investments in this state and encourage new capital
formation through employee ownership.
(b) This division may be cited as the Limited Liability Worker
Cooperative Act.
(c) (1) A worker cooperative company may be formed under this
division for any lawful purpose provided that it is organized and
conducts its business primarily for the mutual benefit of its members
as patrons of the worker cooperative company.
(2) The earnings, savings, or benefits of the worker cooperative
company shall be used for the general welfare of the members or shall
be proportionately and equitably distributed to some or all of its
members or its patrons, based upon their patronage of the worker
cooperative company.
17801.02. In this division:
(a) "Acknowledged" means that an instrument is either of the
following:
(1) Formally acknowledged as provided in Article 3 (commencing
with Section 1180) of Chapter 4 of Title 4 of Part 4 of Division 2 of
the Civil Code.
(2) Executed to include substantially the following wording
preceding the signature:
"It is hereby declared that I am the person who executed this
instrument which execution is my act and deed."
Any certificate of acknowledgment taken without this state before
a notary public or a judge or clerk of a court of record having an
official seal need not be further authenticated.
(b) "Articles of organization" means the articles required by
Section 17802.01. The term includes the articles of organization as
amended or restated.
(c) "Class" refers to those memberships that: (A) are identified
in the articles of organization or operating agreement as being a
different type of membership; or (B) have the same rights with
respect to voting, dissolution, redemption, distributions, and
transfer. For the purpose of this subdivision, rights shall be
considered the same if they are determined by a formula applied
uniformly.
(d) "Contribution" means any benefit provided by a person to a
worker cooperative company:
(1) In order to become a member upon formation of the worker
cooperative company and in accordance with an agreement between or
among the persons that have agreed to become the initial members of
the worker cooperative company.
(2) In order to become a member after formation of the worker
cooperative company and in accordance with an agreement between the
person and the worker cooperative company.
(3) In the person's capacity as a member and in accordance with
the operating agreement or an agreement between the member and the
worker cooperative company.
(e) "Debtor in bankruptcy" means a person that is the subject of
either of the following:
(1) An order for relief under Title 11 of the United States Code
or a successor statute of general application.
(2) A comparable order under federal, state, or foreign law
governing bankruptcy or insolvency, an assignment for the benefit of
creditors, or an order appointing a trustee, receiver, or liquidator
of the person or of all or substantially all of the person's
property.
(f) "Designated office" means the office that a worker cooperative
company is required to designate and maintain under Section
17801.13.
(g) "Distribution," except as otherwise provided in subdivision
(g) of Section 17804.05, means a transfer of money or other property
from a worker cooperative company to another person on account of a
transferable interest or on account of a member's patronage of the
company. The term distribution shall apply to "dividend distributions"
and "patronage distributions."
(h) "Dividend distribution" means a distribution based on a member'
s transferable interest, but does not include patronage
distributions. Dividend distributions shall not exceed 15 percent of
a member's transferable interest in any fiscal year.
(i) "Domestic" means organized under the laws of this state when
used in relation to any worker cooperative company, other business
entity, or person other than a natural person.
(j) "Effective," with respect to a record required or permitted to
be delivered to the Secretary of State for filing under this
division, means effective under subdivision (c) of Section 17802.05.
(k) (1) "Electronic transmission by the worker cooperative company"
means a communication delivered by any of the following means:
(A) Facsimile telecommunication or electronic mail when directed
to the facsimile number or electronic mail address, respectively, for
that recipient on record with the worker cooperative company.
(B) Posting on an electronic message board or network that the
worker cooperative company has designated for those communications,
together with a separate notice to the recipient of the posting,
which transmission shall be validly delivered upon the later of the
posting or delivery of the separate notice thereof.
(C) Other means of electronic communication to which both of the
following apply:
(i) The communication is delivered to a recipient who has provided
an unrevoked consent to the use of those means of transmission.
(ii) The communication creates a record that is capable of
retention, retrieval, and review, and that may thereafter be rendered
into clearly legible tangible form. However, an electronic
transmission by a worker cooperative company to an individual member
is not authorized unless, in addition to satisfying the requirements
of this section, the transmission satisfies the requirements
applicable to consumer consent to electronic records as set forth in
the federal Electronic Signatures in Global and National Commerce Act
(15 U.S.C. Sec. 7001(c)(1)).
(2) "Electronic transmission to the worker cooperative company"
means a communication delivered by any of the following means:
(A) Facsimile telecommunication or electronic mail when directed
to the facsimile number or electronic mail address, respectively,
that the worker cooperative company has provided from time to time to
members or managers for sending communications to the worker
cooperative company.
(B) Posting on an electronic message board or network that the
worker cooperative company has designated for those communications,
which transmission shall be validly delivered upon the posting.
(C) Other means of electronic communication to which both of the
following apply:
(i) The worker cooperative company has placed in effect reasonable
measures to verify that the sender is the member or manager, in
person or by proxy, purporting to send the transmission.
(ii) The communication creates a record that is capable of
retention, retrieval, and review, and that may thereafter be rendered
into clearly legible tangible form.
(l ) "Financial rights" means the right to participate in
allocations and distributions as provided in Section 17804.04 but
does not include voting rights or the right or obligation, if any, to
do business with the cooperative.
(m) "Limited liability worker cooperative company," "worker
cooperative company," or "cooperative company" means an entity formed
under this division or an entity that becomes subject to this
division pursuant to Article 12 (commencing with Section 17812.01). A
worker cooperative company is majority-controlled by its class of
worker-members.
(n) "Majority of the managers" unless otherwise provided in the
operating agreement, means more than 50 percent of the managers of
the worker cooperative company.
(o) "Majority of the members" unless otherwise provided in the
operating agreement, means more than 50 percent of the members of the
worker cooperative company.
(p) "Majority of the worker-members" means, unless otherwise
provided in the operating agreement, more than 50 percent of the
worker-members.
(q) "Manager" means a person that under the operating agreement of
a manager-managed worker cooperative company is responsible, alone
or in concert with others, for performing the management functions
stated in subdivision (c) of Section 17804.07.
(r) "Manager-managed worker cooperative company" means a worker
cooperative company that qualifies under subdivision (a) of Section
17804.07.
(s) "Meeting of all the members" means a meeting in which all
member classes may vote and participate.
(t) "Meeting of the worker-members" means a meeting in which only
the worker-member class may vote or participate.
(u) "Member" means a person that has become a member of a worker
cooperative company under Section 17804.01 and has not dissociated
under Section 17806.02.
(v) "Member-managed worker cooperative company" means a worker
cooperative company that is not a manager-managed worker cooperative
company.
(w) "Membership interest" means a member's rights in the worker
cooperative company, including the member's transferable interest,
any right to vote or participate in management, and any right to
information concerning the business and affairs of the worker
cooperative company provided by this division, and the right or
obligation to do business with the worker cooperative company.
(x) "Nonworker member" means a member of the worker cooperative
company who is not a worker-member.
(y) "Operating agreement" means the agreement, whether or not
referred to as an operating agreement and whether oral, in a record,
implied, or in any combination thereof, of all the members of a
worker cooperative company, including a sole member, concerning the
matters described in subdivision (a) of Section 17801.10. The term
"operating agreement" may include, without more, an agreement of all
members to organize a worker cooperative company pursuant to this
division. An operating agreement of a worker cooperative company
having only one member shall not be unenforceable by reason of there
being only one person who is a party to the operating agreement. The
term includes the agreement as amended or restated.
(z) "Organization" means, whether domestic or foreign, a
partnership whether general or limited, worker cooperative company,
association, corporation, professional corporation, professional
association, nonprofit corporation, business trust, or statutory
business trust having a governing statute.
(aa) "Organizer" means a person that acts under Section 17802.01
to form a worker cooperative company.
(ab) "Patron" means a person who provides labor to, purchases
goods from, or uses the services of, the worker cooperative company.
(ac) "Patron member" means a member that is permitted or required
to conduct patronage with the worker cooperative company to receive
the member's interest.
(ad) "Patronage" means the amount of value created by a member
measured as provided in the articles of organization or operating
agreement of the worker cooperative company. Value may include
personal services contributed, number of hours worked, job creation,
or any other measure as provided in the articles of organization or
operating agreement. The amount of value shall not be calculated with
reference to a member's transferable interest.
(ae) "Patronage distribution" means any transfer of cash or
property made to a patron of the worker cooperative company, the
amount of which is computed with reference to the patron's patronage
of the worker cooperative company.
(af) "Person" means an individual, partnership, limited
partnership, trust, estate, association, corporation, cooperative
corporation, limited liability company, worker cooperative company,
or other entity, whether domestic or foreign. Nothing in this
subdivision shall be construed to confer any rights under the
California Constitution or the United States Constitution.
(ag) "Principal office" means the principal executive office of a
worker cooperative company, whether or not the office is located in
this state.
(ah) "Record" means information that is inscribed on a tangible
medium or that is stored in an electronic or other medium and is
retrievable in perceivable form.
(ai) "State" means a state of the United States, the District of
Columbia, Puerto Rico, the United States Virgin Islands, or any
territory or insular possession subject to the jurisdiction of the
United States.
(aj) "Transfer" includes an assignment, conveyance, deed, bill of
sale, lease, mortgage, security interest, encumbrance, gift, and
transfer by operation of law.
(ak) "Transferable interest" means the right, as originally
associated with a person's capacity as a member, to receive
distributions from a worker cooperative company in accordance with
the operating agreement, whether or not the person remains a member
or continues to own any part of the right.
(al) "Transferee" means a person to which all or part of a
transferable interest has been transferred, whether or not the
transferor is a member.
(am) "Vote" includes authorization by written consent or consent
given by electronic transmission to the worker cooperative company.
(an) "Voting member" means a member that, under this division or
articles or operating agreement, has a right to vote on matters
subject to vote by members under this division or articles or
operating agreement.
(ao) "Worker" means a natural person who provides labor to the
worker cooperative company with the expectation of receiving
compensation, a share of the profits, or both.
(ap) "Worker-member" means a worker who is a patron member of the
worker cooperative company and whose patronage includes providing
labor to the worker cooperative company.
17801.04. (a) A worker cooperative company is an entity distinct
from its members.
(b) A worker cooperative company may have any lawful purpose,
except the banking business, the business of issuing policies of
insurance and assuming insurance risks, or the trust company
business, provided that it is organized and conducts its business
primarily for the mutual benefit of its members as patrons of the
company. Worker cooperative companies are democratically controlled
and are not organized to make a profit for themselves, as such, or
for their members, as such, but primarily for their members as
patrons.
(c) A worker cooperative company may render services that may be
lawfully rendered only pursuant to a license, certificate, or
registration authorized by the Business and Professions Code, the
Chiropractic Act, the Osteopathic Act, or the Yacht and Ship Brokers
Act, if the applicable provisions of the Business and Professions
Code, the Chiropractic Act, the Osteopathic Act, or the Yacht and
Ship Brokers Act authorize a worker cooperative company to hold that
license, certificate, or registration.
(d) A worker cooperative company has perpetual duration.
(e) Notwithstanding subdivision (c) and as specifically provided
in this subdivision, a worker cooperative company may operate as a
health care service plan licensed pursuant to Chapter 2.2 (commencing
with Section 1340)
of Division 2 of the Health and Safety Code if the worker cooperative
company is a subsidiary of a health care service plan licensed
pursuant to those provisions and the worker cooperative company is
established to serve an existing line of business of the parent
health care service plan. Notwithstanding any other law, the tort or
contract liability of a worker cooperative company created to operate
as a health care service plan under this subdivision and its members
is not limited or restricted in any manner because of the worker
cooperative company status of the health care service plan.
(f) Nothing in this division shall be construed to permit a
domestic worker cooperative company to render professional services,
as defined in subdivision (a) of Section 13401 and in Section
13401.3, in this state.
17801.05. Subject to any limitations contained in the articles of
organization and to compliance with this division and any other
applicable laws, a worker cooperative company organized under this
division shall have all the powers of a natural person in carrying
out its business activities, including, without limitation, the power
to:
(a) Transact its business, carry on its operations, qualify to do
business, and have and exercise the powers granted by this division
in any state, territory, district, possession, or dependency of the
United States, and in any foreign country.
(b) Sue, be sued, complain, and defend any action, arbitration, or
proceeding, whether judicial, administrative, or otherwise, in its
own name.
(c) Adopt, use, and at will alter a company seal. However, failure
to affix a seal does not affect the validity of any instrument.
(d) Make contracts and guarantees, incur liabilities, act as
surety, or borrow money.
(e) Sell, lease, exchange, transfer, convey, mortgage, pledge, or
otherwise dispose of all or any part of its property and assets.
(f) Purchase, take, receive, lease, or otherwise acquire, own,
hold, improve, use, or otherwise deal in and with any interest in
real or personal property, wherever located.
(g) Lend money to and otherwise assist its members and employees.
(h) Issue notes, bonds, and other obligations and secure any of
them by mortgage or deed of trust or security interest of any or all
of its assets.
(i) Purchase, take, receive, subscribe for, or otherwise acquire,
own, hold, vote, use, employ, sell, mortgage, loan, pledge, or
otherwise dispose of and otherwise use and deal in and with stock or
other interests in and obligations of any person, or direct or
indirect obligations of the United States or of any government,
state, territory, governmental district, or municipality, or of any
instrumentality of any of them.
(j) Invest its surplus funds, lend money from time to time in any
manner which may be appropriate to enable it to carry on the
operations or fulfill the purposes set forth in its articles of
organization, or take and hold real property and personal property as
security for the payment of funds so loaned or invested.
(k) Be a promoter, stockholder, partner, member, manager,
associate, or agent of any person.
(l) Indemnify or hold harmless any person.
(m) Purchase and maintain insurance.
(n) Issue, purchase, redeem, receive, take, or otherwise acquire,
own, hold, sell, lend, exchange, transfer, or otherwise dispose of,
pledge, use, and otherwise deal in and with its own bonds,
debentures, and other securities.
(o) Pay pensions and establish and carry out pension, profit
sharing, bonus, share purchase, option, savings, thrift, and other
retirement, incentive, and benefit plans, trusts, and provisions for
all or any of the current or former members, managers, officers, or
employees of the worker cooperative company or any of its subsidiary
or affiliated entities, or to indemnify and purchase and maintain
insurance on behalf of any fiduciary of those plans, trusts, or
provisions.
(p) Make donations, regardless of specific benefit to the worker
cooperative company, to the public welfare or for community, civic,
religious, charitable, scientific, literary, educational, or similar
purposes.
(q) Make payments or donations or do any other act, not
inconsistent with this division or any other applicable law, that
furthers the business and affairs of the worker cooperative company.
(r) Pay compensation, and pay additional compensation, to any or
all managers, officers, members, and employees on account of services
previously rendered to the worker cooperative company, whether or
not an agreement to pay that compensation was made before the
services were rendered.
(s) Insure for its benefit the life of any of its members,
managers, officers, or employees, insure the life of any member for
the purpose of acquiring at his or her death the interest owned by
the member, and continue the insurance after the relationship
terminates.
(t) Carry out every other act not inconsistent with law that is
appropriate to promote and attain the purposes set forth in its
articles of organization.
17801.06. The law of this state governs all of the following:
(a) The internal affairs of a worker cooperative company.
(b) The liability of a member as member and a manager as manager
for the debts, obligations, or other liabilities of a worker
cooperative company.
(c) The authority of the members and agents of a worker
cooperative company.
17801.07. (a) It is the policy of this division and this state to
give maximum effect to the principles of freedom of contract and to
the enforceability of operating agreements.
(b) Unless displaced by particular provisions of this division,
the principles of law and equity supplement this division.
(c) Rules that statutes in derogation of the common law are to be
strictly construed shall have no application to this division.
(d) Unless the context otherwise requires, as used in this
division, the singular shall include the plural and the plural may
refer to only the singular. The use of any gender shall be applicable
to all genders.
17801.08. (a) The name of a limited liability worker cooperative
company shall contain the words "limited liability worker cooperative
company," "worker cooperative company," "limited worker cooperative,"
or "cooperative." and may be abbreviated as "L.L.W.C.C." or "LLWCC."
"Limited" may be abbreviated as "Ltd." "Cooperative" may be
abbreviated as "Co-op" or "Coop." "Company" may be abbreviated as
"Co."
(b) Unless authorized by subdivision (c), the name of a worker
cooperative company shall not be a name that the Secretary of State
determines is likely to mislead the public and shall be
distinguishable in the records of the Secretary of State from all of
the following:
(1) The name of any worker cooperative company, limited liability
company, authorized to transact business in this state.
(2) Each name reserved under Section 17801.09.
(c) A worker cooperative company may apply to the Secretary of
State for authorization to use a name that does not comply with
subdivision (b). The Secretary of State shall authorize use of the
name applied for if, as to each noncomplying name, either of the
following applies:
(1) The present user, registrant, or owner of the noncomplying
name consents in a signed record to the use and submits an
undertaking in a form satisfactory to the Secretary of State to
change the noncomplying name to a name that complies with subdivision
(b) and is distinguishable in the records of the Secretary of State
from the name applied for.
(2) The applicant delivers to the Secretary of State a certified
copy of the final judgment of a court establishing the applicant's
right to use in this state the name applied for.
(d) The name shall not include the words "bank," "trust,"
"trustee," "incorporated," "inc.," "corporation," or "corp." and
shall not include the words "insurer" or "insurance company" or any
other words suggesting that it is in the business of issuing policies
of insurance and assuming insurance risks.
17801.09. (a) A person may reserve the exclusive use of the name
of a worker cooperative company by delivering an application to the
Secretary of State. The application shall state the name and address
of the applicant and the name proposed to be reserved. If the
Secretary of State finds that the name applied for is available, it
shall be reserved for the applicant's exclusive use for up to 60
days. The Secretary of State shall not issue certificates reserving
the same name for two or more consecutive 60-day periods to the same
applicant or for the use or benefit of the same person; nor shall
consecutive reservations be made by or for the use or benefit of the
same person for a name so similar as to fall within the prohibitions
of subdivision (b) of Section 17801.08.
(b) The owner of a name reserved for a worker cooperative company
may transfer the reservation to another person by delivering to the
Secretary of State for filing a signed notice of the transfer which
states the name and address of the transferee.
17801.10. (a) Except as otherwise provided in this section, the
operating agreement governs all of the following:
(1) Relations among the members as members and between the members
and the worker cooperative company.
(2) The rights and duties under this division of a person in the
capacity of manager.
(3) The activities of the worker cooperative company and the
conduct of those activities.
(4) The means and conditions for amending the operating agreement.
(b) To the extent the operating agreement does not otherwise
provide for a matter described in subdivision (a), this division
governs the matter.
(c) An operating agreement shall not do any of the following:
(1) Vary a worker cooperative company's capacity under Section
17801.05 to sue and be sued in its own name.
(2) Vary the law applicable under Section 17801.06.
(3) Vary the power of the court under Section 17802.04.
(4) Subject to subdivisions (d) to (g), inclusive, eliminate the
duty of loyalty, the duty of care, or any other fiduciary duty.
(5) Subject to subdivisions (d) to (g), inclusive, eliminate the
contractual obligation of good faith and fair dealing under
subdivision (d) of Section 17804.09.
(6) Unreasonably restrict the duties and rights stated in Section
17804.10.
(7) Vary the power of a court to decree dissolution in the
circumstances specified in subdivision (a) of Section 17807.03 or the
provisions for avoidance of dissolution in subdivision (c) of
Section 17807.03.
(8) Except as stated herein, vary the requirements of Sections
17807.04 to 17807.08, inclusive.
(9) Unreasonably restrict the right of a member to maintain an
action under Article 8 (commencing with Section 17808.01).
(10) Restrict the right to approve a merger, conversion, or
domestication under Section 17809.14 to a member that will have
personal liability with respect to a surviving, converted, or
domesticated organization.
(11) Except as otherwise provided in subdivision (b) of Section
17801.12, restrict the rights under this division of a person other
than a member or manager.
(12) Vary any provision under Article 9 (commencing with Section
17809.01).
(13) Vary any provision under Article 10 (commencing with Section
17810.01).
(14) Eliminate the duty of loyalty under subdivision (b) of
Section 17804.09, but the operating agreement may do any of the
following:
(A) Identify specific types or categories of activities that do
not violate the duty of loyalty, if not manifestly unreasonable.
(B) Specify the number or percentage of members that may authorize
or ratify, after full disclosure to all members of all material
facts, a specific act or transaction that otherwise would violate the
duty of loyalty.
(15) Unreasonably reduce the duty of care under subdivision (c) of
Section 17804.09.
(16) Eliminate the obligation of good faith and fair dealing under
subdivision (d) of Section 17804.09, but the operating agreement may
prescribe the standards by which the performance of the obligation
is to be measured, if the standards are not manifestly unreasonable.
(d) Except as provided in subdivision (c) and subdivisions (e) to
(g), inclusive, the effects of the provisions of this division may be
varied as among the members or as between the members and the worker
cooperative company by the operating agreement; provided, however,
that the provisions of Sections 17801.13, 17803.01, 17804.07, and
17804.08 shall only be varied by a written operating agreement.
Notwithstanding the first sentence of this subdivision and in
addition to the matters specified in subdivision (c), the operating
agreement shall not do either of the following:
(1) Vary the definitions of Section 17801.02, except as
specifically provided therein.
(2) Vary a member's rights under Sections 17803.01 and 17804.10.
(e) The fiduciary duties of a manager to the worker cooperative
company and to the members of the worker cooperative company shall
only be modified in a written operating agreement with the informed
consent of the members. Assenting to the operating agreement pursuant
to subdivision (b) of Section 17801.11 shall not constitute informed
consent.
(f) To the extent the operating agreement of a member-managed
worker cooperative company expressly relieves a member of a
responsibility that the member would otherwise have under this
division and imposes the responsibility on one or more other members,
the operating agreement may, to the benefit of the member that the
operating agreement relieves of the responsibility, also eliminate or
limit any fiduciary duty that would have pertained to the
responsibility.
(g) The operating agreement may alter or eliminate the
indemnification for a member or manager provided by subdivision (a)
of Section 17804.08 and may eliminate or limit a member or manager's
liability to the worker cooperative company and members for money
damages, except for the following:
(1) Breach of the duty of loyalty.
(2) A financial benefit received by the member or manager to which
the member or manager is not entitled.
(3) A member's liability for excess distributions under Section
17804.06.
(4) Intentional infliction of harm on the worker cooperative
company or a member.
(5) An intentional violation of criminal law.
17801.11. (a) A worker cooperative company is bound by and may
enforce the operating agreement.
(b) A person that becomes a member of a worker cooperative company
is deemed to assent to the operating agreement.
(c) Two or more persons intending to become the initial members of
a worker cooperative company may make an agreement providing that
upon the formation of the worker cooperative company the agreement
will become the operating agreement. One person intending to become
the initial member of a worker cooperative company may assent to
terms providing that upon the formation of the worker cooperative
company the terms will become the operating agreement.
17801.12. (a) An operating agreement may specify that its
amendment requires the approval of a person that is not a party to
the operating agreement or the satisfaction of a condition. An
amendment is ineffective if its adoption does not include the
required approval or satisfy the specified condition.
(b) The obligations of a worker cooperative company and its
members to a person in the person's capacity as a transferee or
dissociated member are governed by the operating agreement. Subject
only to any court order issued under paragraph (2) of subdivision (b)
of Section 17805.03 to effectuate a charging order, an amendment to
the operating agreement made after a person becomes a transferee or
dissociated member is effective with regard to any debt, obligation,
or other liability of the worker cooperative company or its members
to the person in the person's capacity as a transferee or dissociated
member.
(c) If a record that has been delivered by a worker cooperative
company to the Secretary of State for filing and has become effective
under this division contains a provision that would be ineffective
under subdivision (c) of Section 17801.10 if contained in the
operating agreement, the provision is likewise ineffective in the
record.
(d) Subject to subdivision (c), if a record that has been
delivered by a worker cooperative company to the Secretary of State
for filing and has become effective under this division conflicts
with a provision of the operating agreement both of the following
apply:
(1) The operating agreement prevails as to members, dissociated
members, transferees, and managers.
(2) The record prevails as to other persons to the extent they
reasonably rely on the record.
17801.13. (a) A worker cooperative company shall designate and
continuously maintain in this state both of the following:
(1) An office, which need not be a place of its activity in this
state.
(2) An agent for service of process.
(b) An agent for service of process of a worker cooperative
company shall be an individual who is a resident of this state or a
corporation that has complied with Section 1505 and whose capacity to
act as an agent has not terminated. If a worker cooperative company
designates a corporation as its agent for service of process in an
instrument filed with the Secretary of State, no address for that
agent for service of process shall be set forth in that instrument.
(c) Each worker cooperative company shall maintain in writing or
in any other form capable of being converted into clearly legible
tangible form at the office referred to in subdivision (a) all of the
following:
(1) A current list of the full name and last known business or
residence address of each member and of each holder of a transferable
interest in the worker cooperative company set forth in alphabetical
order, together with the contribution and the share in profits and
losses of each member and holder of a transferable interest.
(2) If the worker cooperative company is a manager-managed worker
cooperative company, a current list of the full name and business or
residence address of each manager.
(3) A copy of the articles of organization and all amendments
thereto, together with any powers of attorney pursuant to which the
articles of organization or any amendments thereto were executed.
(4) Copies of the worker cooperative company's federal, state, and
local income tax or information returns and reports, if any, for the
six most recent fiscal years.
(5) A copy of the worker cooperative company's operating
agreement, if in writing, and any amendments thereto, together with
any powers of attorney pursuant to which any written operating
agreement or any amendments thereto were executed.
(6) Copies of the financial statement of the worker cooperative
company, if any, for the six most recent fiscal years.
(7) The books and records of the worker cooperative company as
they relate to the internal affairs of the worker cooperative company
for at least the current and past four fiscal years.
(d) Upon request of an assessor, a worker cooperative company
owning, claiming, possessing, or controlling property in this state
subject to local assessment shall make available at the worker
cooperative company's principal office in this state or at the office
required to be kept pursuant to subdivision (a) or at a place
mutually acceptable to the assessor and the worker cooperative
company a true copy of the business records relevant to the amount,
cost, and value of all property that the worker cooperative company
owns, claims, possesses, or controls within the county.
17801.14. (a) A worker cooperative company may change its
designated office, its principal office, its agent for service of
process, the address of its agent for service of process, its mailing
address by delivering to the Secretary of State for filing a
statement of information as set forth in Section 17802.09.
(b) A statement of information is effective when filed by the
Secretary of State.
17801.15. (a) To resign as an agent for service of process of a
worker cooperative company, the agent shall deliver to the Secretary
of State for filing a signed and acknowledged statement of
resignation containing the worker cooperative company name, the
Secretary of State's file number, the name of resigning agent for
service of process, and a statement that the agent is resigning.
(b) The Secretary of State shall file a statement of resignation
delivered under subdivision (a) and mail or otherwise provide or
deliver a copy to the designated office of the worker cooperative
company.
(c) Upon filing of the statement of resignation, the authority of
the agent to act in that capacity shall cease.
(d) If an individual who has been designated agent for service of
process dies or resigns or no longer resides in the state, or if the
corporate agent for that purpose resigns, dissolves, withdraws from
the state, forfeits its right to transact intrastate business in this
state, has its corporate rights, powers, and privileges suspended,
or ceases to exist, the worker cooperative company shall promptly
file an initial or amended statement of information as set forth in
Section 17802.09.
17801.16. (a) In addition to Chapter 4 (commencing with Section
413.10) of Title 5 of Part 2 of the Code of Civil Procedure, process
may be served upon worker cooperative companies as provided in this
section.
(b) Personal service of a copy of any process against the worker
cooperative company by delivery (1) to any individual designated by
it as agent, or (2) if the designated agent is a corporation, to any
person named in the latest certificate of the corporate agent filed
pursuant to Section 1505 at the office of the corporate agent, shall
constitute valid service on the worker cooperative company. No change
in the address of the agent for service of process or appointment of
a new agent for service of process shall be effective until an
amendment to the statement described in Section 17801.14 is filed.
(c) If an agent for service of process has resigned and has not
been replaced or if the designated agent cannot with reasonable
diligence be found at the address designated for personal delivery of
the process, and it is shown by affidavit to the satisfaction of the
court that process against a worker cooperative company cannot be
served with reasonable diligence upon the designated agent by hand in
the manner provided in Section 415.10, subdivision (a) of Section
415.20, or subdivision (a) of Section 415.30 of the Code of Civil
Procedure, the court may make an order that the service shall be made
upon a worker cooperative company by delivering by hand to the
Secretary of State, or to any person employed in the Secretary of
State's office in the capacity of assistant or deputy, one copy of
the process for each defendant to be served, together with a copy of
the order authorizing the service. Service in this manner shall be
deemed complete on the 10th day after delivery of the process to the
Secretary of State.
(d) Upon receipt of the copy of process and the fee therefor, the
Secretary of State shall give notice of the service of the process to
the worker cooperative company at its principal office, by
forwarding to that office, by registered mail with request for return
receipt, the copy of the process.
(e) The Secretary of State shall keep a record of all process
served upon the Secretary of State under this division and shall
record therein the time of service and the action taken by the
Secretary of State. A certificate under the Secretary of State's
official seal, certifying to the receipt of process, the giving of
notice to the worker cooperative company, and the forwarding of the
process pursuant to this section, shall be competent and prima facie
evidence of the service of process.
17801.17. (a) A member may, in a written operating agreement or
other writing, consent to be subject to the nonexclusive jurisdiction
of the courts of a specified jurisdiction and the courts of this
state, or the exclusive jurisdiction of the courts of this state.
(b) If a member desires to use the arbitration process, that
member may, in a written operating agreement or other writing,
consent to be nonexclusively subject to arbitration in a specified
state or states and this state, or to be exclusively subject to
arbitration in this state.
(c) Along with this consent to the jurisdiction of courts or
arbitration, a member may consent to be served with legal process in
the manner prescribed in the operating agreement or other writing.
Article 2. Formation: Articles of Organization and Other
Filings
17802.01. (a) One or more persons may act as organizers to form a
worker cooperative company by signing and delivering to the
Secretary of State for filing articles of organization on a form
prescribed by the Secretary of State.
(b) The articles of organization shall state all of the following:
(1) A statement that the purpose of the worker cooperative company
is to engage in any lawful act or activity for which a worker
cooperative company may be organized under this division.
(2) The name of the worker cooperative company, which shall comply
with Section 17801.08.
(3) The street address of the initial designated office and the
mailing address of the worker cooperative company if different from
the street address of the initial designated office.
(4) The name and street address of the initial agent for service
of process of the worker cooperative company who meets the
qualifications specified in subdivision (c) of Section 17801.13. If a
corporate agent is designated, only the name of the agent shall be
set forth.
(5) If the worker cooperative company is to be manager-managed,
the articles of organization shall contain a statement to that
effect.
(6) If the worker cooperative company is to be managed by only one
manager, the articles of organization shall contain a statement to
that effect.
(7) If the financial rights of the members are unequal, the
articles of organization shall contain a statement to that effect.
(c) Subject to subdivision (c) of Section 17801.12, articles of
organization may also contain any other provision not inconsistent
with law other than those provisions required by subdivision (b).
(d) A worker cooperative company is formed when the Secretary of
State has filed the articles of organization.
(e) Except in a proceeding by this state to dissolve a worker
cooperative company, the filing of the articles of organization by
the Secretary of State is conclusive proof that the organizer
satisfied all conditions to
the formation of a worker cooperative company.
(f) The Secretary of State may cancel the filing of the articles
of organization if a check or other remittance accepted in payment of
the filing fee is not paid upon presentation. Upon receiving written
notification that the item presented for payment has not been
honored for payment, the Secretary of State shall give a first
written notice of the applicability of this subdivision to the agent
for service of process or to the person submitting the instrument.
Thereafter, if the amount has not been paid by cashier's check or
equivalent, the Secretary of State shall give a second written notice
of cancellation and the cancellation shall thereupon be effective.
The second notice shall be given 20 days or more after the first
notice, and 90 days or less after the original filing.
(g) The Secretary of State shall include with the instructional
materials, provided in conjunction with the form for filing the
articles of organization under subdivision (a), a notice that filing
the registration will obligate the worker cooperative company to pay
an annual tax for that taxable year to the Franchise Tax Board
pursuant to Section 17941 of the Revenue and Taxation Code. That
notice shall be updated annually to specify the dollar amount of the
tax.
(h) The Secretary of State shall provide on its Internet Web site
information and sample documents for forming a worker cooperative
company.
17802.02. (a) The articles of organization may be amended or
restated at any time.
(b) To amend its articles of organization, a worker cooperative
company shall deliver to the Secretary of State for filing a
certificate of amendment, on a form prescribed by the Secretary of
State, stating all of the following:
(1) The present name of the worker cooperative company.
(2) The Secretary of State's file number for the worker
cooperative company.
(3) The changes the amendment makes to the articles of
organization as most recently amended or restated.
(c) To restate its articles of organization, a worker cooperative
company shall deliver to the Secretary of State for filing a
restatement, on a form prescribed by the Secretary of State, stating,
as applicable, the following:
(1) The present name of the worker cooperative company and the
Secretary of State's file number for the worker cooperative company.
(2) The changes the restatement makes to the articles of
organization as most recently amended or restated.
(d) Subject to subdivision (c) of Section 17801.12 and subdivision
(c) of Section 17802.05, an amendment to or restatement of the
articles of organization is effective when filed by the Secretary of
State and shall be duly executed by at least one manager of a
manager-managed worker cooperative company or at least one member of
a member-managed worker cooperative company unless a greater number
is provided in the articles of organization.
(e) If a member of a member-managed worker cooperative company, or
a manager of a manager-managed worker cooperative company, knows
that any information in filed articles of organization was inaccurate
when the articles were filed or has become inaccurate owing to
changed circumstances, the member or manager shall promptly do the
following:
(1) Cause the articles to be amended.
(2) If appropriate, deliver to the Secretary of State for filing a
statement of information under Section 17801.14 or a certificate of
correction under Section 17802.06.
(f) A worker cooperative company shall not amend its articles of
organization pursuant to subdivision (b) or restate its articles of
organization pursuant to subdivision (c) in order to change its
designated office, its mailing address, its agent for service of
process, or the address of its agent for service of process. To
change that information, the worker cooperative company shall deliver
to the Secretary of State for filing a statement of information
under Section 17801.14.
17802.03. (a) A record delivered to the Secretary of State for
filing pursuant to this division shall be signed as follows:
(1) Except as otherwise provided in paragraphs (2) and (3), a
record signed on behalf of a worker cooperative company shall be
signed by a person authorized by the worker cooperative company.
(2) A worker cooperative company's initial articles of
organization shall be signed by at least one person acting as an
organizer.
(3) A record filed on behalf of a dissolved worker cooperative
company that has no members shall be signed by the person winding up
the worker cooperative company's activities or a person appointed
under Section 17807.04 to wind up those activities.
(4) A certificate of cancellation under Section 17807.02 shall be
signed by each organizer that signed the initial articles of
organization, but a personal representative of a deceased or
incompetent organizer may sign in the place of the decedent or
incompetent.
(b) Any record filed under this division may be signed by an
agent.
(c) A worker cooperative company may record in the office of the
county recorder of any county in this state, and county recorders, on
request, shall record a certified copy of the worker cooperative
company articles of organization and any exhibit or attachment, or
any amendment or correction thereto, that has been filed in the
office of the Secretary of State. The recording shall create a
conclusive presumption in favor of any bona fide purchaser or
encumbrancer for value of the worker cooperative company real
property located in the county in which the certified copy has been
recorded, of the statements contained therein.
(d) If the Secretary of State determines that an instrument
submitted for filing or otherwise submitted does not conform to the
law and returns it to the person submitting it, the instrument may be
resubmitted accompanied by a written opinion of a member of the
State Bar of California submitting the instrument or representing the
person submitting it, to the effect that the specific provisions of
the instrument objected to by the Secretary of State do conform to
law and stating the points and authorities upon which the opinion is
based. The Secretary of State shall rely, with respect to any
disputed point of law, other than the application of Sections
17801.08 and 17801.09, upon that written opinion in determining
whether the instrument conforms to law. The date of filing in that
case shall be the date the instrument is received on resubmission.
17802.04. (a) If a person required by this division to sign a
record or deliver a record to the Secretary of State for filing under
this division does not do so, any other person that is aggrieved may
petition the superior court to order any of the following:
(1) The person to sign the record.
(2) The person to deliver the record to the Secretary of State for
filing.
(3) The Secretary of State to file the record unsigned.
(b) If a petitioner under subdivision (a) is not the worker
cooperative company to which the record pertains, the petitioner
shall make the worker cooperative company a party to the action.
17802.05. (a) A record authorized or required to be delivered to
the Secretary of State for filing under this division shall be
captioned to describe the record's purpose, be in a medium permitted
by the Secretary of State, and be delivered to the Secretary of
State. If the filing fees have been paid, unless the Secretary of
State determines that a record does not comply with applicable laws,
the Secretary of State shall file the record.
(b) Upon request and payment of the requisite fee, the Secretary
of State shall send to the requester a certified copy of a requested
record.
(c) Except for original articles of organization and except as
otherwise provided in Sections 17801.14 and 17802.06, a record
delivered to the Secretary of State for filing under this division
may specify a delayed effective date. Subject to Section 17802.06, a
record filed by the Secretary of State is effective as follows:
(1) If the record does not specify a delayed effective date, on
the date the record is filed as evidenced by the Secretary of State's
endorsement of the date on the record.
(2) If the record specifies a delayed effective date, on the date
specified in the record. A delayed effective date specified in the
record shall not be more than 90 days after the date the record is
filed.
(d) In the case of a delayed effective date, the instrument may be
prevented from becoming effective by a certificate stating that by
appropriate action it has been revoked and is null and void. This
certificate shall be executed in the same manner as the original
instrument and shall be filed before the delayed effective date.
(e) In the case of a merger agreement or certificate of merger, a
certificate revoking the earlier filing need only be executed on
behalf of one of the constituent parties to the merger. If no
revocation certificate is filed, the instrument becomes effective on
the date specified.
17802.06. (a) A worker cooperative company may deliver to the
Secretary of State for filing a certificate of correction on a form
prescribed by the Secretary of State to correct a record previously
delivered by the worker cooperative company to the Secretary of State
and filed by the Secretary of State, if at the time of filing the
record contained inaccurate information or was defectively signed.
(b) A certificate of correction under subdivision (a) may not
state a delayed effective date and shall do all of the following:
(1) State the present name of the worker cooperative company and
the Secretary of State's file number.
(2) Describe the title to the document to be corrected, including
its filing date.
(3) Set forth the name of each party to the document to be
corrected.
(4) Specify the inaccurate information and the reason it is
inaccurate or the manner in which the signing was defective.
(5) Correct the defective signature or inaccurate information.
(c) When filed by the Secretary of State, a certificate of
correction under subdivision (a) is effective retroactively as of the
effective date of the record the certificate corrects, but the
statement is effective when filed as to persons that previously
relied on the uncorrected record and would be adversely affected by
the retroactive effect.
17802.07. (a) If a record delivered to the Secretary of State for
filing under this division and filed by the Secretary of State
contains inaccurate information, a person that suffers a loss by
reliance on the information may recover damages for the loss from the
following:
(1) A person that signed the record, or caused another to sign it
on the person's behalf, and knew the information to be inaccurate at
the time the record was signed.
(2) Subject to subdivision (b), a member of a member-managed
worker cooperative company or the manager of a manager-managed worker
cooperative company, if all of the following apply:
(A) The record was delivered for filing on behalf of the worker
cooperative company.
(B) The member or manager had notice of the inaccuracy for a
reasonably sufficient time before the information was relied upon so
that, before the reliance, the member or manager reasonably could
have done all of the following:
(i) Effected an amendment under Section 17802.02.
(ii) Filed a petition under Section 17802.04.
(iii) Delivered to the Secretary of State for filing a statement
of information under Section 17801.14 or a certificate of correction
under Section 17802.06.
(b) To the extent that the operating agreement of a member-managed
worker cooperative company expressly relieves a member of
responsibility for maintaining the accuracy of information contained
in records delivered on behalf of the worker cooperative company to
the Secretary of State for filing under this division and imposes
that responsibility on one or more other members, the liability
stated in paragraph (2) of subdivision (a) applies to those other
members and not to the member that the operating agreement relieves
of the responsibility.
(c) An individual who signs a record authorized or required to be
filed under this division affirms under penalty of perjury that the
information stated in the record is accurate.
17802.09. (a) A worker cooperative company shall deliver to the
Secretary of State for filing within 90 days after the filing of its
original articles of organization and biennially thereafter during
the applicable filing period, on a form prescribed by the Secretary
of State, a statement of information containing:
(1) The name of the worker cooperative company and the Secretary
of State's file number.
(2) The name and street address of the agent in this state for
service of process required to be maintained pursuant to Section
17801.13. If a corporate agent is designated, only the name of the
agent shall be set forth.
(3) The street address of its office required to be maintained
pursuant to Section 17801.13.
(4) The mailing address of the worker cooperative company, if
different from the street address of its office required to be
maintained pursuant to Section 17801.13.
(5) The name and complete business or residence addresses of any
manager or managers and the chief executive officer, if any,
appointed or elected in accordance with the articles of organization
or operating agreement or, if no manager has been so elected or
appointed, the name and business or residence address of each member.
(6) If the worker cooperative company chooses to receive renewal
notices and any other notifications from the Secretary of State by
electronic mail instead of by United States mail, the worker
cooperative company shall include a valid electronic mail address for
the worker cooperative company, or for the worker cooperative
company's designee to receive those notices.
(7) The general type of business that constitutes the principal
business activity or the worker cooperative company, such as, for
example, manufacture of aircraft, wholesale liquor distributor, or
retail department store.
(b) If there has been no change in the information contained in
the last filed statement of information of the worker cooperative
company on file in the office of Secretary of State, the worker
cooperative company may, in lieu of filing the statement of
information required by subdivision (a), advise the Secretary of
State, on a form prescribed by the Secretary of State, that no
changes in the required information have occurred during the
applicable filing period.
(c) For purposes of this section, the applicable filing period for
a worker cooperative company shall be the calendar month during
which its original articles of organization was filed and the
immediately preceding five calendar months. The Secretary of State
shall provide a notice to each worker cooperative company to comply
with this section approximately three months prior to the close of
the applicable filing period. The notice shall state the due date for
compliance and shall be sent to the last mailing address of the
worker cooperative company according to the records of the Secretary
of State, or if none, to the street address of the principal office,
or, in the case of a domestic worker cooperative company, the office
required to be maintained pursuant to Section 17801.13, or to the
last electronic mail address according to the records of the
Secretary of State if the worker cooperative company has elected to
receive notices from the Secretary of State by electronic mail. The
failure of the worker cooperative company to receive the notice shall
not exempt the worker cooperative company from complying with this
section.
(d) Whenever any of the information required by subdivision (a)
changes, other than the name and address of the agent for service of
process, the worker cooperative company may file a current statement
containing all the information required by subdivision (a). When
changing its agent for service of process or when the address of the
agent changes, the worker cooperative company shall file a current
statement containing all the information required by subdivision (a).
Whenever any statement is filed pursuant to this section, that
statement supersedes any previously filed statement pursuant to this
section, the statement in the original articles of organization, and
the statement in any previously filed amended or restated articles of
organization that have been filed.
(e) If a statement of information delivered to the Secretary of
State for filing under this section does not contain the information
required by subdivision (a), the Secretary of State shall promptly
return the statement of information to the reporting worker
cooperative company for correction.
(f) The Secretary of State may destroy or otherwise dispose of any
statement filed pursuant to this section after it has been
superseded by the filing of a new statement.
17802.10. An instrument shall be deemed filed, and the date of
filing endorsed thereon, upon receipt by the Secretary of State of
any instrument accompanied by the fee prescribed in Article 3
(commencing with Section 12180) of Chapter 3 of Part 2 of Division 3
of Title 2 of the Government Code. The date of filing shall be the
date the instrument is received by the Secretary of State unless the
instrument provides that it is to be withheld from filing for a
period of time not to exceed 90 days or unless, in the judgment of
the Secretary of State, the filing is intended to be coordinated with
the filing of some other document that cannot be filed. The
Secretary of State shall file a document as of any requested future
date not more than 90 days after its receipt, including a Saturday,
Sunday, or legal holiday, if that document is received in the office
of the Secretary of State at least one business day prior to the
requested date of filing. Upon receipt and after filing of any
document under this division, the Secretary of State may microfilm or
reproduce by other techniques any filings or documents and destroy
the original filing or document. The microfilm or other reproduction
of any document under this section, or corresponding provision under
prior law, shall be admissible in any court of law.
Article 3. Relations of Members and Managers to Persons
Dealing with a Worker Cooperative Company
17803.01. (a) Unless the articles of organization indicate the
worker cooperative company is a manager-managed worker cooperative
company, every worker-member is an agent of the worker cooperative
company for the purpose of its business or affairs, and the act of
any worker-member, including, but not limited to, the execution in
the name of the worker cooperative company of any instrument, for the
apparent purpose of carrying on in the usual way the business or
affairs of the worker cooperative company of which that person is a
worker-member, binds the worker cooperative company in the particular
matter, unless the worker-member so acting has, in fact, no
authority to act for the worker cooperative company in the particular
matter and the person with whom the worker-member is dealing has
actual knowledge of the fact that the worker-member has no such
authority.
(b) If the articles of organization indicate that the worker
cooperative company is a manager-managed worker cooperative company,
each of the following applies:
(1) No member acting solely in the capacity of a member is an
agent of the worker cooperative company nor can any member bind or
execute any instrument on behalf of the worker cooperative company.
(2) Every manager is an agent of the worker cooperative company
for the purpose of its business or affairs, and the act of any
manager, including, but not limited to, the execution in the name of
the worker cooperative company of any instrument for apparently
carrying on in the usual way the business or affairs of the worker
cooperative company of which the person is a manager, binds the
worker cooperative company, unless the manager so acting has, in
fact, no authority to act for the worker cooperative company in the
particular matter and the person with whom the manager is dealing has
actual knowledge of the fact that the manager has no such authority.
(c) No act of a manager or member in contravention of a
restriction on authority shall bind the worker cooperative company to
persons having actual knowledge of the restriction.
(d) Notwithstanding the provisions of subdivision (c), any note,
mortgage, evidence of indebtedness, contract, certificate, statement,
conveyance, or other instrument in writing, and any assignment or
endorsement thereof, executed or entered into between any worker
cooperative company and any other person, when signed by at least two
managers, or by one manager in the case of a worker cooperative
company whose articles of organization state that it is managed by
only one manager, is not invalidated as to the worker cooperative
company by any lack of authority of the signing managers or manager
in the absence of actual knowledge on the part of the other person
that the signing managers or manager had no authority to execute the
same.
17803.04. (a) All of the following apply to debts, obligations,
or other liabilities of a worker cooperative company, whether arising
in contract, tort, or otherwise:
(1) They are solely the debts, obligations, or other liabilities
of the worker cooperative company to which the debts, obligations, or
other liabilities relate.
(2) They do not become the debts, obligations, or other
liabilities of a member or manager solely by reason of the member
acting as a member or manager acting as a manager for the worker
cooperative company.
(b) A member of a worker cooperative company shall be subject to
liability under the common law governing alter ego liability, and
shall also be personally liable under a judgment of a court or for
any debt, obligation, or liability of the worker cooperative company,
whether that liability or obligation arises in contract, tort, or
otherwise, under the same or similar circumstances and to the same
extent as a shareholder of a corporation may be personally liable for
any debt, obligation, or liability of the corporation; except that
the failure to hold meetings of members or managers or the failure to
observe formalities pertaining to the calling or conduct of meetings
shall not be considered a factor tending to establish that a member
or the members have alter ego or personal liability for any debt,
obligation, or liability of the worker cooperative company where the
articles of organization or operating agreement do not expressly
require the holding of meetings of members or managers.
(c) Nothing in this section shall be construed to affect the
liability of a member of a worker cooperative company to third
parties for the member's participation in tortious conduct, or
pursuant to the terms of a written guarantee or other contractual
obligation entered into by the member, other than an operating
agreement.
(d) A worker cooperative company shall carry insurance or provide
an undertaking to the same extent and in the same amount as is
required by any law, rule, or regulation of this state that would be
applicable to the worker cooperative company were it a corporation
organized and existing or duly qualified for the transaction of
intrastate business under the General Corporation Law.
(e) Notwithstanding subdivision (a), a member of a worker
cooperative company may agree to be obligated personally for any or
all of the debts, obligations, and liabilities of the worker
cooperative company as long as the agreement to be so obligated is
set forth in the articles of organization or in a written operating
agreement that specifically references this subdivision.
Article 4. Relations of Members to Each Other and to the
Worker Cooperative Company
17804.01. (a) A worker cooperative company shall consist of at
least three worker-members, but it is permitted to have fewer than
three worker-members for a maximum of 12 months during any 36-month
period. If, at the expiration of that time period, the worker
cooperative company has fewer than three worker-members, the Attorney
General may, on application to the Secretary of State, on his or her
own motion, or upon application of a worker-member, suspend the
company. The company shall be reinstated upon showing that it has
three or more worker-members.
(b) If a worker cooperative company is to have more than one
member upon formation, those persons become members as agreed by the
persons before the formation of the worker cooperative company. The
organizer acts on behalf of the persons in forming the worker
cooperative company and may be, but need not be, one of the persons.
(c) After formation of a worker cooperative company, a person
becomes a member as follows:
(1) As provided in the operating agreement.
(2) As the result of a transaction effective under Article 9
(commencing with Section 17809.01).
(3) With the consent of all the members.
(4) If, within 90 consecutive days after the worker cooperative
company ceases to have any members, the last person to have been a
member, or the legal representative of that person, designates a
person to become a member, and the designated person consents to
become a member.
(d) A person shall not become a member without acquiring a
transferable interest and without making, or being obligated to make,
a contribution to the worker cooperative company unless the articles
or the operating agreement permit.
17804.02. (a) The worker cooperative company's members shall
include a class of worker-members, to which the following rules
apply:
(1) Only workers in the worker cooperative company are eligible
for membership in the worker-member class.
(2) Qualification requirements and the process for accepting and
terminating all members shall be reflected in the worker cooperative
company's articles or operating agreement. Upon resignation,
termination, or death, the worker's membership in the cooperative
shall immediately cease.
(3) Worker-membership shall be available to all workers in a
worker cooperative company, excluding temporary workers.
(4) The worker cooperative company may have a candidacy period for
all workers on the track to worker-membership, which shall not
exceed three years.
(5) A decision to terminate a worker-member requires a minimum of
51-percent vote of the quorum of the worker-member class or a
delegated decisionmaking body, as provided in the worker cooperative
company's articles or operating agreement. If the decision to
terminate a
worker-member was made by a group comprising less than the entire
worker-member class, the terminated worker-member has the right to
appeal the decision to the entire worker-member class, or a delegated
decisionmaking body. Upon termination, resignation, or death, a
worker-member's account shall be returned to the worker-member in the
manner prescribed by the articles or operating agreement. If a
member is terminated by expulsion, the amount a member receives upon
termination shall be no less than the members' capital contributions
and allocated patronage distributions. If no manner is prescribed,
the account shall be converted to debt and repaid over a maximum of
five years with interest accruing at the discount rate, as set by the
Federal Reserve Bank of San Francisco.
(b) In a typical year, at least a simple majority of all the
workers in a worker cooperative company shall be worker-members, and
the majority of the labor or hours shall be contributed by the
worker-members.
(c) (1) Except as provided in paragraph (2), the activities and
affairs of the worker cooperative company shall be conducted, and all
company powers shall be exercised by or under the ultimate direction
of the worker-member class, including representatives elected
pursuant to subdivision (d). Subject to the provisions of paragraph
(2), at no point shall other classes of members created in the
articles or operating agreement have greater voting power,
collectively, than the worker-member class when voting as a combined
membership is called for, except for the election of representatives
in accordance with subdivision (d).
(2) The worker-member class may grant other member classes voting
power over decisions that are outside the ordinary course of the
cooperative's activities or that affect the membership, ownership, or
voting interests of other classes in a manner that is different from
or disproportionate to their effect on the interests of the
worker-member class.
(d) The worker-member class may delegate authority to a manager,
managers, board of managers, or other elected decisionmaking body or
individuals (the representatives). The worker-member class may
allocate the power to elect the representatives among the various
classes of members, provided, however, that at least the majority of
those representatives shall be elected by, and subject to removal by,
the worker-member class.
17804.03. (a) A contribution may consist of tangible or
intangible property or other benefit to a worker cooperative company,
including money, services performed, promissory notes, other
agreements to contribute money or property, and contracts for
services to be performed.
(b) A person's obligation to make a contribution to a worker
cooperative company is not excused by the person's death, disability,
or other inability to perform personally. If a person does not make
a required contribution, the person or the person's estate is
obligated to contribute money equal to the value of the part of the
contribution that has not been made, at the option of the worker
cooperative company.
(c) The obligation of a member to make a contribution to a worker
cooperative company may be compromised only by consent of all of the
worker-members. A conditional obligation of a member to make a
contribution to a worker cooperative company shall not be enforced
unless the conditions of the obligation have been satisfied or waived
as to or by that member. Conditional obligations include
contributions payable upon a discretionary call of a worker
cooperative company before the time the call occurs.
(d) A creditor of a worker cooperative company that extends credit
or otherwise acts in reliance on an obligation described in
subdivision (b) may enforce the obligation.
(e) Nothing in this section shall be construed to affect the
rights of third-party creditors of the worker cooperative company to
seek equitable remedies or any rights existing under the Uniform
Fraudulent Transfer Act (Chapter 1 (commencing with Section 3439) of
Title 2 of Part 2 of Division 4 of the Civil Code).
17804.04. (a) Unless the articles or operating agreement
otherwise provide and subject to this section, the worker-member
class, or its delegated decisionmaking body, may authorize, and the
worker cooperative company may make, distributions to members.
(b) (1) The articles or operating agreement may provide for
allocating profits of a worker cooperative company among members,
among persons that are not members but conduct business with the
cooperative, to an unallocated account, or to any combination
thereof. Unless the articles or operating agreement otherwise
provide, losses of the cooperative shall be allocated in the same
proportion as profits.
(2) Unless the articles or operating agreement otherwise provide,
all profits and losses of a worker cooperative company shall be
allocated to patron members.
(3) If a worker cooperative company has nonpatron members, the
articles or operating agreement shall not allow the allocation of
profits to nonpatron members to exceed 49 percent of profits in any
given fiscal year, and profit allocations to nonpatron members may
not exceed the limitations of subdivision (d). For purposes of this
section, the following rules apply:
(A) Amounts paid or due on contracts for the delivery to the
worker cooperative company by patron members of products, goods, or
services shall not be considered to be profit allocations to patron
members.
(B) Amounts paid, due, or allocated to nonpatron members as a
stated fixed return on equity are not considered amounts allocated to
investor members.
(c) (1) Unless prohibited by the articles or operating agreement,
in determining the profits for allocation under subdivisions (d) to
(g), inclusive, the worker-member class, or its delegated
decisionmaking body, may first deduct and set aside a part of the
profits to create or accumulate the following:
(A) An unallocated account.
(B) Reasonable capital reserves for specific purposes, including
expansion and replacement of capital assets; education, training, and
cooperative development; creation and distribution of information
concerning principles of cooperation; and community responsibility.
(C) An indivisible reserves account that is prohibited from being
distributed to the members. The cooperative may only distribute or
allocate nonpatronage-sourced income to the indivisible reserves
account. Funds in the indivisible reserves account shall, in a manner
determined by the operating agreement, the worker-member class, or
its delegate, be used as capital for the cooperative. Upon
dissolution, the indivisible reserves account shall be allocated to
an International Co-operative Alliance-approved national federation
or a designated regional body in this state.
(2) Subject to subdivisions (d) to (g), inclusive, and the
articles or operating agreement, the worker-member class, or its
delegate, shall allocate the amount remaining after any deduction or
setting aside of profits for capital reserves under paragraph (1) to
the following:
(A) Patron members, in the ratio of each member's patronage to the
total patronage of all patron members during the period for which
the allocations are to be made.
(B) Nonpatron members, according to the terms of their membership
class.
(3) For purposes of allocation of profits and losses or specific
items of profits or losses of a cooperative to members, the articles
or operating agreement may establish allocation units or methods
based on separate classes of patron and nonpatron members.
(d) Any distributions made by a worker cooperative company before
its dissolution and winding up shall be among the members in
accordance with the articles or operating agreement, provided that at
least 51 percent of the distributions shall be made to the patron
members on the basis of value of patronage transactions. If the
articles or the operating agreement does not otherwise provide, all
distributions shall be on the basis of the value, as stated in the
required records when the worker cooperative company decides to make
the distribution, of patronage that the worker cooperative company
has received from each patron member, except to the extent necessary
to comply with any transfer effective under Section 17805.02 and any
charging order in effect under Section 17805.03.
(e) A person has a right to a distribution before the dissolution
and winding up of a worker cooperative company only if the worker
cooperative company decides to make an interim distribution. Unless
the articles of organization or written operating agreement provides
otherwise, a person's dissociation does not entitle the person to a
distribution, and, beginning on the date of dissociation, the
dissociated person shall have only the right of a transferee of a
transferable interest with respect to that person's interest in the
worker cooperative company, and then only with respect to
distributions, if any, to which a transferee is entitled under the
operating agreement. If the dissociation is in violation of the
operating agreement, the worker cooperative company shall have the
right to offset any damages for the breach of the operating agreement
from the amounts, if any, otherwise distributable to the dissociated
person with respect to that person's interest in the worker
cooperative company.
(f) (1) Unless the articles or operating agreement otherwise
provide, distributions to members may be made in any form, including
money, capital credits, allocated patronage equities, revolving fund
certificates, and the worker cooperative company's own or other
securities.
(2) A person does not have a right to demand or receive a
distribution from a worker cooperative company in any form other than
money. A worker cooperative company may distribute an asset in kind
if each part of the asset is fungible with each other part and each
person receives a percentage of the asset equal in value to the
person's share of distributions.
(g) If a member or transferee becomes entitled to receive a
distribution, the member or transferee has the status of, and is
entitled to all remedies available to, a creditor of the worker
cooperative company with respect to the distribution.
17804.05. (a) A worker cooperative company shall not make a
distribution if after the distribution either of the following
applies:
(1) The worker cooperative company would not be able to pay its
debts as they become due in the ordinary course of the worker
cooperative company's activities.
(2) The worker cooperative company's total assets would be less
than the sum of its total liabilities plus the amount that would be
needed, if the worker cooperative company were to be dissolved, wound
up, and terminated at the time of the distribution, to satisfy the
preferential rights upon dissolution, winding up, and termination of
members whose preferential rights are superior to those of persons
receiving the distribution.
(b) A worker cooperative company may base a determination that a
distribution is not prohibited under subdivision (a) on financial
statements prepared on the basis of accounting practices and
principles that are reasonable in the circumstances or on a fair
valuation or other method that is reasonable under the circumstances.
(c) Except as otherwise provided in subdivision (f), the effect of
a distribution under subdivision (a) is measured as follows:
(1) In the case of a distribution by purchase, redemption, or
other acquisition of a transferable interest in the worker
cooperative company, as of the date money or other property is
transferred or debt incurred by the worker cooperative company.
(2) In all other cases, as of the date the distribution is
authorized, if the payment occurs within 120 days after that date, or
the payment is made, if the payment occurs more than 120 days after
the distribution is authorized.
(d) A worker cooperative company's indebtedness to a member
incurred by reason of a distribution made in accordance with this
section is at parity with the worker cooperative company's
indebtedness to its general, unsecured creditors.
(e) A worker cooperative company's indebtedness, including
indebtedness issued in connection with or as part of a distribution,
is not a liability for purposes of subdivision (a) if the terms of
the indebtedness provide that payment of principal and interest are
made only to the extent that a distribution could be made to members
under this section.
(f) If indebtedness is issued as a distribution, each payment of
principal or interest on the indebtedness is treated as a
distribution, the effect of which is measured on the date the payment
is made.
(g) In subdivision (f) of Section 17801.02, "distribution" does
not include amounts constituting reasonable compensation for present
or past services or reasonable payments made in the ordinary course
of business under a bona fide retirement plan or other benefits
program.
17804.06. (a) Except as otherwise provided in subdivision (b), if
a member of a member-managed worker cooperative company or manager
of a manager-managed worker cooperative company consents to a
distribution made in violation of Section 17804.05, the member or
manager is personally liable to the worker cooperative company for
the amount of the distribution that exceeds the amount that could
have been distributed without the violation of Section 17804.05.
(b) To the extent the operating agreement of a member-managed
worker cooperative company expressly relieves a member of the
authority and responsibility to consent to distributions and imposes
that authority and responsibility on one or more other members, the
liability stated in subdivision (a) applies to the other members and
not the member that the operating agreement relieves of authority and
responsibility.
(c) A person that receives a distribution knowing that the
distribution to that person was made in violation of Section 17804.05
is personally liable to the worker cooperative company but only to
the extent that the distribution received by the person exceeded the
amount that could have been properly paid under Section 17804.05.
(d) A person against which an action is commenced because the
person is liable under subdivision (a) may do all of the following:
(1) Implead any other person that is subject to liability under
subdivision (a) and seek to compel contribution from the person.
(2) Implead any person that received a distribution in violation
of subdivision (c) and seek to compel contribution from the person in
the amount the person received in violation of subdivision (c).
(e) An action under this section is barred if not commenced within
four years after the distribution.
17804.07. (a) A worker cooperative company is a member-managed
worker cooperative company unless the articles of organization and
the operating agreement do either of the following:
(1) Expressly provide that:
(A) The worker cooperative company is or will be "manager-managed."
(B) The worker cooperative company is or will be "managed by
managers."
(C) Management of the worker cooperative company is or will be
"vested in managers."
(2) Include words of similar import.
(b) In a member-managed worker cooperative company, the following
rules apply:
(1) The management and conduct of the worker cooperative company
are vested in the worker-members, unless provided otherwise in the
articles or operating agreement.
(2) Except as provided in subdivision (r), each worker-member has
equal rights in the management and conduct of the worker cooperative
company's activities including equal voting rights.
(3) A difference arising among members as to a matter in the
ordinary course of the activities of the worker cooperative company
shall be decided by a majority of the worker-members of the worker
cooperative company which the difference among the members has
arisen.
(4) An act outside the ordinary course of the activities of the
worker cooperative company may be undertaken only with the consent of
two-thirds of the worker-member class, or if the articles or
operating agreement permit other classes voting rights on a decision
subject to this paragraph, two-thirds of the members eligible to
vote.
(c) In a manager-managed worker cooperative company, the following
rules apply:
(1) Except as otherwise expressly provided in this division, any
matter relating to the activities of the worker cooperative company
is decided exclusively by the managers.
(2) Each manager has equal rights in the management and conduct of
the activities of the worker cooperative company.
(3) A difference arising among managers as to a matter in the
ordinary course of the activities of the worker cooperative company
may be decided by a majority of the managers of the worker
cooperative company.
(4) Subject to subdivision (r), the consent of two-thirds of the
worker-member class of the worker cooperative company is required to
do any of the following:
(A) Sell, lease, exchange, or otherwise dispose of all, or
substantially all, of the worker cooperative company's property, with
or without the goodwill, outside the ordinary course of the worker
cooperative company's activities.
(B) Approve a merger or conversion under Article 9 (commencing
with Section 17809.01).
(C) Undertake any other act outside the ordinary course of the
worker cooperative company's activities.
(D) Amend the operating agreement.
(5) A manager may be chosen at any time by the consent of a
majority of the worker-members and remains a manager until a
successor has been chosen, unless the manager at an earlier time
resigns, is removed, or dies, or, in the case of a manager that is
not an individual, terminates. A manager may be removed at any time
by the consent of a majority of the worker-members without notice or
cause.
(6) A person need not be a member to be a manager, but the
dissociation of a member that is also a manager removes the person as
a manager. If a person that is both a manager and a member ceases to
be a manager, that cessation does not by itself dissociate the
person as a member.
(7) A person's ceasing to be a manager does not discharge any
debt, obligation, or other liability to the worker cooperative
company or members which the person incurred while a manager.
(d) The dissolution of a worker cooperative company does not
affect the applicability of this section. However, a person that
wrongfully causes dissolution of the worker cooperative company loses
the right to participate in management as a member and a manager.
(e) This division does not entitle a member to remuneration for
services performed for a member-managed worker cooperative company,
except for reasonable compensation for services rendered in winding
up the activities of a worker cooperative company.
(f) (1) A worker cooperative company shall hold an annual
membership meeting and may hold any other meetings as frequently as
decided by the worker-member class and reflected in the articles or
operating agreement.
(2) Meetings of members may be held at any place, by electronic
video screen communication or by electronic transmission by and to
the worker cooperative company pursuant to paragraphs (1) and (2) of
subdivision (i) of Section 17801.02, either within or without this
state, selected by the person or persons calling the meeting or as
may be stated in or fixed in accordance with the articles of
organization or a written operating agreement. If no other place is
stated or so fixed, all meetings shall be held at the principal
office of the worker cooperative company. Unless prohibited by the
articles of organization of the worker cooperative company, if
authorized by the operating agreement, members not physically present
in person or by proxy at a meeting of members may, by electronic
transmission by and to the worker cooperative company pursuant to
paragraphs (1) and (2) of subdivision (i) of Section 17801.02 or by
electronic video screen communication, participate in a meeting of
members, be deemed present in person or by proxy, and vote at a
meeting of members whether that meeting is to be held at a designated
place or in whole or in part by means of electronic transmission by
and to the worker cooperative company or by electronic video screen
communication, in accordance with subdivision (l).
(g) A meeting of the members may be called by any manager or by
any worker member unless the articles or operating agreement provide
otherwise.
(h) (1) Whenever worker-members are required or permitted to take
any action at a meeting, a written notice of the meeting shall be
given not less than 48 hours nor more than 60 days before the date of
the meeting to each member entitled to vote at the meeting. Whenever
nonworker members are required or permitted to take any action at a
meeting, a written notice of the meeting shall be given not less than
10 days nor more than 60 days before the date of the meeting to each
member entitled to vote at the meeting. The notice shall state the
place, date, and hour of the meeting, the means of electronic
transmission by and to the worker cooperative company or electronic
video screen communication, if any, and the general nature of the
business to be transacted. No other business may be transacted at
that meeting.
(2) Any report or any notice of a members' meeting shall be given
personally, by electronic transmission by the worker cooperative
company, or by mail or other means of written communication,
addressed to the member at the address of the member appearing on the
books of the worker cooperative company or given by the member to
the worker cooperative company for the purpose of notice, or, if no
address appears or is given, at the place where the principal office
of the worker cooperative company is located or by publication at
least once in a newspaper of general circulation in the county in
which the principal office is located. The notice or report shall be
deemed to have been given at the time when delivered personally,
delivered by electronic transmission by the worker cooperative
company, deposited in the mail, or sent by other means of written
communication. An affidavit of mailing or delivered by electronic
transmission by the worker cooperative company of any notice or
report in accordance with this article, executed by a manager, shall
be prima facie evidence of the giving of the notice or report.
(3) If any notice or report addressed to the member at the address
of the member appearing on the books of the worker cooperative
company is returned to the worker cooperative company by the United
States Postal Service marked to indicate that the United States
Postal Service is unable to deliver the notice or report to the
member at the address, all future notices or reports shall be deemed
to have been duly given without further mailing if they are available
for the member at the principal office of the worker cooperative
company for a period of one year from the date of the giving of the
notice or report to all other members.
(4) Notice given by electronic transmission by the worker
cooperative company under this subdivision shall be valid only if it
complies with paragraph (1) of subdivision (i) of Section 17801.02.
Notwithstanding this condition, notice shall not be given by
electronic transmission by the worker cooperative company under this
subdivision after either of the following has occurred:
(A) The worker cooperative company is unable to deliver two
consecutive notices to the member by that means.
(B) The inability to so deliver the notices to the member becomes
known to the secretary, any assistant secretary, the transfer agent,
or any other person responsible for the giving of the notice.
(5) Upon written request to a manager by any person entitled to
call a meeting of members, the manager shall immediately cause notice
to be given to the members entitled to vote that a meeting will be
held at a time requested by the person calling the meeting, not less
than 48 hours nor more than 60 days after the receipt of the request
if the meeting involves only the worker-member class or not less than
10 days nor more than 60 days after the receipt of the request if
the meeting involves classes other than the worker-member class. If
the notice is not given within 20 days after receipt of the request,
the person entitled to call the meeting may give the notice or, upon
the application of that person, the superior court of the county in
which the principal office of the worker cooperative company is
located, or if the principal office is not in this state, the county
in which the worker cooperative company's address in this state is
located, shall summarily order the giving of the notice, after notice
to the worker cooperative company affording it an opportunity to be
heard. The procedure provided in subdivision (c) of Section 305 shall
apply to the application. The court may issue any order as may be
appropriate, including, without limitation, an order designating the
time and place of the meeting, the record date for determination of
members entitled to vote, and the form of notice.
(i) When a members' meeting is adjourned to another time or place,
unless the articles of organization or a written operating agreement
otherwise require and except as provided in this subdivision, notice
need not be given of the adjourned meeting if the time and place
thereof or the means of electronic transmission by and to the worker
cooperative company or electronic video screen communication, if any,
are announced at the meeting at which the adjournment is taken. At
the adjourned meeting, the worker cooperative company may transact
any business that may have been transacted at the original meeting.
If the adjournment is for more than 45 days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each member of
record entitled to vote at the meeting.
(j) The actions taken at any meeting of members, however called
and noticed, and wherever held, have the same validity as if taken at
a meeting duly held after regular call and notice, if a quorum is
present either in person or by proxy, and if, either before or after
the meeting, each of the members entitled to vote, not present in
person or by proxy, provides a waiver of notice or consents to the
holding of the meeting or approves the minutes of the meeting in
writing. All waivers, consents, and approvals shall be filed with the
worker cooperative company records or made a part of the minutes of
the meeting after conversion to the form in
which those records or minutes are kept.
Attendance of a person at a meeting shall constitute a waiver of
notice of the meeting, except when the person objects, at the
beginning of the meeting, to the transaction of any business because
the meeting is not lawfully called or convened. Attendance at a
meeting is not a waiver of any right to object to the consideration
of matters required by this division to be included in the notice but
not so included, if the objection is expressly made at the meeting.
Neither the business to be transacted nor the purpose of any meeting
of members need be specified in any written waiver of notice, unless
otherwise provided in the articles of organization or operating
agreement, except as provided in subdivision (l).
(k) Members may participate in a meeting of the worker cooperative
company through the use of conference telephones or electronic video
screen communication, as long as all members participating in the
meeting can hear one another, or by electronic transmission by and to
the worker cooperative company pursuant to paragraphs (1) and (2) of
subdivision (i) of Section 17801.02. Participation in a meeting
pursuant to this provision constitutes presence in person at that
meeting.
(l) Any action approved at a meeting, other than by unanimous
approval of those entitled to vote, shall be valid only if the
general nature of the proposal so approved was stated in the notice
of meeting or in any written waiver of notice.
(m) (1) At least 20 percent of the worker-members represented in
person or by proxy shall constitute a quorum at a meeting of
worker-members, unless otherwise provided in the articles or
operating agreement. If a worker cooperative company is authorized to
conduct a meeting with a quorum of less than 51 percent of the
worker-members, matters that may be voted upon at such meeting shall
be listed in the notice of the meeting. At least 20 percent of all
members represented in person or by proxy shall constitute a quorum
at a meeting of all of the members, unless otherwise provided in the
articles or operating agreement. If a worker cooperative company is
authorized to conduct a meeting with a quorum of less than 51 percent
of the entire membership, matters that may be voted upon at the
meeting shall be listed in the notice of the meeting.
(2) The members present at a duly called or held meeting at which
a quorum is present may continue to transact business until
adjournment, notwithstanding the loss of a quorum, if any action
taken after loss of a quorum, other than adjournment, is approved by
the requisite percentage of interests of members specified in this
division or in the articles of organization or a written operating
agreement.
(3) In the absence of a quorum, any meeting of members may be
adjourned from time to time by the vote of a majority of the
interests represented either in person or by proxy, but no other
business may be transacted, except as provided in paragraph (2).
(n) (1) Any action that may be taken at any meeting of the members
may be taken without a meeting if a consent in writing, setting
forth the action so taken, is signed and delivered to the worker
cooperative company within 60 days of the record date for that action
by members having not less than the minimum number of votes that
would be necessary to authorize or take that action at a meeting at
which all members entitled to vote thereon were present and voted.
(2) Unless the consents of all members entitled to vote have been
solicited in writing, (A) notice of any member approval of an
amendment to the articles of organization or operating agreement, a
dissolution of the worker cooperative company as provided in Section
17807.01, or a merger of the worker cooperative company as provided
in Section 17809.10, without a meeting by less than unanimous written
consent shall be given at least 10 days before the consummation of
the action authorized by the approval, and (B) prompt notice shall be
given of the taking of any other action approved by members without
a meeting by less than unanimous written consent, to those members
entitled to vote who have not consented in writing.
(3) Any member giving a written consent, or the member's
proxyholder, may revoke the consent personally or by proxy by a
writing received by the worker cooperative company prior to the time
that written consents of members having the minimum number of votes
that would be required to authorize the proposed action have been
filed with the worker cooperative company, but may not do so
thereafter. This revocation is effective upon its receipt at the
office of the worker cooperative company required to be maintained
pursuant to Section 17801.13.
(o) The use of proxies in connection with this section shall be
governed in the same manner as in the case of corporations formed
under the General Corporation Law, Division 1 (commencing with
Section 100) of Title 1.
(p) In order that the worker cooperative company may determine the
members of record entitled to notices of any meeting or to vote, or
entitled to receive any distribution or to exercise any rights in
respect of any other lawful action, a manager, or members
representing more than 10 percent of the interests of members, may
fix, in advance, a record date, that is not more than 60 days nor
less than 10 days prior to the date of the meeting and not more than
60 days prior to any other action. If no record date is fixed the
following shall apply:
(1) The record date for determining members entitled to notice of
or to vote at a meeting of members shall be at the close of business
on the business day next preceding the day on which notice is given
or, if notice is waived, at the close of business on the business day
next preceding the day on which the meeting is held.
(2) The record date for determining members entitled to give
consent to worker cooperative company action in writing without a
meeting shall be the day on which the first written consent is given.
(3) The record date for determining members for any other purpose
shall be at the close of business on the day on which the managers
adopt the resolution relating thereto, or the 60th day prior to the
date of the other action, whichever is later.
(4) The determination of members of record entitled to notice of
or to vote at a meeting of members shall apply to any adjournment of
the meeting unless a manager or the members who called the meeting
fix a new record date for the adjourned meeting, but the manager or
the members who called the meeting shall fix a new record date if the
meeting is adjourned for more than 45 days from the date set for the
original meeting.
(q) A meeting of the members may be conducted, in whole or in
part, by electronic transmission by and to the worker cooperative
company or by electronic video screen communication if both of the
following requirements are met:
(1) The worker cooperative company implements reasonable measures
to provide members, in person or by proxy, a reasonable opportunity
to participate in the meeting and to vote on matters submitted to the
members, including an opportunity to read or hear the proceedings of
the meeting substantially concurrently with those proceedings.
(2) When any member votes or takes other action at the meeting by
means of electronic transmission to the worker cooperative company or
electronic video screen communication, a record of that vote or
action shall be maintained by the worker cooperative company.
(r) Voting by membership class is always permitted, but the
articles of organization or a written operating agreement may provide
to all or certain identified members of a specified class or group
of members the right to vote separately or with all or any class or
group of members on any matter. Voting by membership class shall be
on a one member, one vote basis. If no voting provision is contained
in the articles of organization or written operating agreement, each
of the following shall apply:
(1) Any amendment to the articles of organization or operating
agreement shall require a two-thirds majority of the worker-member
class.
(2) In all other matters in which a vote is required, except as
otherwise provided in this division, a vote of a majority of the
worker-members shall be sufficient.
(s) Notwithstanding any provision to the contrary in the articles
or operating agreement, in no event shall the articles of
organization be amended by a vote of less than a two-thirds vote of
the worker-members.
(t) Notwithstanding any provision to the contrary in the articles
or operating agreement and subject to subdivision (r), worker-members
shall have the right to vote on a dissolution of the worker
cooperative company as provided in subdivision (b) of Section
17807.01 and on a merger of the worker cooperative company as
provided in Section 17809.12.
(u) A written operating agreement may provide for the appointment
of officers, including, but not limited to, a chairperson or a
president, or both a chairperson and a president, a secretary, a
chief financial officer, and any other officers with the titles,
powers, and duties as shall be specified in the articles of
organization or operating agreement or as determined by the managers
or members. An officer may, but does not need to, be a member or
manager of the worker cooperative company, and any number of offices
may be held by the same person.
(v) Officers, if any, shall be appointed in accordance with the
written operating agreement or, if no such provision is made in the
operating agreement, any officers shall be appointed by the managers
and shall serve at the pleasure of the managers, subject to the
rights, if any, of an officer under any contract of employment. Any
officer may resign at any time upon written notice to the worker
cooperative company without prejudice to the rights, if any, of the
worker cooperative under any contract to which the officer is a
party.
(w) Subject to the provisions of the articles of organization, any
note, mortgage, evidence of indebtedness, contract, certificate,
statement, conveyance, or other instrument in writing, and any
assignment or endorsement thereof, executed or entered into between
any worker cooperative company and any other person, when signed by
the chairperson of the board, the president, or any vice president
and any secretary, any assistant secretary, the chief financial
officer, or any assistant treasurer of the worker cooperative
company, is not invalidated as to the worker cooperative company by
any lack of authority of the signing officers in the absence of
actual knowledge on the part of the other person that the signing
officers had no authority to execute the same.
17804.08. (a) A worker cooperative company shall reimburse for
any payment made and indemnify for any debt, obligation, or other
liability incurred by a member of a member-managed worker cooperative
company or the manager of a manager-managed worker cooperative
company in the course of the member's or manager's activities on
behalf of the worker cooperative company, if, in making the payment
or incurring the debt, obligation, or other liability, the member or
manager complied with the duties stated in Section 17804.09.
(b) A worker cooperative company may purchase and maintain
insurance on behalf of a member or manager of the worker cooperative
company against liability asserted against or incurred by the member
or manager in that capacity or arising from that status even if,
under subdivision (g) of Section 17801.10, the operating agreement
could not eliminate or limit the person's liability to the worker
cooperative company for the conduct giving rise to the liability.
17804.09. (a) The fiduciary duties that a member owes to a
member-managed worker cooperative company and the other members of
the worker cooperative company are the duties of loyalty and care
under subdivisions (b) and (c).
(b) A member's duty of loyalty to a worker cooperative company and
the other members is limited to the following:
(1) To account to a worker cooperative company and hold as trustee
for it any property, profit, or benefit derived by the member in the
conduct and winding up of the activities of a worker cooperative
company or derived from a use by the member of a worker cooperative
company property, including the appropriation of a worker cooperative
company opportunity.
(2) To refrain from dealing with a worker cooperative company in
the conduct or winding up of the activities of a worker cooperative
company as or on behalf of a party having an interest adverse to a
worker cooperative company.
(3) To refrain from competing with a worker cooperative company in
the conduct or winding up of the activities of the worker
cooperative company.
(c) A member's duty of care to a worker cooperative company and
the other members in the conduct and winding up of the activities of
the worker cooperative company is limited to refraining from engaging
in grossly negligent or reckless conduct, intentional misconduct, or
a knowing violation of law.
(d) A member shall discharge the duties to a worker cooperative
company and the other members under this division or under the
operating agreement and exercise any rights consistent with the
obligation of good faith and fair dealing.
(e) A member does not violate a duty or obligation under this
article or under the operating agreement merely because the member's
conduct furthers the member's own interest.
(f) In a manager-managed worker cooperative company, all of the
following rules apply:
(1) Subdivisions (a), (b), (c), and (e) apply to the manager or
managers and not the members.
(2) Subdivision (d) applies to the members and managers.
(3) Except as otherwise provided, a member does not have any
fiduciary duty to the worker cooperative company or to any other
member solely by reason of being a member.
17804.10. (a) Upon the request of a member or holder of a
transferable interest, for purposes reasonably related to the
interest of that person as a member or a holder of a transferable
interest, a manager or, if the worker cooperative company is
member-managed, a member in possession of the requested information,
shall promptly deliver, in writing, to the member or holder of a
transferable interest, at the expense of the worker cooperative
company, a copy of the information required to be maintained by
paragraphs (1), (2), and (4) of subdivision (d) of Section 17801.13,
and any written operating agreement of the worker cooperative
company.
(b) Each member, manager, and holder of a transferable interest
has the right, upon reasonable request, for purposes reasonably
related to the interest of that person as a member, manager, or
holder of a transferable interest, to each of the following:
(1) To inspect and copy during normal business hours any of the
records required to be maintained pursuant to Section 17801.13.
(2) To obtain in writing from the worker cooperative company,
promptly after becoming available, a copy of the worker cooperative
company's federal, state, and local income tax returns for each year.
(c) In the case of a worker cooperative company with more than 35
members, each of the following shall apply:
(1) A manager shall cause an annual report to be sent to each of
the members not later than 120 days after the close of the fiscal
year. The report, which may be sent by electronic transmission by the
worker cooperative company (paragraph (1) of subdivision (i) of
Section 17801.02) shall contain a balance sheet as of the end of the
fiscal year and an income statement and a statement of cashflows for
the fiscal year.
(2) Members representing at least 5 percent of the voting
interests of members, or three or more members, may make a written
request to a manager for an income statement of the worker
cooperative company for the initial three-month, six-month, or
nine-month period of the current fiscal year ending more than 30 days
prior to the date of the request, and a balance sheet of the worker
cooperative company as of the end of that period. The statement shall
be delivered or mailed to the members within 30 days thereafter.
(3) The financial statements referred to in this section shall be
accompanied by the report thereon, if any, of the independent
accountants engaged by the worker cooperative company or, if there is
no report, the certificate of the manager of the worker cooperative
company that the financial statements were prepared without audit
from the books and records of the worker cooperative company.
(d) A manager shall promptly furnish to a member a copy of any
amendment to the articles of organization or operating agreement
executed by a manager pursuant to a power of attorney from the
member. The articles of organization or operating agreement may be
sent by electronic transmission by the worker cooperative company.
(e) The worker cooperative company shall send or cause information
to be sent in writing to each member or holder of a transferable
interest within 90 days after the end of each taxable year the
information necessary to complete federal and state income tax or
information returns and, in the case of a worker cooperative company
with 35 or fewer members, a copy of the worker cooperative company's
federal, state, and local income tax or information returns for the
year.
(f) In addition to the remedies provided in Sections 17812.06 and
17812.07 and any other remedies, a court of competent jurisdiction
may enforce the duty of making and mailing or delivering the
information and financial statements required by this section and,
for good cause shown, extend the time therefor.
(g) In any action under this section or under Section 17812.07, if
the court finds the failure of the worker cooperative company to
comply with the requirements of this section is without
justification, the court may award an amount sufficient to reimburse
the person bringing the action for the reasonable expenses incurred
by that person, including attorney's fees, in connection with the
action or proceeding.
(h) Any waiver of the rights provided in this section shall be
unenforceable.
(i) Any request, inspection, or copying by a member or holder of a
transferable interest may be made by that person or by that person's
agent or attorney.
(j) Upon complaint that a worker cooperative company is failing to
comply with the provisions of this section, or to afford to the
members rights given to them in the articles of organization or
operating agreement, the Attorney General may, in the name of the
people of the State of California, send to the office required to be
maintained pursuant to Section 17801.13, notice of the complaint.
(k) If the answer of the worker cooperative company is not
received within 30 days of the date the notice was transmitted, or if
the answer is not satisfactory, and if the enforcement of the rights
of the aggrieved persons by private civil action, by class action,
or otherwise, would be so burdensome or expensive as to be
impracticable, the Attorney General may institute, maintain, or
intervene in any court of competent jurisdiction or before any
administrative agency for relief by way of injunction, the
dissolution of entities, the appointment of receivers, or any other
temporary, preliminary, provisional, or final remedies as may be
appropriate to protect the rights of members or to restore the
position of the members for the failure to comply with the
requirements of Section 17801.13 or the articles of organization or
the operating agreement. In any action, suit, or proceeding, there
may be joined as parties all persons and entities responsible for or
affected by the activity.
Article 5. Transferable Interests and Rights of Transferees
and Creditors
17805.01. A transferable interest is personal property.
17805.02. (a) With respect to a transfer, in whole or in part, of
a transferable interest, all of the following apply:
(1) A transfer is permissible.
(2) A transfer does not by itself cause a member's dissociation or
a dissolution and winding up of the activities of a worker
cooperative company.
(3) Subject to Section 17805.04, a transfer does not entitle the
transferee to do any of the following:
(A) Participate in the management or conduct of the activities of
a worker cooperative company.
(B) Except as otherwise provided in subdivision (c), have access
to records or other information concerning the activities of a worker
cooperative company.
(b) (1) A member's interest other than the member's financial
rights in the cooperative is not transferable.
(2) The terms of any restriction on the transferability of
financial rights shall be set forth in the articles or operating
agreement, and conspicuously noted on any certificates evidencing a
member's interest.
(3) A transferee of a member's financial rights, to the extent
the rights are transferred, has the right to share in the allocation
of profits or losses and to receive the distributions to the member
transferring the interest to the same extent as the transferring
member. However, unless the worker cooperative company decides
otherwise, a transferee does not have the right to become a patron of
the worker cooperative company simply by virtue of having received
the member's financial rights.
(4) A transferee of a member's financial rights does not become a
member upon transfer of the rights unless the transferee is admitted
as a member by the worker cooperative company.
(5) A worker cooperative company need not give effect to a
transfer under this section until the cooperative has notice of the
transfer.
(6) A transfer of a member's financial rights in violation of a
restriction on transfer contained in the articles or operating
agreement is ineffective as to a person having notice of the
restriction at the time of transfer.
(7) A transferee has the right to receive, in accordance with the
transfer, distributions to which the transferor would otherwise be
entitled; provided, however, that the pledge or granting of a
security interest, lien, or other encumbrance in or against any or
all of the transferable interest of a transferor shall not cause the
transferor to cease to be a member or grant to the transferee or to
anyone else the power to exercise any rights or powers of a member,
including, without limitation, the right to receive distributions to
which the member is entitled.
(c) In a dissolution and winding up of a worker cooperative
company, a transferee is entitled to an account of the worker
cooperative company's transactions only from the date of dissolution.
(d) A transferable interest may be evidenced by a certificate of
the interest issued by the worker cooperative company in a record,
and, subject to this article, the interest represented by the
certificate may be transferred by a transfer of the certificate.
(e) A worker cooperative company need not give effect to a
transferee's rights under this section until the worker cooperative
company has notice of the transfer.
(f) A transfer of a transferable interest in violation of a
restriction on transfer contained in the operating agreement is
ineffective as to a person having notice of the restriction at the
time of transfer.
(g) Except as otherwise provided in subdivision (b) of this
section and paragraph (2) of subdivision (d) of Section 17806.02,
when a member transfers a transferable interest, the transferor
retains the rights of a member, other than the interest in
distributions transferred, and retains all duties and obligations of
a member.
(h) When a member transfers a transferable interest to a person
that becomes a member with respect to the transferred interest, the
transferee is liable for the member's obligations under Section
17804.03 and subdivision (c) of Section 17804.06 known to the
transferee when the transferee becomes a member.
17805.03. (a) On application by a judgment creditor of a member
or transferee, a court may enter a charging order against the
transferable interest of the judgment debtor for the unsatisfied
amount of the judgment. A charging order constitutes a lien on a
judgment debtor's transferable interest and requires the worker
cooperative company to pay over to the person to which the charging
order was issued any distribution that would otherwise be paid to the
judgment debtor.
(b) To the extent necessary to effectuate the collection of
distributions pursuant to a charging order in effect under
subdivision (a), the court may do any of the following:
(1) Appoint a receiver of the distributions subject to the
charging order, with the power to make all inquiries the judgment
debtor might have made.
(2) Make all other orders necessary to give effect to the charging
order.
(3) Upon a showing that distributions under a charging order will
not pay the judgment debt within a reasonable time, foreclose the
lien and order the sale of the transferable interest. The purchaser
at the foreclosure sale obtains only the transferable interest, does
not thereby become a member, and is subject to Section 17805.02.
(c) At any time before foreclosure under paragraph (3) of
subdivision (b), the member or transferee whose transferable interest
is subject to a charging order under subdivision (a) may extinguish
the charging order by satisfying the judgment and filing a certified
copy of the satisfaction with the court that issued the charging
order.
(d) At any time before foreclosure under paragraph (3) of
subdivision (b), a worker cooperative company or one or more members
whose transferable interests are not subject to the charging order
may pay to the judgment creditor the full amount due under the
judgment and thereby succeed to the rights of the judgment creditor,
including the charging order.
(e) This division does not deprive any member or transferee of the
benefit of any exemption laws applicable to the member's or
transferee's transferable interest.
(f) This section provides the exclusive remedy by which a person
seeking to enforce a judgment against a member or transferee may, in
the capacity of judgment creditor, satisfy the judgment from the
judgment debtor's transferable interest.
17805.04. If a member dies, the deceased member's personal
representative or other legal representative may exercise the rights
of a transferee provided in Section 17805.02 and, for the purposes of
settling the estate, the rights of a current member under Section
17804.10.
Article 6. Member's Dissociation
17806.01. (a) A person has the power to dissociate as a member at
any time, rightfully or wrongfully, by withdrawing as a member by
express will pursuant to subdivision (a) of Section 17806.02.
(b) A person's dissociation from a worker cooperative company is
wrongful only if either of the following apply to the dissociation:
(1) The dissociation is in breach of an express provision of the
operating agreement.
(2) The dissociation occurs before the termination of the worker
cooperative company and any of the following:
(A) The person withdraws as a member by express will.
(B) The person is expelled as a member by judicial order under
subdivision (e) of Section 17806.02.
(C) The person is dissociated under subdivision (g) of Section
17806.02 by becoming a debtor in bankruptcy.
(D) In the case of a person that is not a trust other than a
business trust, an estate, or an individual, the person is expelled
or otherwise dissociated as a member because it dissolved or
terminated.
(c) A person that wrongfully dissociates as a member is liable to
the worker cooperative company and to the other members for any
damages caused by the dissociation. The liability is in addition to
any other debt, obligation, or other liability of the member to the
worker cooperative company or the other members.
17806.02. A person is dissociated as a member from a worker
cooperative company when any of the following occur:
(a) The worker cooperative company has notice of the person's
express will to withdraw as a member, but, if the person specified a
withdrawal date later than the date the worker cooperative company
had notice, on that later date.
(b) An event stated in the operating agreement as causing the
person's dissociation to occur.
(c) The person is expelled as a member pursuant to the operating
agreement.
(d) The person is expelled as a member by the unanimous consent of
the other members because any of the following applies:
(1) It is unlawful to carry on the worker cooperative company's
activities with the person as a member.
(2) There has been a transfer of all of the person's transferable
interest in the worker cooperative company, other than either of the
following:
(A) A transfer for security purposes.
(B) A charging order in effect under Section 17805.03 that has not
been foreclosed.
(3) The person is a corporation and, within 90 days after the
worker cooperative company notifies the person that it will be
expelled as a member because the person has filed a certificate of
dissolution or the equivalent, its charter has been revoked, or its
right to conduct business has been suspended by the jurisdiction of
its incorporation and the certificate of dissolution has not been
revoked or its charter or right to conduct business has not been
reinstated.
(4) The person is a worker cooperative company or partnership that
has been dissolved and whose business is being wound up.
(e) On application by the worker cooperative company, the person
is expelled as a member by judicial order because the person has done
any of the following:
(1) Engaged, or is engaging, in wrongful conduct that has
adversely and materially affected, or will adversely and materially
affect, the worker cooperative company's activities.
(2) Willfully or persistently committed, or is willfully and
persistently committing, a material breach of the operating agreement
or the person's duties or obligations under Section 17804.09.
(3) Engaged, or is engaging, in conduct relating to the worker
cooperative company's activities that makes it not reasonably
practicable to carry on the activities with the person as a member.
(f) In the case of a person who is an individual, if either of the
following applies:
(1) The person dies.
(2) In a member-managed worker cooperative company if either of
the following applies:
(A) A guardian or general conservator for the person is appointed.
(B) There is a judicial order that the person has otherwise become
incapable of performing the person's duties as a member under this
division or the operating agreement.
(g) In a member-managed worker cooperative company, the person
becomes a debtor in bankruptcy.
(h) In the case of a person that is a trust or is acting as a
member by virtue of being a trustee of a trust, the trust's entire
transferable interest in the worker cooperative company is
distributed but not solely by reason of a substitution of a successor
trustee.
(i) In the case of a person that is an estate or is acting as a
member by virtue of being a personal representative of an estate, the
estate's entire transferable interest in the worker cooperative
company is distributed but not solely by reason of a substitution of
a successor personal representative.
(j) In the case of a member that is not an individual,
partnership, worker cooperative company, corporation, trust, or
estate, the termination of the member.
(k) The worker cooperative company participates in a merger under
Article 9 (commencing with Section 17809.01), and either of the
following applies:
(1) The worker cooperative company is not the surviving entity.
(2) Otherwise as a result of the merger, the person ceases to be a
member.
(l) The worker cooperative company terminates.
17806.03. (a) When a person is dissociated as a member of a
worker cooperative company all of the following apply:
(1) The person's right to participate as a member in the
management and conduct of the worker cooperative company's activities
terminates.
(2) If the worker cooperative company is member-managed, the
person' s fiduciary duties as a member end with regard to matters
arising and events occurring after the person's dissociation.
(3) Subject to Section 17805.04 and Article 9 (commencing with
Section 17809.01), any transferable interest owned by the person
immediately before dissociation in the person's capacity as a member
is owned by the person solely as a transferee.
(b) A person's dissociation as a member of a worker cooperative
company does not of itself discharge the person from any debt,
obligation, or other liability to the worker cooperative company or
the other members that the person incurred while a member.
Article 7. Dissolution and Winding Up
17807.01. A worker cooperative company is dissolved, and its
activities shall be wound up, upon the happening of the first to
occur of the following:
(a) On the happening of an event set forth in a written operating
agreement or the articles of organization.
(b) Subject to subdivision (r) of Section 17804.07, by the vote of
a two-thirds majority of the worker-members of the worker
cooperative company or a greater percentage of the voting interests
of members as may be specified in the articles of organization, or a
written operating agreement.
(c) The passage of 90 consecutive days during which the worker
cooperative company has no members, except on the death of a natural
person who is the sole member of a worker cooperative company, the
status of the member, including a membership interest, may pass to
the heirs, successors, and assigns of the member by will or
applicable law. The heir, successor, or assign of the member's
interest becomes a substituted member pursuant to subdivision (d) of
Section 17804.01, subject to administration as provided by applicable
law, without the permission or consent of the heirs, successors, or
assigns or, those administering the estate of the deceased member.
(d) Entry of a decree of judicial dissolution pursuant to Section
17807.03.
17807.02. (a) Notwithstanding any other provision of this
division, if a domestic worker cooperative company has not conducted
any business, only a majority of the members, or, if there are no
members, the majority of the managers, if any, or if no members or
managers, the person or a majority of the persons signing the
articles of organization, may execute and acknowledge a certificate
of cancellation of articles of organization, on a form prescribed by
the Secretary of State, stating all of the following:
(1) The name of the domestic worker cooperative company and the
Secretary of State's file number.
(2) That the certificate of cancellation is being filed within 12
months from the date the articles of organization was filed.
(3) That the worker cooperative company does not have any debts or
other liabilities, except as provided in paragraph (4).
(4) That a final franchise tax return, as described by Section
23332 of the Revenue and Taxation Code, or a final annual tax return,
as described by Section 17947 of the Revenue and Taxation Code, has
been or will be filed with the Franchise Tax Board, as required under
Part 10.2 (commencing with Section 18401) of Division 2 of the
Revenue and Taxation Code.
(5) That the known assets of the worker cooperative company
remaining after payment of, or adequately providing for, known debts
and liabilities have been distributed to the persons entitled thereto
or that the worker cooperative company acquired no known assets, as
the case may be.
(6) That the worker cooperative company has not conducted any
business from the time of the filing of the articles of organization.
(7) That a majority of the managers or members voted, or, if no
managers or members, the person or a majority of the persons signing
the articles of organization, voted to dissolve the worker
cooperative company.
(8) If the worker cooperative company has received payments for
interests from investors, that those payments have been returned to
those investors.
(b) A certificate of cancellation executed and acknowledged
pursuant to subdivision (a) shall be filed with the Secretary of
State within 12 months from the date that the articles of
organization was filed. The Secretary of State shall notify the
Franchise Tax Board of the cancellation.
(c) Upon filing a certificate of cancellation pursuant to
subdivision (a), a worker cooperative company shall be canceled and
its powers, rights, and privileges shall cease.
17807.03. (a) Pursuant to an action filed by any manager or by
any member or members of a worker cooperative company, a court of
competent jurisdiction may decree the dissolution of a worker
cooperative company whenever any of the events specified in
subdivision (b) occurs.
(b) (1) It is not reasonably practicable to carry on the business
in conformity with the articles of organization or operating
agreement.
(2) Dissolution is reasonably necessary for the protection of the
rights or interests of the complaining members.
(3) The business of the worker cooperative company has been
abandoned.
(4) The management of the worker cooperative company is deadlocked
or subject to internal dissention.
(5) Those in control of the worker cooperative company have been
guilty of, or have knowingly countenanced persistent and pervasive
fraud, mismanagement, or abuse of authority.
(c) (1) In any suit for judicial dissolution, the other members
may avoid the dissolution of the worker cooperative company by
purchasing for cash the membership interests owned by the members so
initiating the proceeding, the "moving parties," at their fair market
value. In fixing the value, the amount of any damages resulting if
the initiation of the dissolution is a breach by any moving party or
parties of an agreement with the purchasing party or parties,
including, without limitation, the operating agreement, may be
deducted from the amount payable to the moving party or parties;
provided, that no member who sues for dissolution on the grounds set
forth in paragraph (3), (4), or (5) of subdivision (a) shall be
liable for damages for breach of contract in bringing that action.
(2) If the purchasing parties elect to purchase the membership
interests owned by the moving parties, are unable to agree with the
moving parties upon the fair market value of the membership
interests, and give bond with sufficient security to pay the
estimated reasonable expenses, including attorney's fees, of the
moving parties if the expenses are recoverable under paragraph (3),
the court, upon application of the purchasing parties, either in the
pending action or in a proceeding initiated in the superior court of
the proper county by the purchasing parties, shall stay the winding
up and dissolution proceeding and shall proceed to ascertain and fix
the fair market value of the membership interests owned by the moving
parties.
(3) The court shall appoint three disinterested appraisers to
appraise the fair market value of the membership interests owned by
the moving parties, and shall make an order referring the matter to
the appraisers so appointed for the purpose of ascertaining that
value. The order shall prescribe the time and manner of producing
evidence, if evidence is required. The award of the appraisers or a
majority of them, when confirmed by the court, shall be final and
conclusive upon all parties. The court shall enter a decree that
shall provide in the alternative for winding up and dissolution of
the worker cooperative company, unless payment is made for the
membership interests within the time specified by the decree. If the
purchasing parties do not make payment for the membership interests
within the time specified, judgment shall be entered against them and
the surety or sureties on the bond for the amount of the expenses,
including attorney's fees, of the moving parties. Any member
aggrieved by the action of the court may appeal therefrom.
(4) If the purchasing parties desire to prevent the winding up and
dissolution of the worker cooperative company, they shall pay to the
moving parties the value of their membership interests ascertained
and decreed within the time specified pursuant to this section, or,
in the case of an appeal, as fixed on appeal. On receiving that
payment or the tender of payment, the moving parties shall transfer
their membership interests to the purchasing parties.
(5) For the purposes of this section, the valuation date shall be
the date upon which the action for judicial dissolution was
commenced. However, the court may, upon the hearing of a motion by
any party, and for good cause shown, designate some other date as the
valuation date.
(6) A dismissal of any suit for judicial dissolution by a manager,
member, or members shall not affect the other members' rights to
avoid dissolution pursuant to this section.
17807.04. In the event of a dissolution of a worker cooperative
company all of the following apply:
(a) The managers who have not wrongfully dissolved the worker
cooperative company, or, if none, the members, or, if none, the
person or a majority of the persons signing the articles of
organization, may wind up the affairs of the worker cooperative
company, unless the dissolution occurs pursuant to Section 17807.03,
in which event the winding up shall be conducted in accordance with
the decree of dissolution. The persons winding up the affairs of the
worker cooperative company shall give written notice of the
commencement of winding up by mail to all known creditors and
claimants whose addresses appear on the records of the worker
cooperative company.
(b) Upon the petition of any manager or of any member or members,
or three or more creditors of a worker cooperative company, a court
of competent jurisdiction may enter a decree ordering the winding up
of the worker cooperative company, if that appears necessary for the
protection of any parties in interest. The decree shall designate the
managers or members, or if good cause is shown, another person or
persons, who are to wind up the affairs of the worker cooperative
company.
(c) Except as otherwise provided in the articles of organization
or a written operating agreement, the persons winding up the affairs
of the worker cooperative company pursuant to this section shall be
entitled to reasonable compensation.
17807.05. (a) Except as otherwise provided in the articles of
organization or the written operating agreement, after determining
that all the known debts and liabilities of a worker cooperative
company in the process of winding up, including, without limitation,
debts and liabilities to members who are creditors of the worker
cooperative company, have been paid or adequately provided for, the
remaining assets shall be distributed among the members according to
their respective rights and preferences as follows:
(1) To members in satisfaction of liabilities for distributions
pursuant to Sections 17804.04, 17804.05, and 17804.06.
(2) To members of the worker cooperative company for the return of
their contributions.
(3) To members in the proportions in which those members share in
distributions.
(b) If the winding up is by court proceeding or subject to court
supervision, the distribution shall not be made until after the
expiration of any period for the presentation of claims that has been
prescribed by order of the court.
(c) (1) The payment of a debt or liability, whether the
whereabouts of the creditor is known or unknown, has been adequately
provided for if the payment has been provided for by either of the
following means:
(A) Payment for the debt or liability has been assumed or
guaranteed in good faith by one or more financially responsible
persons or by the United States government or any agency of the
United States government, and the provision, including the financial
responsibility of the person, was determined in good faith and with
reasonable care by the members or managers of the worker cooperative
company to be adequate at the time of any distribution of the assets
pursuant to this section.
(B) The amount of the debt or liability has been deposited as
provided in Section 2008 of the General Corporation Law.
(2) This subdivision shall not prescribe the exclusive means of
making adequate provision for debts and liabilities.
17807.06. (a) A worker cooperative company that is dissolved
nevertheless continues to exist for the purpose of winding up its
affairs, prosecuting and defending actions by or against it in order
to collect and discharge obligations, disposing of and conveying its
property, and collecting and dividing its assets. A worker
cooperative company shall not continue business except so far as
necessary for its winding up.
(b) No action or proceeding to which a worker cooperative company
is a party abates by the dissolution of the worker cooperative
company or by reason of proceedings for its winding up and
dissolution.
(c) Any assets inadvertently or otherwise omitted from the winding
up continue in the dissolved worker cooperative company for the
benefit of the persons entitled to those assets upon dissolution and
on realization shall be distributed accordingly.
(d) After dissolution of the worker cooperative company, the
worker cooperative company is bound by both of the following:
(1) The act of a person authorized to wind up the affairs of the
worker cooperative company, if the act is appropriate for winding up
the activities of the worker cooperative company.
(2) The act of a person authorized to act on behalf of the worker
cooperative company, if the act would have bound the worker
cooperative company before dissolution, if the other party to the
transaction did not have notice of the dissolution.
17807.07. (a) (1) Causes of action against a dissolved worker
cooperative company, whether arising before or after the dissolution
of the worker cooperative company, may be enforced against any of the
following:
(A) Against the dissolved worker cooperative company to the extent
of its undistributed assets, including, without limitation, any
insurance assets held by the worker cooperative company that may be
available to satisfy claims.
(B) If any of the assets of the dissolved worker cooperative
company have been distributed to members, against members of the
dissolved worker cooperative company to the extent of the worker
cooperative company assets distributed to them upon dissolution of
the worker cooperative company.
Any member compelled to return distributed assets in an amount
that exceeds the sum of the member's pro rata share of the claim and
the amount for which the member could otherwise be held liable under
Section 17804.05 or 17804.06 may seek contribution for the excess
from any other member or manager, up to the sum of that other person'
s pro rata share of the claim and that other person's liabilities
under Section 17804.05 or 17804.06.
(2) Except as set forth in subdivision (c), all causes of action
against a member of a dissolved worker cooperative company arising
under this section are extinguished unless the claimant commences a
proceeding to enforce the cause of action against that member of a
dissolved worker cooperative company prior to the earlier of the
following:
(A) The expiration of the statute of limitations applicable to the
cause of action.
(B) Four years after the effective date of the dissolution of the
worker cooperative company.
(3) As a matter of procedure only, and not for purposes of
determining liability, members of the dissolved worker cooperative
company may be sued in the name of the worker cooperative company
upon any cause of action against the worker cooperative company. This
section does not affect the rights of the worker cooperative company
or its creditors under Sections 17804.05 and 17804.06, or the
rights, if any, of creditors under the Uniform Fraudulent Transfer
Act, that may arise against the member of a worker cooperative
company.
(b) Summons or other process against a worker cooperative company
may be served by delivering a copy thereof to a manager, member,
officer, or person having charge of its assets or, if none of these
persons can be found, to any agent upon whom process might be served
at the time of dissolution. If none of those persons can be found
with due diligence and it is so shown by affidavit to the
satisfaction of the court, then the court may make an order that
summons or other process be served upon the dissolved worker
cooperative company by personally delivering a copy of the summons or
other process, together with a copy of the order, to the Secretary
of State or an assistant or Deputy Secretary of State. Service in
this manner is deemed complete on the 10th day after delivery of the
process to the Secretary of State. Upon receipt of process and the
fee therefor, the Secretary of State shall give notice to the worker
cooperative company as provided in Section 17801.16.
(c) Every worker cooperative company shall survive and continue to
exist indefinitely for the purpose of being sued in any quiet title
action. Any judgment rendered in that action shall bind each and all
of its members or other persons having any equity or other interest
in the worker cooperative company to the extent of that interest and
the action shall have the same force and effect as an action brought
under the provisions of Sections 410.50 and 410.60 of the Code of
Civil Procedure. Service of summons or other process in any action
may be made as provided in Chapter 4 (commencing with Section 413.10)
of Title 5 of Part 2 of the Code of Civil Procedure or as provided
in subdivision (b).
(d) For purposes of Article 4 (commencing with Section 19071) of
Chapter 4 of Part 10.2 of Division 2 of the Revenue and Taxation
Code, the liability described in this section shall be considered a
liability at law with respect to a dissolved worker cooperative
company.
17807.08. (a) (1) The managers shall cause to be filed in the
office of, and on a form prescribed by, the Secretary of State, a
certificate of dissolution upon the dissolution of the worker
cooperative company pursuant to Article 7 (commencing with Section
17807.01), unless the event causing the dissolution is that specified
in subdivision (c) of Section 17807.01, in which case the persons
conducting the winding up of the worker cooperative company's affairs
pursuant to Section 17807.04 shall have the obligation to file the
certificate of dissolution.
(2) The certificate of dissolution shall set forth all of the
following:
(A) The name of the worker cooperative company and the Secretary
of State's file number.
(B) Any other information the persons filing the certificate of
dissolution determine to include.
(3) If a dissolution pursuant to subdivision (b) of Section
17807.01 is made by the vote of all of the members and a statement to
that effect is added to the certificate of cancellation of articles
of organization pursuant to subdivision (b), the separate filing of a
certificate of dissolution pursuant to this subdivision is not
required.
(b) (1) The persons who filed the certificate of dissolution shall
cause to be filed in the office of, and on a form prescribed by, the
Secretary of State, a certificate of cancellation of articles of
organization upon the completion of the winding up of the affairs of
the worker cooperative company pursuant to Section 17807.06, unless
the event causing the dissolution is that specified in subdivision
(c) of Section 17807.01, in that case the persons conducting the
winding up of the worker cooperative company's affairs pursuant to
Section 17807.04 shall have the obligation to file the certificate of
cancellation of articles of organization.
(2) The certificate of cancellation of articles of organization
shall set forth all of the following:
(A) The name of the worker cooperative company and the Secretary
of State's file number.
(B) That a final franchise tax return, as described by Section
23332 of the Revenue and Taxation Code, or a final annual tax return,
as described by Section 17947 of the Revenue and Taxation Code, has
been or will be filed with the Franchise Tax Board, as required under
Part 10.2 (commencing with Section 18401) of Division 2 of the
Revenue and Taxation Code.
(C) Any other information the persons filing the certificate of
cancellation of articles of organization determine to include.
(3) The Secretary of State shall notify the Franchise Tax Board of
the filing.
(c) Upon filing a certificate of cancellation pursuant to
subdivision (b), a worker cooperative company shall be canceled and
its powers, rights, and privileges shall cease.
17807.09. (a) Notwithstanding the filing of a certificate of
dissolution, a majority in interest of the members may cause to be
filed, in the office of, and on a form prescribed by, the Secretary
of State, a certificate of continuation, in any of the following
circumstances:
(1) The business of the worker cooperative company is to be
continued pursuant to a unanimous vote of the remaining members.
(2) The
dissolution of the worker cooperative company was by vote of the
members pursuant to subdivision (b) of Section 17807.01 and each
member who consented to the dissolution has agreed in writing to
revoke his or her vote in favor of or consent to the dissolution.
(3) The worker cooperative company was not, in fact, dissolved.
(b) The certificate of continuation shall set forth all of the
following:
(1) The name of the worker cooperative company and the Secretary
of State's file number.
(2) The grounds provided by subdivision (a) that are the basis for
filing the certificate of continuation.
(c) Upon the filing of a certificate of continuation, the
certificate of dissolution shall be of no effect from the time of the
filing of the certificate of dissolution.
Article 8. Actions by Members
17808.01. Any member of a worker cooperative company may bring a
class action on behalf of all or a class of members to enforce any
claim common to those members and any of those actions shall be
governed by the law governing class actions generally, provided that
in order to maintain the class action there shall be no requirement
that the class be so numerous that joinder of all members of the
class is impracticable.
17808.02. (a) No action shall be instituted or maintained in
right of any domestic by any member of the worker cooperative company
unless both of the following conditions exist:
(1) The plaintiff alleges in the complaint that the plaintiff was
a member of record, or beneficiary, at the time of the transaction or
any part of the transaction of which the plaintiff complains, or
that the plaintiff's interest later devolved upon the plaintiff by
operation of law from a member who was a member at the time of the
transaction or any part of the transaction complained of. Any member
who does not meet these requirements may nevertheless be allowed in
the discretion of the court to maintain the action on a preliminary
showing to and determination by the court, by motion and after a
hearing at which the court shall consider any evidence, by affidavit
or testimony, as it deems material, of all of the following:
(A) There is a strong prima facie case in favor of the claim
asserted on behalf of the worker cooperative company.
(B) No other similar action has been or is likely to be
instituted.
(C) The plaintiff acquired the interest before there was
disclosure to the public or to the plaintiff of the wrongdoing of
which plaintiff complains.
(D) Unless the action can be maintained, the defendant may retain
a gain derived from defendant's willful breach of a fiduciary duty.
(E) The requested relief will not result in unjust enrichment of
the worker cooperative company or any member of the worker
cooperative company.
(2) The plaintiff alleges in the complaint with particularity the
plaintiff's efforts to secure from the managers the action the
plaintiff desires or the reasons for not making that effort, and
alleges further that the plaintiff has either informed the worker
cooperative company or the managers in writing of the ultimate facts
of each cause of action against each defendant or delivered to the
worker cooperative company or the managers a true copy of the
complaint that the plaintiff proposes to file.
(b) In any action referred to in subdivision (a), at any time
within 30 days after service of summons upon the worker cooperative
company or upon any defendant who is a manager of the worker
cooperative company or held that position at the time of the acts
complained of, the worker cooperative company or the defendant may
move the court for an order, upon notice and hearing, requiring the
plaintiff to furnish security as hereinafter provided. The motion
shall be based upon one or both of the following grounds:
(1) That there is no reasonable possibility that the prosecution
of the cause of action alleged in the complaint against the moving
party will benefit the worker cooperative company or its members.
(2) That the moving party, if other than the worker cooperative
company did not participate in the transaction complained of in any
capacity. The court, on application of the worker cooperative company
or any defendant, may, for good cause shown, extend the 30-day
period for an additional period not exceeding 60 days.
(c) (1) At the hearing upon any motion pursuant to subdivision
(b), the court shall consider evidence, written or oral, by witnesses
or affidavit, as may be material to the ground upon which the motion
is based, or to a determination of the probable reasonable expenses,
including attorney's fees, of the worker cooperative company and the
moving party that will be incurred in the defense of the action.
(2) If the court determines, after hearing the evidence adduced by
the parties, that the moving party has established a probability in
support of any of the grounds upon which the motion is based, the
court shall fix the nature and amount of security, not to exceed
fifty thousand dollars ($50,000), to be furnished by the plaintiff
for reasonable expenses, including attorney's fees, that may be
incurred by the moving party and the worker cooperative company in
connection with the action. A ruling by the court on the motion shall
not be a determination of any issue in the action or of the merits
of the action. The amount of the security may thereafter be increased
or decreased in the discretion of the court upon a showing that the
security provided has or may become inadequate or is excessive, but
the court shall not in any event increase the total amount of the
security beyond fifty thousand dollars ($50,000) in the aggregate for
all defendants. If the court, upon a motion, makes a determination
that security shall be furnished by the plaintiff as to any one or
more defendants, the action shall be dismissed as to that defendant
or those defendants, unless the security required by the court has
been furnished within any reasonable time as shall be fixed by the
court. The worker cooperative company and the moving party shall have
recourse to the security in the amount that the court determines
upon the termination of the action.
(d) If the plaintiff, either before or after a motion is made
pursuant to subdivision (b), or any order or determination pursuant
to that motion, posts good and sufficient bond or bonds in the
aggregate amount of fifty thousand dollars ($50,000) to secure the
reasonable expenses of the parties entitled to make the motion, the
plaintiff shall be deemed to have complied with the requirements of
this section and with any order for security made pursuant to this
section. Any motion then pending shall be dismissed and no further or
additional bond or other security shall be required.
(e) If a motion is filed pursuant to subdivision (b), no pleadings
need be filed by the worker cooperative company or any other
defendant and the prosecution of the action shall be stayed until 10
days after the motion has been disposed of.
Article 9. Merger and Conversion
17809.01. For purposes of this article, the following definitions
apply:
(a) "Converted entity" means the other business entity or foreign
other business entity that results from a conversion of a domestic
worker cooperative company under this division.
(b) "Converted worker cooperative company" means a domestic worker
cooperative company that results from a conversion of an other
business entity or a foreign other business entity or a foreign
limited liability company pursuant to Section 17809.08.
(c) "Converting worker cooperative company" means a domestic
worker cooperative company that converts to an other business entity
or a foreign other business entity or a foreign limited liability
company pursuant to this division.
(d) "Converting entity" means an other business entity or a
foreign other business entity or a foreign limited liability company
that converts to a domestic worker cooperative company pursuant to
Section 17809.08.
(e) "Constituent corporation" means a corporation that is merged
with or into one or more worker cooperative companies, foreign
limited liability companies, or other business entities and that
includes a surviving corporation.
(f) "Constituent worker cooperative company" means a worker
cooperative company that is merged with or into one or more other
worker cooperative companies, foreign limited liability companies, or
other business entities and that includes a surviving worker
cooperative company.
(g) "Constituent other business entity" means an other business
entity that is merged with or into one or more worker cooperative
companies or foreign limited liability companies and that includes a
surviving other business entity.
(h) "Disappearing worker cooperative company" means a constituent
worker cooperative company that is not the surviving worker
cooperative company.
(i) "Disappearing other business entity" means a constituent other
business entity that is not the surviving other business entity.
(j) "Foreign other business entity" means an other business entity
formed under the laws of a jurisdiction other than this state.
(k) "Other business entity" means a corporation, general
partnership, limited partnership, business trust, real estate
investment trust, a limited liability company, or an unincorporated
association other than a nonprofit association, but excludes a worker
cooperative company.
(l) "Surviving worker cooperative company" means a worker
cooperative company into which one or more other worker cooperative
companies, other business entities, or foreign business entities are
merged.
(m) "Surviving other business entity" means an other business
entity into which one or more worker cooperative companies and other
business entities are merged.
17809.02. (a) A worker cooperative company may be converted into
an other business entity or a foreign other business entity or a
foreign limited liability company pursuant to this article if both of
the following apply:
(1) Pursuant to a conversion into a domestic or foreign general
partnership or limited partnership or into a foreign limited
liability company, each of the members of the converting worker
cooperative company receives a percentage interest in the profits and
capital of the converted entity equal to that member's percentage
interest in profits and capital of the converting worker cooperative
company as of the effective time of the conversion.
(2) Pursuant to a conversion into an other business entity or
foreign other business entity not specified in paragraph (1), both of
the following occur:
(A) Each worker cooperative company interest of the same class is
treated equally with respect to any distribution of cash, property,
rights, interests, or securities of the converted entity, unless all
members of the class consent.
(B) The nonredeemable worker cooperative company interests of the
converting worker cooperative company are converted only into
nonredeemable interests or securities of the converted entity, unless
all holders of the unredeemable interests consent.
(b) The conversion of a worker cooperative company to an other
business entity or a foreign other business entity or a foreign
limited liability company may be effected only if both of the
following conditions are satisfied:
(1) The law under which the converted entity will exist expressly
permits the formation of that entity pursuant to a conversion.
(2) The worker cooperative company complies with all other
requirements of any other law that applies to conversion to the
converted entity.
17809.03. (a) A worker cooperative company that desires to
convert to an other business entity or a foreign other business
entity or a foreign limited liability company shall approve a plan of
conversion.
The plan of conversion shall state all of the following:
(1) The terms and conditions of the conversion.
(2) The place of the organization of the converted entity and of
the converting worker cooperative company and the name of the
converted entity after conversion.
(3) The manner of converting the membership interests of each of
the members into shares of, securities of, or interests in, the
converted entity.
(4) The provisions of the governing documents for the converted
entity, including the worker cooperative company articles of
organization and operating agreement, or articles or certificate of
incorporation if the converted entity is a corporation, to which the
holders of interests in the converted entity are to be bound.
(5) Any other details or provisions that are required by the laws
under which the converted entity is organized, or that are desired by
the parties.
(b) (1) The plan of conversion shall be approved by a two-thirds
majority of the worker-members, subject to subdivision (r) of Section
17804.07.
(2) However, if the members of the worker cooperative company
would become personally liable for any obligations of the converted
entity as a result of the conversion, the plan of conversion shall be
approved by all of the limited members of the converting worker
cooperative company, unless the plan of conversion provides that all
members will have dissenters' rights as provided in Article 10
(commencing with Section 17810.01).
(c) Upon the effectiveness of the conversion, all members of the
converting worker cooperative company, except those that exercise
dissenters' rights as provided in Article 10 (commencing with Section
17810.01), shall be deemed parties to any governing documents for
the converted entity adopted as part of the plan of conversion,
regardless of whether or not the member has executed the plan of
conversion or the governing documents for the converted entity. Any
adoption of governing documents made pursuant to the conversion shall
be effective at the effective time or date of the conversion.
(d) Notwithstanding its prior approval, a plan of conversion may
be amended before the conversion takes effect if the amendment is
approved by all managers and a majority of the members or if there
are no managers, a majority of the members of the converting worker
cooperative company and, if the amendment changes any of the
principal terms of the plan of conversion, the amendment is approved
by the managers and members of the converting worker cooperative
company in the same manner and to the same extent as required for the
approval of the original plan of conversion.
(e) The managers by unanimous approval and the members of a
converting worker cooperative company may, by majority approval at
any time before the conversion is effective, in their discretion,
abandon a conversion, without further approval by the managers or
members, subject to the contractual rights of third parties other
than managers or members.
(f) The converted entity shall keep the plan of conversion at the
principal place of business of the converted entity if the converted
entity is a domestic worker cooperative company or foreign other
business entity, at the principal office of, or registrar or transfer
agent of, the converted entity, if the converted entity is a
domestic corporation, or at the office where records are to be kept
pursuant to Section 17801.13 if the converted entity is a domestic
worker cooperative company. Upon the request of a member of a
converting worker cooperative company, the authorized person on
behalf of the converted entity shall promptly deliver to the member
or the holder of shares, interests, or other securities, at the
expense of the converted entity, a copy of the plan of conversion. A
waiver by a member of the rights provided in this subdivision shall
be unenforceable.
17809.04. (a) A conversion into an other business entity or a
foreign other business entity or a foreign limited liability company
shall become effective upon the earliest date that all of the
following occur:
(1) The plan of conversion is approved by the members of the
converting worker cooperative company, as provided in Section
17809.03.
(2) All documents required by law to create the converted entity
are filed, which documents shall also contain a statement of
conversion, if required under Section 17809.06.
(3) The effective date, if set forth in the plan of conversion,
occurs.
(b) A copy of the certificate of limited partnership, statement of
partnership authority, articles of incorporation, or certificate of
conversion complying with Section 17809.06, if applicable, duly
certified by the Secretary of State, is conclusive evidence of the
conversion of the worker cooperative company.
17809.05. (a) If the worker cooperative company is converting
into a foreign limited liability company or foreign other business
entity, those conversion proceedings shall be in accordance with the
laws of the state or place of organization of the foreign limited
liability company or foreign other business entity and the conversion
shall become effective in accordance with that law.
(b) (1) To enforce an obligation of a worker cooperative company
that has converted to a foreign limited liability company or foreign
other business entity, the Secretary of State shall only be the agent
for service of process in an action or proceeding against that
converted foreign entity, if the agent designated for the service of
process for that entity is a natural person and cannot be found with
due diligence or if the agent is a corporation and no person, to whom
delivery may be made, may be located with due diligence, or if no
agent has been designated and if none of the officers, members,
managers, or agents of that entity may be located after diligent
search, and it is shown by affidavit to the satisfaction of the
court. The court then may make an order that service be made by
personal delivery to the Secretary of State or to an assistant or
Deputy Secretary of State of two copies of the process together with
two copies of the order, and the order shall set forth an address to
which the process shall be sent by the Secretary of State. Service in
this manner is deemed complete on the 10th day after delivery of the
process to the Secretary of State.
(2) Upon receipt of the process and order and the fee set forth in
Section 12197 of the Government Code, the Secretary of State shall
provide notice to that entity of the service of the process by
forwarding by certified mail, return receipt requested, a copy of the
process and order to the address specified in the order.
(3) The Secretary of State shall keep a record of all process
served upon the Secretary of State and shall record the time of
service and the Secretary of State's action with respect to the
process served. The certificate of the Secretary of State, under the
Secretary of State's official seal, certifying to the receipt of
process, the providing of notice of process to that entity, and the
forwarding of the process shall be competent and prima facie evidence
of the matters stated therein.
17809.06. (a) Upon conversion of a worker cooperative company,
one of the following applies:
(1) If the worker cooperative company is converting into a
domestic limited partnership, a statement of conversion shall be
completed on a certificate of limited partnership for the converted
entity and shall be filed with the Secretary of State.
(2) If the worker cooperative company is converting into a
domestic partnership, a statement of conversion shall be completed on
the statement of partnership authority for the converted entity. If
no statement of partnership authority is filed, a certificate of
conversion shall be filed separately with the Secretary of State.
(3) If the worker cooperative company is converting into a
domestic corporation, a statement of conversion shall be completed on
the articles of incorporation for the converted entity and shall be
filed with the Secretary of State.
(4) If the worker cooperative company is converting to a foreign
limited liability company or foreign other business entity, a
certificate of conversion shall be filed with the Secretary of State.
(b) Any certificate or statement of conversion shall be executed
and acknowledged by all members, unless a lesser number is provided
in the articles of organization or operating agreement, and shall set
forth all of the following:
(1) The name and the Secretary of State's file number of the
converting worker cooperative company.
(2) A statement that the principal terms of the plan of conversion
were approved by a vote of the members, that equaled or exceeded the
vote required under Section 17809.03, specifying each class entitled
to vote and the percentage vote required of each class.
(3) The name, form and jurisdiction of organization, and Secretary
of State's file number, if any, of the converted entity.
(4) The mailing address of the converted entity's agent for
service of process and the chief executive office of the converted
entity.
(c) The filing with the Secretary of State of a certificate of
conversion, a certificate of limited partnership, a statement of
partnership authority, or articles of incorporation containing a
statement of conversion as set forth in subdivision (a) shall have
the effect of the filing of a certificate of cancellation by the
converting worker cooperative company, and no converting worker
cooperative company that has made the filing is required to take any
action under Article 7 (commencing with Section 17807.01) as a result
of that conversion.
(d) For the purposes of this division, the certificate of
conversion shall be on a form prescribed by the Secretary of State.
17809.07. (a) Whenever a worker cooperative company or other
business entity having any real property in this state converts into
a worker cooperative company or an other business entity pursuant to
the laws of this state or of the state or place where the worker
cooperative company or other business entity was organized, and the
laws of the state or place of organization, including this state, of
the converting worker cooperative company or other converting entity
provide substantially that the conversion vests in the converted
worker cooperative company or other converted entity all the real
property of the converting worker cooperative company or other
converting entity, the filing for record in the office of the county
recorder of any county in this state where any of the real property
of the converting worker cooperative company or other converting
entity is located of either of the following shall evidence record
ownership in the converted worker cooperative company or other
converted entity of all interest of the converting worker cooperative
company or other converting entity in and to the real property
located in that county:
(1) A certificate of conversion or a statement of partnership
authority, a certificate of limited partnership, or articles of
incorporation complying with Section 17809.06 certified on or after
the effective date of the conversion by the Secretary of State.
(2) A copy of a certificate of conversion or a statement of
partnership authority, certificate of limited partnership, articles
of organization, articles of incorporation, or other certificate or
document evidencing the creation of a foreign other business entity
by conversion, containing a statement of conversion, certified by the
Secretary of State or an authorized public official of the state or
place pursuant to the laws of which the conversion is effected.
(b) A filed and, if appropriate, recorded certificate of
conversion or a statement of partnership authority, certificate of
limited partnership, articles of organization, articles or
certificate of incorporation, or other certificate evidencing the
creation of a foreign other business entity by conversion, containing
a statement of conversion, filed pursuant to subdivision (a) of
Section 17809.06, stating the name of the converting worker
cooperative company or other converting entity in whose name property
was held before the conversion and the name of the converted entity
or converted worker cooperative company, but not containing all of
the other information required by Section 17809.06, operates with
respect to the entities named to the extent provided in subdivision
(a).
(c) Recording of a certificate of conversion, or a statement of
partnership authority, certificate of limited partnership, articles
of organization, articles of incorporation, or other certificate
evidencing the creation of an other business entity or a worker
cooperative company by conversion, containing a statement of
conversion, in accordance with subdivision (a), shall create, in
favor of bona fide purchasers or encumbrances for value, a conclusive
presumption that the conversion was validly completed.
17809.08. (a) An other business entity or a foreign other
business entity or a foreign limited liability company may be
converted to a domestic worker cooperative company pursuant to this
article only if the converting entity is authorized by the laws
pursuant to which it is organized to effect the conversion.
(b) An other business entity or a foreign other business entity or
a foreign limited liability company that desires to convert into a
domestic worker cooperative company shall approve a plan of
conversion or another instrument as is required to be approved to
effect the conversion pursuant to the laws under which that entity is
organized.
(c) The conversion of an other business entity or a foreign other
business entity or a foreign limited liability company into a
domestic worker cooperative company shall be approved by the number
or percentage of the members, managers, shareholders, or holders of
interest of the converting entity as is required by the laws under
which that entity is organized, or a greater or lesser percentage,
subject to applicable laws, as set forth in the converting entity's
partnership agreement, articles of organization, operating agreement,
articles or certificate of incorporation, or other governing
document.
(d) The conversion by an other business entity or a foreign other
business entity or a foreign limited liability company into a
domestic worker cooperative company shall be effective under this
article at the time the conversion is effective under the laws under
which the converting entity is organized, as long as the articles of
organization containing a statement of conversion has been filed with
the Secretary of State. If the converting entity's governing law is
silent as to the effectiveness of the conversion, the conversion
shall be effective upon the completion of all acts required under
this division to form a worker cooperative company.
(e) If
the converting foreign limited liability company or foreign limited
liability partnership is authorized to transact intrastate business
in this state, the filing with the Secretary of State of its articles
of organization containing a statement of conversion pursuant to the
laws under which the converting foreign limited liability company or
foreign other business entity is organized shall have the effect of
the filing of a certificate of cancellation by the converting foreign
limited partnership and no converting foreign limited liability
company or foreign limited partnership that has made the filing is
required to file a certificate of cancellation under Section 15909.07
as a result of that conversion. If a converting other business
entity is a foreign corporation qualified to transact intrastate
business in this state, the foreign corporation shall, by virtue of
the filing, automatically surrender its right to transact intrastate
business.
17809.09. (a) An entity that converts into another entity
pursuant to this article is for all purposes other than for the
purposes of Part 10 (commencing with Section 17001), Part 10.2
(commencing with Section 18401), and Part 11 (commencing with Section
23001) of Division 2 of the Revenue and Taxation Code, the same
entity that existed before the conversion and the conversion shall
not be deemed a transfer of property.
(b) Upon a conversion taking effect, all of the following apply:
(1) All the rights and property, whether real, personal, or mixed,
of the converting entity or converting worker cooperative company
are vested in the converted entity or converted worker cooperative
company.
(2) All debts, liabilities, and obligations of the converting
entity or converting worker cooperative company continue as debts,
liabilities, and obligations of the converted entity or converted
worker cooperative company.
(3) All rights of creditors and liens upon the property of the
converting entity or converting worker cooperative company shall be
preserved unimpaired and remain enforceable against the converted
entity or converted worker cooperative company to the same extent as
against the converting entity or converting worker cooperative
company as if the conversion had not occurred.
(4) Any action or proceeding pending by or against the converting
entity or converting worker cooperative company may be continued
against the converted entity or converted worker cooperative company
as if the conversion had not occurred.
(c) A member of a converting worker cooperative company is liable
for both of the following:
(1) All obligations of the converting worker cooperative company
for which the member was personally liable before the conversion.
(2) All obligations of the converted entity incurred after the
conversion takes effect, but those obligations may be satisfied only
out of property of the entity if that member of a worker cooperative
company, or a shareholder in a corporation, or unless expressly
provided otherwise in the articles of organization or other governing
documents, a limited partner of a limited partnership, or a holder
of equity securities in another converted entity if the holders of
equity securities in that entity are not personally liable for the
obligations of that entity under the law under which the entity is
organized or its governing documents.
(d) A member of a converted worker cooperative company remains
liable for any and all obligations of the converting entity for which
the member was personally liable before the conversion, but only to
the extent that the member was liable for the obligations of the
converting entity prior to the conversion.
(e) If the other party to a transaction with the worker
cooperative company reasonably believes when entering into the
transaction that the worker cooperative company member is a general
partner, the worker cooperative company member is liable for the
obligations incurred by the worker cooperative company within 90 days
after the conversion takes effect. The worker cooperative company
member's liability for all other obligations of the worker
cooperative company incurred after the conversion takes effect is
that of a worker cooperative company member.
17809.10. Mergers of worker cooperative companies shall be
governed by Sections 17809.11 to 17809.19, inclusive.
17809.11. The following entities may be merged pursuant to this
article:
(a) Two or more worker cooperative companies into one worker
cooperative company.
(b) One or more worker cooperative companies and one or more other
business entities into one of those other business entities or
foreign other business entities.
(c) One or more worker cooperative companies and one or more other
business entities or foreign other business entities into one worker
cooperative company.
(d) Notwithstanding this section, the merger of any number of
worker cooperative companies with any number of other business
entities or foreign other business entities may be effected only if
the other business entities that are organized in this state are
authorized by the laws under which they are organized to effect the
merger, and the following apply:
(1) If a worker cooperative company is the surviving worker
cooperative company, the foreign other business entities are not
prohibited by the laws under which they are organized from effecting
that merger.
(2) If a foreign other business entity is the survivor of the
merger, the laws of the jurisdiction under which the survivor is
organized authorize that merger. Notwithstanding the first sentence
of this paragraph, if one or more domestic corporations is also a
party to the merger described in that sentence, the merger may be
effected only if, with respect to any foreign other business entity
that is a corporation, the foreign corporation is authorized by the
laws under which it is organized to effect that merger.
17809.12. (a) Each worker cooperative company and other business
entity that desires to merge shall approve an agreement of merger.
The agreement of merger shall be approved by a two-thirds majority
of the worker-member class, subject to subdivision (r) of Section
17804.07 and the articles or operating agreement. Notwithstanding the
previous sentence, if the members of any constituent worker
cooperative company become personally liable for any obligations of a
constituent worker cooperative company or constituent other business
entity as a result of the merger, the principal terms of the
agreement of merger shall be approved by all of the members of the
constituent worker cooperative company, unless the agreement of
merger provides that all members shall have the dissenters' rights
provided in Article 10 (commencing with Section 17810.01). The
agreement of merger shall be approved on behalf of each constituent
other business entity by those persons required to approve the merger
by the laws under which it is organized. Other persons, including a
parent of a constituent worker cooperative company, may be parties to
the agreement of merger. The agreement of merger shall state all of
the following:
(1) The terms and conditions of the merger.
(2) The name and place of the organization of the surviving worker
cooperative company or surviving other business entity, and of each
disappearing worker cooperative company and disappearing other
business entity, and the agreement of merger may change the name of
the surviving worker cooperative company, the new name may be the
same as or similar to the name of a disappearing domestic, subject to
Section 17801.08.
(3) The manner of converting the membership interests of each of
the constituent worker cooperative companies into interests, shares,
or other securities of the surviving worker cooperative company or
surviving other business entity, and if worker cooperative company
interests of any of the constituent worker cooperative companies are
not to be converted solely into interests, shares, or other
securities of the surviving worker cooperative company or surviving
other business entity, the cash, property, rights, interests, or
securities that the holders of the worker cooperative company
interests are to receive in exchange for the membership interests,
the cash, property, rights, interests, or securities that may be in
addition to or in lieu of interests, shares, or other securities of
the surviving worker cooperative company or surviving other business
entity, or that the worker cooperative company interests are canceled
without consideration.
(4) The amendments to the articles of organization of the
surviving worker cooperative company, if applicable, to be effected
by the merger, if any.
(5) Any other details or provisions that are required by the laws
under which any constituent other business entity is organized,
including, if a domestic corporation is a party to the merger, as
provided in subdivision (b) of Section 1113.
(6) Any other details or provisions that are desired, including,
without limitation, a provision for the treatment of fractional
membership interests.
(b) (1) Each membership interest of the same class of any
constituent worker cooperative company, other than a membership
interest in another constituent worker cooperative company that is
being canceled and that is held by a constituent worker cooperative
company or its parent or a worker cooperative company of which the
constituent worker cooperative company is a parent shall, unless all
members of the class consent, be treated equally with respect to any
distribution of cash, property, rights, interests, or securities.
(2) Notwithstanding paragraph (1), except in a merger of a worker
cooperative company with a worker cooperative company that controls
at least 90 percent of the membership interests entitled to vote with
respect to the merger, the unredeemable membership interests of a
constituent worker cooperative company may be converted only into
unredeemable interests or securities of the surviving worker
cooperative company or other business entity, or a parent if a
constituent worker cooperative company or a constituent other
business entity or its parent owns, directly or indirectly, prior to
the merger, membership interests of another constituent worker
cooperative company or interests or securities of a constituent other
business entity representing more than 50 percent of the interests
or securities entitled to vote with respect to the merger of the
other constituent worker cooperative company or constituent other
business entity or more than 50 percent of the voting power, as
defined in Section 194.5, of a constituent other business entity that
is a domestic corporation, unless all of the members of the class
consent.
(3) The provisions of this subdivision do not apply to any
transaction if the commissioner has approved the terms and conditions
of the transaction and the fairness of those terms pursuant to
Section 25142.
(c) Notwithstanding its prior approval, an agreement of merger may
be amended prior to the filing of the certificate of merger or the
agreement of merger, as provided in Section 17809.14, if the
amendment is approved by the managers and members of each constituent
worker cooperative company in the same manner as required for
approval of the original agreement of merger and, if the amendment
changes any of the principal terms of the agreement of merger, the
amendment is approved by the managers and members of each constituent
worker cooperative company in the same manner and to the same extent
as required for the approval of the original agreement of merger,
and by each of the constituent other business entities.
(d) The managers and members of a constituent worker cooperative
company may, in their discretion, abandon a merger, subject to the
contractual rights, if any, of third parties, including other
constituent worker cooperative companies and constituent other
business entities, without further approval by the membership
interests, at any time before the merger is effective.
(e) An agreement of merger approved in accordance with subdivision
(a) may do the following:
(1) Effect any amendment to the operating agreement of any
constituent worker cooperative company.
(2) Effect the adoption of a new operating agreement for a
constituent worker cooperative company if it is the surviving worker
cooperative company in the merger. Any amendment to an operating
agreement or adoption of a new operating agreement made pursuant to
the foregoing sentence shall be effective at the effective time or
date of the merger. Notwithstanding the above provisions of this
subdivision, if a greater number of members is required to approve an
amendment to the operating agreement of a constituent worker
cooperative company than is required to approve the agreement of
merger pursuant to subdivision (a), and the number of members that
approve the agreement of merger is less than the number of members
required to approve an amendment to the operating agreement of the
constituent worker cooperative company, any amendment to the
operating agreement or adoption of a new operating agreement of that
constituent worker cooperative company made pursuant to the first
sentence of this subdivision shall be effective only if the agreement
of merger provides that all of the members shall have the dissenters'
rights provided in Article 10 (commencing with Section 17810.01).
(f) The surviving worker cooperative company or surviving other
business entity shall keep the agreement of merger at its designated
office or at the business address specified in paragraph (5) of
subdivision (a) of Section 17809.14, as applicable, and, upon the
request of a member of a constituent worker cooperative company or a
holder of shares, interests, or other securities of a constituent
other business entity, the managers or members of the surviving
worker cooperative company or the authorized person of the surviving
other business entity shall promptly deliver to the member or the
holder of shares, interests, or other securities, at the expense of
the surviving worker cooperative company or surviving other business
entity, a copy of the agreement of merger. A waiver by a member or
holder of shares, interests, or other securities of the rights
provided in this subdivision shall be unenforceable.
17809.13. Subdivision (b) of Section 17809.12 shall not apply to
any transaction if the commissioner has approved the terms and
conditions of the transaction and the fairness of such terms and
conditions pursuant to Section 25142.
17809.14. (a) If the surviving entity is a worker cooperative
company or an other business entity, other than a corporation in a
merger in which a domestic corporation is a constituent party, after
approval of a merger by the constituent worker cooperative companies
and any constituent other business entities, the constituent worker
cooperative companies and constituent other business entities shall
file a certificate of merger in the office of, and on a form
prescribed by, the Secretary of State. The certificate of merger
shall be executed and acknowledged by each domestic constituent
worker cooperative company by all managers, or if none, all members
unless a lesser number is provided in the articles of organization or
operating agreement of the domestic constituent worker cooperative
company and by each foreign constituent worker cooperative company by
one or more managers, or if none, members, and by each constituent
other business entity by those persons required to execute the
certificate of merger by the laws under which the constituent other
business entity is organized. The certificate of merger shall set
forth all of the following:
(1) The names and the Secretary of State's file numbers, if any,
of each of the constituent worker cooperative companies and
constituent other business entities, separately identifying the
disappearing worker cooperative companies and disappearing other
business entities and the surviving worker cooperative company or
surviving other business entity.
(2) If a vote of the members was required pursuant to Section
17809.12, a statement setting forth the total number of outstanding
interests of each class entitled to vote on the merger and that the
principal terms of the agreement of merger were approved by a vote of
the number of interests of each class that equaled or exceeded the
vote required, specifying each class entitled to vote and the
percentage vote required of each class.
(3) If the surviving entity is a worker cooperative company and
not an other business entity, any change required to the information
set forth in the articles of organization of the surviving worker
cooperative company resulting from the merger, including any change
in the name of the surviving worker cooperative company resulting
from the merger. The filing of a certificate of merger setting forth
any such changes to the articles of organization of the surviving
worker cooperative company shall have the effect of the filing of a
certificate of amendment by the surviving worker cooperative company,
and the surviving worker cooperative company need not file an
amendment under Section 17802.02 to reflect those changes.
(4) The future effective date, that shall be a date certain not
more than 90 days subsequent to the date of filing of the merger, if
the merger is not to be effective upon the filing of the certificate
of merger with the office of the Secretary of State.
(5) If the surviving entity is an other business entity or a
foreign limited liability company, the full name of the entity, type
of entity, legal jurisdiction where the entity was organized and by
whose laws its internal affairs are governed, and the address of the
principal place of business of the entity.
(6) Any other information required to be stated in the certificate
of merger by the laws where each constituent other business entity
is organized, including if a domestic corporation is a party to the
merger, as required under paragraph (2) of subdivision (g) of Section
1113. If the surviving entity is a foreign limited liability company
in a merger where a domestic corporation is a disappearing other
business entity, a copy of the agreement of merger and attachments as
required under paragraph (1) of subdivision (g) of Section 1113
shall be filed at the same time as the filing of the certificate of
merger.
(b) If the surviving entity is a domestic corporation or a foreign
corporation in a merger that a domestic corporation is a constituent
party, after approval of the merger by the constituent worker
cooperative companies and constituent other business entities, the
surviving corporation shall file in the office of the Secretary of
State a copy of the agreement of merger and attachments required
under paragraph (1) of subdivision (g) of Section 1113. The
certificate of merger shall be executed and acknowledged by each
domestic constituent worker cooperative company by all general
members, unless a lesser number is provided in the articles of
organization of the worker cooperative company of the domestic
constituent worker cooperative company.
(c) A certificate of merger or the agreement of merger, as is
applicable under subdivisions (a) and (b), shall have the effect of
the filing of a certificate of cancellation for each disappearing
worker cooperative company, and no disappearing worker cooperative
company need take any action under Article 7 (commencing with Section
17807.01) concerning dissolution as a result of the merger.
(d) If a disappearing other entity is a foreign corporation
qualified to transact intrastate business in this state, the filing
of the certificate of merger or agreement of merger, as is
applicable, by the foreign corporation shall automatically surrender
its right to transact intrastate business.
17809.15. (a) Unless a future effective date is provided in a
certificate of merger or the agreement of merger, if an agreement of
merger is required to be filed under Section 17809.14, in which event
the merger shall be effective at that future effective date, a
merger shall be effective upon the filing of the certificate of
merger or the agreement of merger, as is applicable, in the office of
the Secretary of State.
(b) (1) For all purposes, a copy of the certificate of merger duly
certified by the Secretary of State is conclusive evidence of the
merger of the constituent worker cooperative companies, either by
themselves or together with constituent other business entities, into
the surviving other business entity, or the constituent worker
cooperative companies or the constituent other business entities, or
both, into the surviving worker cooperative company.
(2) In a merger in which the surviving entity is a corporation in
a merger in which a domestic corporation and a domestic worker
cooperative company are parties to the merger, a copy of an agreement
of merger certified on or after the effective date by an official
having custody thereof has the same force in evidence as the original
and, except as against the state, is conclusive evidence of the
performance of all conditions precedent to the merger, the existence
on the effective date of the surviving corporation, and the
performance of the conditions necessary to the adoption of any
amendment to the articles of incorporation of the surviving
corporation, if applicable, contained in the agreement of merger.
17809.16. (a) Upon a merger of worker cooperative companies or
worker cooperative companies and other business entities pursuant to
this article, the separate existence of the disappearing worker
cooperative companies and disappearing other business entities ceases
and the surviving worker cooperative company or surviving other
business entity shall succeed, without other transfer, act or deed,
to all the rights and property, whether real, personal, or mixed, of
each of the disappearing worker cooperative companies and
disappearing other business entities, and shall be subject to all the
debts and liabilities of each in the same manner as if the surviving
worker cooperative company or surviving other business entity had
itself incurred them.
(b) All rights of creditors and all liens upon the property of
each of the constituent worker cooperative companies and constituent
other business entities shall be preserved unimpaired and may be
enforced against the surviving worker cooperative company or the
surviving other business entity to the same extent as if the debt,
liability, or duty which gave rise to that lien had been incurred or
contracted by the surviving worker cooperative company or the
surviving other business entity, provided that such liens upon the
property of a disappearing worker cooperative company or disappearing
other business entity shall be limited to the property affected
thereby immediately prior to the time the merger is effective.
(c) Any action or proceeding pending by or against any
disappearing worker cooperative company or disappearing other
business entity may be prosecuted to judgment, which shall bind the
surviving worker cooperative company or surviving other business
entity, or the surviving worker cooperative company or surviving
other business entity may be proceeded against or be substituted in
the place of the disappearing worker cooperative company or
disappearing other business entity.
(d) Nothing in this article is intended to affect the liability a
member of a disappearing worker cooperative company may have in
connection with the debts and liabilities of the disappearing worker
cooperative company existing prior to the time the merger is
effective.
17809.17. (a) If the surviving entity is a domestic worker
cooperative company or a domestic other business entity, the merger
proceedings with respect to that worker cooperative company or other
business entity and any domestic disappearing worker cooperative
company shall conform to the provisions of this article governing the
merger of domestic worker cooperative companies, but if the
surviving entity is a foreign limited liability company or a foreign
other business entity, then, subject to the requirements of
subdivision (d) and Article 10 (commencing with Section 17810.01)
and, with respect to any domestic constituent corporation, Section
1113, Chapter 12 (commencing with Section 1200), and Chapter 13
(commencing with Section 1300) of Division 1 of Title 1 and, with
respect to any domestic constituent limited partnership, Article 11.5
(commencing with Section 15911.20) of Chapter 5.5 of Title 2, the
merger proceedings may be in accordance with the laws of the state or
place of organization of the surviving worker cooperative company or
surviving other business entity.
(b) If the surviving entity is a domestic worker cooperative
company or domestic other business entity, other than a domestic
corporation, the certificate of merger shall be filed as provided in
subdivision (a) of Section 17809.14, and thereupon, subject to
subdivision (a) of Section 17809.15, the merger shall be effective as
to each domestic constituent worker cooperative company and domestic
constituent other business entity. If the surviving entity is a
domestic corporation, the agreement of merger with attachments shall
be filed pursuant to subdivision (b) of Section 17809.14, and
thereupon, subject to subdivision (a) of Section 17809.15, the merger
shall be effective as to each domestic constituent worker
cooperative company and domestic constituent other business entity
unless another effective date is provided pursuant to Article 10
(commencing with Section 17810.01), with respect to any constituent
corporation or constituent worker cooperative company.
(c) If the surviving entity is a foreign limited liability company
or foreign other business entity, the merger shall become effective
in accordance with the laws of the jurisdiction where the surviving
worker cooperative company or surviving other business entity is
organized, but shall be effective as to any domestic disappearing
worker cooperative company as of the time of effectiveness in the
foreign jurisdiction upon the filing in this state of a certificate
of merger or agreement of merger pursuant to Section 17809.14.
(d) If a merger described in subdivision (c) or (d) also includes
a foreign disappearing worker cooperative company previously
registered for the transaction of intrastate business in this state
pursuant to Section 17809.02, the filing of the certificate of merger
or agreement of merger, as is applicable under Section 17809.14,
automatically has the effect of a cancellation of registration for
that foreign limited liability company pursuant to Section
17809.07 without the necessity
of the filing of a certificate of cancellation.
(e) The provisions of subdivision (b) of Section 17809.12 and
Article 10 (commencing with Section 17810.01) apply to the rights of
the members of any of the constituent worker cooperative companies
that are domestic worker cooperative companies and of any domestic
worker cooperative company that is a parent of any foreign
constituent worker cooperative company.
(f) If the surviving entity is a foreign limited liability company
or foreign other business entity, the surviving entity shall file
the following with the Secretary of State:
(1) An agreement that it may be served in this state in a
proceeding for the enforcement of an obligation of any constituent
entity and in a proceeding to enforce the rights of any holder of a
dissenting interest or dissenting shares in a constituent domestic
worker cooperative company or domestic other business entity.
(2) An irrevocable appointment of the Secretary of State as its
agent for service of process, and an address to which process may be
forwarded.
(3) An agreement that it will promptly pay the holder of any
dissenting interest or dissenting share in a constituent domestic
worker cooperative company or domestic other business entity the
amount to which that person is entitled under the laws of this state.
17809.18. Whenever a domestic or other business entity having any
real property in this state merges with another worker cooperative
company or other business entity pursuant to the laws of this state
or of the state or place where any constituent worker cooperative
company or constituent other business entity was organized, and the
laws of the state or place of organization, including this state of
any disappearing worker cooperative company or disappearing other
business entity provide substantially that the making and filing of
the agreement of merger or certificate of merger vests in the
surviving worker cooperative company or surviving other business
entity all the real property of any disappearing worker cooperative
company and disappearing other business entity, the filing for record
in the office of the county recorder of any county in this state
where any of the real property of the disappearing worker cooperative
company or disappearing other business entity is located of either
of the following shall evidence record ownership in the surviving
worker cooperative company or surviving other business entity of all
interest of the disappearing worker cooperative company or
disappearing other business entity in and to the real property
located in that county in which both of the following occur:
(a) A certificate of merger certified by the Secretary of State,
or other certificate prescribed by the Secretary of State.
(b) A copy of the agreement of merger or certificate of merger,
certified by the Secretary of State or an authorized public official
of the state or place pursuant to the laws of which the merger is
effected.
17809.19. (a) Upon a merger pursuant to this article, a surviving
domestic or other business entity shall be deemed to have assumed
the liability of each disappearing domestic or other business entity
that is taxed under Part 10 (commencing with Section 17001) or Part
11 (commencing with Section 23001) of Division 2 of the Revenue and
Taxation Code for the following:
(1) To prepare and file, or to cause to be prepared and filed, tax
and information returns otherwise required of that disappearing
entity as specified in Chapter 2 (commencing with Section 18501) of
Part 10.2 of Division 2 of the Revenue and Taxation Code.
(2) To pay any tax liability determined to be due.
(b) If the surviving entity is a domestic worker cooperative
company, domestic corporation, or registered worker cooperative
partnership or a foreign limited liability company, foreign limited
liability partnership, or foreign corporation that is registered or
qualified to do business in this state, the Secretary of State shall
notify the Franchise Tax Board of the merger.
Article 10. Dissenters' Rights
17810.01. (a) For purposes of this article, "reorganization"
refers to any of the following:
(1) A conversion pursuant to Article 9 (commencing with Section
17809.01).
(2) A merger pursuant to Article 9 (commencing with Section
17809.01).
(3) The acquisition by one worker cooperative company in exchange,
in whole or in part, for its membership interests, or the membership
interests or equity securities of a worker cooperative company or
other business entity that is in control of the acquiring worker
cooperative company, of membership interests or equity securities of
another worker cooperative company or other business entity if,
immediately after the acquisition, the acquiring worker cooperative
company has control of the other worker cooperative company or other
business entity.
(4) The acquisition by one worker cooperative company in exchange,
in whole or in part, for its membership interests, or the membership
interests or equity securities of a worker cooperative company or
other business entity which is in control of the acquiring worker
cooperative company, or for its debt securities, or debt securities
of a worker cooperative company or other business entity which is in
control of the acquiring worker cooperative company, that are not
adequately secured and that have a maturity date in excess of five
years after the consummation of the acquisition, or both, of all or
substantially all of the assets of another worker cooperative company
or other business entity.
(b) For purposes of this article, "control" means the possession,
direct or indirect, of the power to direct or cause the direction of
the management and policies of a worker cooperative company or other
business entity.
17810.02. (a) If the approval of outstanding membership interests
is required for a worker cooperative company to participate in a
reorganization, pursuant to the worker cooperative company agreement,
or otherwise, then each member of the worker cooperative company
holding those interests may, by complying with this article, require
the worker cooperative company to purchase for cash, at its fair
market value, the interest owned by the member in the worker
cooperative company, if the interest is a dissenting interest as
defined in subdivision (b). The fair market value shall be determined
as of the day before the first announcement of the terms of the
proposed reorganization, excluding any appreciation or depreciation
in consequence of the proposed reorganization.
(b) As used in this article, "dissenting interest" means the
interest of a member that satisfies all of the following conditions:
(1) Either:
(A) Was not, immediately prior to the reorganization, either (i)
listed on any national securities exchange certified by the
Commissioner of Corporations under subdivision (o) of Section 25100,
or (ii) listed on the list of OTC margin stocks issued by the Board
of Governors of the Federal Reserve System, provided that in either
instance the worker cooperative company whose outstanding interests
are so listed provides, in its notice to members requesting their
approval of the proposed reorganization, a summary of the provisions
of this section and Sections 17810.03, 17810.04, 17810.05, and
17810.06.
(B) If the interest is of a class of interests listed as described
in clause (i) or (ii) of subparagraph (A), demands for payment are
filed with respect to 5 percent or more of the outstanding interests
of that class.
(2) Was outstanding on the date for the determination of members
entitled to vote on the reorganization.
(3) Either:
(A) Was not voted in favor of the reorganization.
(B) If the interest is described in clause (i) or (ii) of
subparagraph (A) of paragraph (1), was voted against the
reorganization; provided, however, that subparagraph (A) rather than
this subparagraph applies in any event where the approval for the
proposed reorganization is sought by written consent rather than at a
meeting.
(4) The member has demanded that the interest be purchased by the
worker cooperative company at its fair market value in accordance
with Section 17810.03.
(5) The member has submitted the interest for endorsement, if
applicable, in accordance with Section 17810.04.
(c) As used in this article, "dissenting member" means the
recordholder of a dissenting interest, and includes an assignee of
record of that interest.
17810.03. (a) If members have a right under Section 17810.02,
subject to compliance with paragraphs (4) and (5) of subdivision (b)
of Section 17810.02, to require the worker cooperative company to
purchase their membership interests for cash, the worker cooperative
company shall mail to each member a notice of the approval of the
reorganization by the requisite vote or consent of the members,
within 10 days after the date of the approval, accompanied by a copy
of this section and Sections 17810.01, 17810.02, 17810.04, and
17810.05, a statement of the price determined by the worker
cooperative company to represent the fair market value of its
outstanding interests, and a brief description of the procedure to be
followed if the member desires to exercise the member's rights under
those sections. The statement of price constitutes an offer by the
worker cooperative company to purchase at the price stated any
dissenting interests as defined in subdivision (b) of Section
17810.02, unless they lose their status as dissenting interests under
Section 17810.11.
(b) Any member who has a right to require the worker cooperative
company to purchase the member's interest for cash under Section
17810.02, subject to compliance with paragraphs (4) and (5) of
subdivision (b) of Section 17810.02, and who desires the worker
cooperative company to purchase that interest, shall make written
demand upon the worker cooperative company for the purchase of that
interest and the payment to the member in cash of its fair market
value. The demand is not effective for any purpose unless it is
received by the worker cooperative company or any transfer agent
thereof (1) in the case of interests described in clause (i) or (ii)
of subparagraph (A) of paragraph (1) of subdivision (b) of Section
17810.02, not later than the date of the members' meeting to vote
upon the reorganization, or (2) in any other case, within 30 days
after the date on which notice of the approval of the reorganization
by the requisite vote or consent of the members is mailed by the
worker cooperative company to the members.
(c) The demand shall state the number or amount of the member's
interest in the worker cooperative company and shall contain a
statement of what the member claims to be the fair market value of
that interest on the day before the announcement of the proposed
reorganization. The statement of fair market value constitutes an
offer by the member to sell the interest at such price.
17810.04. Within 30 days after the date on which notice of the
approval of the outstanding interests of the worker cooperative
company is mailed to the member pursuant to subdivision (a) of
Section 17810.03, the member shall submit to the worker cooperative
company at its principal office or at the office of any transfer
agent thereof, if the interest is evidenced by a certificate, the
member's certificate representing the interest which the member
demands that the worker cooperative company purchase, to be stamped
or endorsed with a statement that the interest is a dissenting
interest or to be exchanged for certificates of appropriate
denominations so stamped or endorsed, or if the interest is not
evidenced by a certificate, written notice of the number or amount of
interest which the member demands that the worker cooperative
company purchase. Upon subsequent transfers of the dissenting
interest on the books of the worker cooperative company, the new
certificates or other written statement issued therefor shall bear a
like statement, together with the name of the original holder of the
dissenting interest.
17810.05. (a) If the worker cooperative company and the
dissenting member agree that the member's interest is a dissenting
interest and agree upon the price to be paid for the dissenting
interest, the dissenting member is entitled to the agreed price with
interest thereon at the legal rate on judgments from the date of
consummation of the reorganization. All agreements fixing the fair
market value of any dissenting member's interest as between the
worker cooperative company and that member shall be in writing and
filed in the records of the worker cooperative company.
(b) Subject to the provisions of Section 17810.08, payment of the
fair market value for a dissenting interest shall be made within 30
days after the amount has been agreed to or within 30 days after any
statutory or contractual conditions to the reorganization are
satisfied, whichever is later, and in the case of dissenting
interests evidenced by certificates of interest, subject to surrender
of such certificates of interest, unless provided otherwise by
agreement.
17810.06. (a) If the worker cooperative company denies that a
membership interest is a dissenting interest, or the worker
cooperative company and a dissenting member fail to agree upon the
fair market value of a dissenting interest, then the member or any
interested worker cooperative company, within six months after the
date when notice of the approval of the reorganization by the
requisite vote or consent of the members was mailed to the member,
but not later, may file a complaint in the superior court of the
proper county praying the court to determine whether the interest is
a dissenting interest, or the fair market value of the dissenting
interest, or both, or may intervene in any action pending on such a
complaint.
(b) Two or more dissenting members may join as plaintiffs or be
joined as defendants in any of those actions and two or more of those
actions may be consolidated.
(c) On the trial of the action, the court shall determine the
issues. If the status of the membership interest as a dissenting
interest is in issue, the court shall first determine that issue. If
the fair market value of the dissenting interest is in issue, the
court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the dissenting
interest.
17810.07. (a) If the court appoints an appraiser or appraisers,
they shall proceed forthwith to determine the fair market value per
interest of the outstanding membership interests of the worker
cooperative company, by class if necessary. Within the time fixed by
the court, the appraisers, or a majority of them, shall make and file
a report in the office of the clerk of the court. Thereupon, on the
motion of any party, the report shall be submitted to the court and
considered on such additional evidence as the court considers
relevant. If the court finds the report reasonable, the court may
confirm it.
(b) If a majority of the appraisers appointed fails to make and
file a report within 30 days from the date of their appointment, or
within a further time as may be allowed by the court, or the report
is not confirmed by the court, the court shall determine the fair
market value per interest of the outstanding membership interests of
the worker cooperative company, by class if necessary.
(c) Subject to Section 17810.08, judgment shall be rendered
against the worker cooperative company for payment of an amount equal
to the fair market value, as determined by the court, of each
dissenting interest that any dissenting member who is a party, or has
intervened, is entitled to require the worker cooperative company to
purchase, with interest thereon at the legal rate on judgments from
the date of consummation of the reorganization.
(d) Any of those judgments shall be payable forthwith, provided,
however, that with respect to membership interests evidenced by
transferable certificates of interest, only upon the endorsement and
delivery to the worker cooperative company of those certificates
representing the interests described in the judgment. Any party may
appeal from the judgment.
(e) The costs of the action, including reasonable compensation for
the appraisers, to be fixed by the court, shall be assessed or
apportioned as the court considers equitable, but, if the appraisal
exceeds the price offered by the worker cooperative company, the
worker cooperative company shall pay the costs, including, in the
discretion of the court, if the value awarded by the court for the
dissenting interest is more than 125 percent of the price offered by
the worker cooperative company under subdivision (a) of Section
17810.02, attorney's fees and fees of expert witnesses.
17810.08. To the extent that the payment to dissenting members of
the fair market value of their dissenting interests would require
the dissenting members to return payment or a portion of the payment
by reason of Section 17810.09 or the Uniform Fraudulent Transfer Act
(Chapter 1 (commencing with Section 3439) of Title 2 of Part 2 of
Division 4 of the Civil Code), then that payment or portion thereof
shall not be made and the dissenting members shall become creditors
of the worker cooperative company for the amount not paid, together
with interest thereon at the legal rate on judgments until the date
of payment, but subordinate to all other creditors in any proceeding
relating to the winding up and dissolution of the worker cooperative
company, such debt to be payable when permissible.
17810.09. Any cash distributions made by a worker cooperative
company to a dissenting member after the date of consummation of the
reorganization, but prior to any payment by the worker cooperative
company for that dissenting member's interest, shall be credited
against the total amount to be paid by the worker cooperative company
for such dissenting interest.
17810.10. Except as expressly limited by this article, dissenting
members shall continue to have all the rights and privileges
incident to their interests immediately prior to the reorganization,
including worker cooperative, until payment by the worker cooperative
company for their dissenting interests. A dissenting member may not
withdraw a demand for payment unless the worker cooperative company
consents thereto.
17810.11. A dissenting interest loses its status as a dissenting
interest and the holder thereof ceases to be a dissenting member and
ceases to be entitled to require the worker cooperative company to
purchase the interest upon the happening of any of the following:
(a) The worker cooperative company abandons the reorganization.
Upon abandonment of the reorganization, the worker cooperative
company shall pay, on demand, to any dissenting member who has
initiated proceeding in good faith under this article, all reasonable
expenses incurred in such proceedings and reasonable attorney's
fees.
(b) The interest is transferred prior to its submission for
endorsement in accordance with Section 17810.04.
(c) The dissenting member and the worker cooperative company do
not agree upon the status of the interest as a dissenting interest or
upon the purchase price of the dissenting interest, and neither
files a complaint nor intervenes in a pending action, as provided in
Section 17810.06, within six months after the date upon which notice
of the approval of the reorganization by the requisite vote or
consent of members was mailed to the member.
(d) The dissenting member, with the consent of the worker
cooperative company, withdraws the member's demand for purchase of
the dissenting interest.
17810.12. If litigation is instituted to test the sufficiency or
regularity of the vote or consent of the members in authorizing a
reorganization, any proceedings under Sections 17810.06 and 17810.07
shall be suspended until final determination of that litigation.
17810.13. (a) This article applies to the following:
(1) A domestic worker cooperative company formed on or after
January 1, 2015.
(2) A worker cooperative company if the operating agreement so
provides or if all managers and a majority of the members, if it is a
manager-managed worker cooperative company, or a majority, if it is
a member-managed worker cooperative company, determine that this
article shall apply.
(b) This article does not apply to membership interests governed
by operating agreements whose terms and provisions specifically set
forth the amount to be paid in respect of those interests in the
event of a reorganization of the worker cooperative company, or to
any worker cooperative company with 35 or fewer members if all the
members have waived the application of this article in writing,
whether in an operating agreement or otherwise, provided that if, at
the time of the reorganization, the worker cooperative company had
more than 35 members, any waiver shall be ineffective as to that
reorganization.
17810.14. (a) No member of a worker cooperative company who has a
right under this article to demand payment of cash for the interest
owned by a member in a worker cooperative company shall have any
right at law or in equity to attack the validity of the
reorganization, or to have the reorganization set aside or rescinded,
except in an action to test whether the vote or consent of members
required to authorize or approve the reorganization has been obtained
in accordance with the procedures established therefor by the
operating agreement of the worker cooperative company.
(b) If one of the parties to a reorganization is directly or
indirectly controlled by, or under common control with, another party
to the reorganization, subdivision (a) shall not apply to any member
of the controlled party who has not demanded payment of cash for the
member's interest pursuant to this article; but if the member
institutes any action to attack the validity of the reorganization or
to have the reorganization set aside or rescinded, the member shall
not thereafter have any right to demand payment of cash for the
member's interest pursuant to this article.
(c) If one of the parties to a reorganization is directly or
indirectly controlled by, or under common control with, another party
to the reorganization, then, in any action to attack the validity of
the reorganization or to have the reorganization set aside or
rescinded, both of the following apply:
(1) A party to a reorganization that controls another party to a
reorganization shall have the burden of proving that the transaction
is just and reasonable as to the members of the controlled party.
(2) A person that controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and
reasonable as to the members of any party so controlled.
(d) Subdivisions (b) and (c) shall not apply if a majority of the
members other than members who are directly or indirectly controlled
by, or under common control with, another party to the reorganization
approve or consent to the reorganization.
(e) This section shall not prevent a member of a worker
cooperative company that is a party to a reorganization from bringing
an action against a manager of the worker cooperative company, the
worker cooperative company, or any person controlling a manager at
law or in equity as to any matters, including, without limitation, an
action for breach of fiduciary obligation or fraud, other than to
attack the validity of the reorganization or to have the
reorganization set aside or rescinded.
Article 11. Class Provisions
17811.01. The articles of organization or the operating agreement
may provide for the creation of classes of members having those
relative rights, powers, and duties as the articles of organization
or operating agreement may provide, including rights, powers, and
duties senior to other classes of members.
Article 12. Miscellaneous Provisions
17812.05. This division, or any part, chapter, article, or
section thereof, may at any time be amended or repealed.
17812.06. (a) If a manager or member required by this division to
execute or file any document fails, after demand, to do so within a
reasonable time or refuses to do so, any other manager or member, or
any person appointed by a court of competent jurisdiction, may
prepare, execute, and file that document with the Secretary of State.
(b) If there is any dispute concerning the filing of a document,
or the failure to file a document, any manager or member may petition
the superior court to direct the execution of the document.
(c) If the court finds that it is proper for the document to be
executed and that any person so designated has failed or refused to
execute the document, or if the court determines that any document
should be filed, it shall order a party to file the document, on a
form prescribed by the Secretary of State if appropriate, as ordered
by the court.
(d) In any action under this section, if the court finds the
failure of the manager or member to comply with the requirement to
file any document to have been without justification, the court may
award an amount sufficient to reimburse the managers or members
bringing the action for the reasonable expenses incurred by them,
including attorney's fees, in connection with the action or
proceeding.
(e) Any member who is not a manager, or any person filing any
document under this section, shall state the statutory authority
after the signature on the appropriate document.
17812.07. (a) Every worker cooperative company that neglects,
fails, or refuses to keep or cause to be kept or maintained the
documents, books, and records required by Section 17801.13 to be kept
or maintained shall be subject to a penalty of twenty-five dollars
($25) for each day that the failure or refusal continues, beginning
30 days after receipt of written request by any member that the duty
be performed, up to a maximum of one thousand five hundred dollars
($1,500). The penalty shall be paid to the member or members jointly
making the request for performance of the duty and damaged by the
neglect, failure, or refusal, if suit therefor is commenced within 90
days after the written request is made; but the maximum daily
penalty because of failure to comply with any number of separate
requests made on any one day or for the same act shall be two hundred
fifty dollars ($250).
(b) Upon the failure of a worker cooperative company, or a foreign
limited liability company registered to transact intrastate business
in this state, to file the statement required by Section 17802.09,
the Secretary of State shall provide a notice of that
delinquency to the worker cooperative
company. The notice shall also contain information concerning the
application of this section, advise the worker cooperative company of
the penalty imposed by this subdivision for failure to timely file
the required statement after notice of delinquency has been provided
by the Secretary of State, and shall advise the worker cooperative
company of its right to request relief from the Secretary of State
because of reasonable cause or unusual circumstances that justify the
failure to file. If, within 60 days after providing notice of the
delinquency, a statement pursuant to Section 17802.09 has not been
filed by the worker cooperative company, the worker cooperative
company shall be subject to a penalty of two hundred fifty dollars
($250).
17812.08. Any penalty prescribed by Section 17812.07 shall be in
addition to any remedy by injunction or action for damages or by writ
of mandate for the nonperformance of acts and duties enjoined by law
upon the worker cooperative company or its managers, including,
without limitation, the remedies provided in subdivisions (f) and (g)
of Section 17804.10. The court in which an action for any penalty is
brought may reduce, remit, or suspend the penalty on any terms and
conditions as it may deem reasonable when it is made to appear that
the neglect, failure, or refusal was inadvertent or excusable.
17812.09. (a) Upon the failure of a worker cooperative company to
file the statement required by Section 17802.09, the Secretary of
State shall provide a notice of the delinquency to the worker
cooperative company. The notice shall also contain information
concerning the application of this section, advise the worker
cooperative company of the penalty imposed by Section 19141 of the
Revenue and Taxation Code for failure to timely file the required
statement after notice of delinquency has been mailed by the
Secretary of State, and shall advise the worker cooperative company
of its right to request relief from the Secretary of State because of
reasonable cause or unusual circumstances that justify such failure
to file. If, within 60 days after providing notice of the
delinquency, a statement pursuant to Section 17802.09 has not been
filed by the worker cooperative company, the Secretary of State shall
certify the name of such worker cooperative company to the Franchise
Tax Board.
(b) Upon certification pursuant to subdivision (a), the Franchise
Tax Board shall assess against the worker cooperative company the
penalty provided in Section 19141 of the Revenue and Taxation Code.
(c) The penalty provided by Section 19141 of the Revenue and
Taxation Code shall not apply to a worker cooperative company that on
or prior to the date of certification pursuant to subdivision (a)
has been canceled, has been merged into another worker cooperative
company, other business entity, foreign other business entity, or has
converted into another foreign business entity, foreign other
business entity.
(d) The penalty herein provided shall not apply and the Secretary
of State need not provide notice of the delinquency to a worker
cooperative company the powers, rights, and privileges of which have
been suspended by the Franchise Tax Board pursuant to Section 23301,
23301.5, or 23775 of the Revenue and Taxation Code on or prior to,
and remain suspended on, the last day of the filing period pursuant
to Section 17802.09. The Secretary of State need not provide notice
of the filing requirement pursuant to Section 17802.09 to a worker
cooperative company the powers, rights, and privileges of which have
been so suspended by the Franchise Tax Board on or prior to, and
remain suspended on, the day the Secretary of State prepares the
notice for sending.
(e) If, after certification pursuant to subdivision (a) the
Secretary of State finds (1) the required statement was filed or the
required fee was paid before the expiration of the 60-day period
after providing notice of the delinquency, or (2) the failure to
provide notice of delinquency was due to an error of the Secretary of
State, the Secretary of State shall promptly decertify the name of
the worker cooperative company to the Franchise Tax Board. The
Franchise Tax Board shall then promptly abate any penalty assessed
against the worker cooperative company pursuant to Section 19141 of
the Revenue and Taxation Code.
(f) If the Secretary of State determines that the failure of a
worker cooperative company to file the statement required by Section
17802.09 is excusable because of reasonable cause or unusual
circumstances that justify such failure, the Secretary of State may
waive the penalty imposed by this section and by Section 19141 of the
Revenue and Taxation Code, in which case the Secretary of State
shall not certify the name of the worker cooperative company to the
Franchise Tax Board, or if already certified, the Secretary of State
shall promptly decertify the name of the worker cooperative company.
17812.10. (a) A worker cooperative company that (1) fails to file
a statement pursuant to Section 17802.09 for an applicable filing
period, (2) has not filed a statement pursuant to Section 17802.09
during the preceding 24 months, and (3) was certified for penalty
pursuant to Section 17812.09 for the same filing period, shall be
subject to suspension pursuant to this section rather than to penalty
pursuant to Section 17812.09.
(b) When subdivision (a) is applicable, the Secretary of State
shall notify the worker cooperative company that its powers, rights,
and privileges will be suspended after 60 days if it fails to file a
statement pursuant to Section 17802.09.
(c) After the expiration of the 60-day period without any
statement filed pursuant to Section 17802.09, the Secretary of State
shall notify the Franchise Tax Board of the suspension, and shall
provide a notice of the suspension to the worker cooperative company
and thereupon, except for the purpose of amending the articles of
organization to set forth a new name, the powers, rights, and
privileges of the worker cooperative company are suspended.
(d) A statement pursuant to Section 17802.09 may be filed
notwithstanding suspension of the powers, rights, and privileges
pursuant to this section or Section 23301 or 23301.5 of the Revenue
and Taxation Code. Upon the filing of a statement pursuant to Section
17802.09 by a worker cooperative company that has suffered
suspension pursuant to this section, the Secretary of State shall
certify that fact to the Franchise Tax Board and the worker
cooperative company may thereupon be relieved from suspension unless
the worker cooperative company is held in suspension by the Franchise
Tax Board by reason of Section 23301 or 23301.5 of the Revenue and
Taxation Code.
17812.12. (a) A worker cooperative company is liable for a civil
penalty in an amount not exceeding one million dollars ($1,000,000)
if the worker cooperative company does both of the following:
(1) Has actual knowledge that a member, officer, manager, or agent
of the worker cooperative company does any of the following:
(A) Makes, publishes, or posts, or has made, published, or posted,
either generally or privately to the shareholders or other persons,
either of the following:
(i) An oral, written, or electronically transmitted report,
exhibit, notice, or statement of its affairs or pecuniary condition
that contains a material statement or omission that is false and
intended to give membership shares in the worker cooperative company
a materially greater or a materially less apparent market value than
they really possess.
(ii) An oral, written, or electronically transmitted report,
prospectus, account, or statement of operations, values, business,
profits, or expenditures that includes a material false statement or
omission intended to give membership shares in the worker cooperative
company a materially greater or a materially less apparent market
value than they really possess.
(B) Refuses or has refused to make any book entry or post any
notice required by law in the manner required by law.
(C) Misstates or conceals or has misstated or concealed from a
regulatory body a material fact in order to deceive a regulatory body
to avoid a statutory or regulatory duty, or to avoid a statutory or
regulatory limit or prohibition.
(2) Within 30 days after actual knowledge is acquired of the
actions described in paragraph (1), the worker cooperative company
knowingly fails to do both of the following:
(A) Notify the Attorney General or appropriate government agency
in writing, unless the worker cooperative company has actual
knowledge that the Attorney General or appropriate government agency
has been notified.
(B) Notify its members and investors in writing, unless the worker
cooperative company has actual knowledge that the members and
investors have been notified.
(b) The requirement for notification under this section is not
applicable if the action taken or about to be taken by the worker
cooperative company, or by a member, officer, manager, or agent of
the worker cooperative company under paragraph (1) of subdivision
(a), is abated within the time prescribed for reporting, unless the
appropriate government agency requires disclosure by regulation.
(c) If the action reported to the Attorney General pursuant to
this section implicates the government authority of an agency other
than the Attorney General, the Attorney General shall promptly
forward the written notice to that agency.
(d) If the Attorney General was not notified pursuant to
subparagraph (A) of paragraph (2) of subdivision (a), but the worker
cooperative company reasonably and in good faith believed that it had
complied with the notification requirements of this section by
notifying a government agency listed in paragraph (5) of subdivision
(e), no penalties shall apply.
(e) For purposes of this section:
(1) "Manager" means a person defined by subdivision (m) of Section
17801.01 having both of the following:
(A) Management authority over the worker cooperative company.
(B) Significant responsibility for an aspect of the worker
cooperative company that includes actual authority for the financial
operations or financial transactions of the worker cooperative
company.
(2) "Agent" means a person or entity authorized by the worker
cooperative company to make representations to the public about the
worker cooperative company's financial condition and who is acting
within the scope of the agency when the representations are made.
(3) "Member" means a person as defined by subdivision (o) of
Section 17801.01 that is a member of the worker cooperative company
at the time the disclosure is required pursuant to subparagraph (B)
of paragraph (2) of subdivision (a).
(4) "Notify its members" means to give sufficient description of
an action taken or about to be taken that would constitute acts or
omissions as described in paragraph (1) of subdivision (a). A notice
or report filed by a worker cooperative company with the United
States Securities and Exchange Commission that relates to the facts
and circumstances giving rise to an obligation under paragraph (1) of
subdivision (a) shall satisfy all notice requirements arising under
paragraph (2) of subdivision (a) but shall not be the exclusive means
of satisfying the notice requirements, provided that the Attorney
General or appropriate agency is informed in writing that the filing
has been made together with a copy of the filing or an electronic
link where it is available online without charge.
(5) "Appropriate government agency" means an agency on the
following list that has regulatory authority with respect to the
financial operations of a worker cooperative company:
(A) Department of Business Oversight.
(B) Department of Insurance.
(C) Department of Financial Institutions.
(D) Department of Managed Health Care.
(E) United States Securities and Exchange Commission.
(6) "Actual knowledge of the worker cooperative company" means the
knowledge a member, officer, or manager of a worker cooperative
company actually possesses or does not consciously avoid possessing,
based on an evaluation of information provided pursuant to the worker
cooperative company's disclosure controls and procedures.
(7) "Refuse to make a book entry" means the intentional decision
not to record an accounting transaction when all of the following
conditions are satisfied:
(A) The independent auditors required recordation of an accounting
transaction during the course of an audit.
(B) The audit committee of the worker cooperative company has not
approved the independent auditor's recommendation.
(C) The decision is made for the primary purpose of rendering the
financial statements materially false or misleading.
(8) "Refuse to post any notice required by law" means an
intentional decision not to post a notice required by law when all of
the following conditions exist:
(A) The decision not to post the notice has not been approved by
the worker cooperative company's audit committee.
(B) The decision is intended to give the membership shares in the
worker cooperative company a materially greater or a materially less
apparent market value than they really possess.
(9) "Misstate or conceal material facts from a regulatory body"
means an intentional decision not to disclose material facts when all
of the following conditions exist:
(A) The decision not to disclose material facts has not been
approved by the worker cooperative company's audit committee.
(B) The decision is intended to give the membership shares in the
worker cooperative company a materially greater or a materially less
apparent market value than they really possess.
(10) "Material false statement or omission" means an untrue
statement of material fact or an omission to state a material fact
necessary in order to make the statements made under the
circumstances under which they were made not misleading.
(11) "Officer" means a person appointed pursuant to Section
17803.02, except an officer of a specified subsidiary worker
cooperative company who is not also an officer of the parent worker
cooperative company.
(f) This section only applies to worker cooperative companies that
are issuers, as defined in Section 2 of the federal Sarbanes-Oxley
Act of 2002 (15 U.S.C. Sec. 7201 et seq.).
(g) An action to enforce this section may only be brought by the
Attorney General or a district attorney or city attorney in the name
of the people of the State of California.
SEC. 5. SEC. 6. Section 25100 of the
Corporations Code is amended to read:
25100. The following securities are exempted from Sections 25110,
25120, and 25130:
(a) Any security (including a revenue obligation) issued or
guaranteed by the United States, any state, any city, county, city
and county, public district, public authority, public corporation,
public entity, or political subdivision of a state or any agency or
corporate or other instrumentality of any one or more of the
foregoing; or any certificate of deposit for any of the foregoing.
(b) Any security issued or guaranteed by Canada, any Canadian
province, any political subdivision or municipality of that province,
or by any other foreign government with which the United States
currently maintains diplomatic relations, if the security is
recognized as a valid obligation by the issuer or guarantor; or any
certificate of deposit for any of the foregoing.
(c) Any security issued or guaranteed by and representing an
interest in or a direct obligation of a national bank or a bank or
trust company incorporated under the laws of this state, and any
security issued by a bank to one or more other banks and representing
an interest in an asset of the issuing bank.
(d) Any security issued or guaranteed by a federal savings
association or federal savings bank or federal land bank or joint
land bank or national farm loan association or by any savings
association, as defined in subdivision (a) of Section 5102 of the
Financial Code, which is subject to the supervision and regulation of
the Commissioner of Financial Institutions of this state.
(e) Any security (other than an interest in all or portions of a
parcel or parcels of real property which are subdivided land or a
subdivision or in a real estate development), the issuance of which
is subject to authorization by the Insurance Commissioner, the Public
Utilities Commission, or the Real Estate Commissioner of this state.
(f) Any security consisting of any interest in all or portions of
a parcel or parcels of real property which are subdivided lands or a
subdivision or in a real estate development; provided that the
exemption in this subdivision shall not be applicable to: (1) any
investment contract sold or offered for sale with, or as part of,
that interest, or (2) any person engaged in the business of selling,
distributing, or supplying water for irrigation purposes or domestic
use that is not a public utility except that the exemption is
applicable to any security of a mutual water company (other than an
investment contract as described in paragraph (1)) offered or sold in
connection with subdivided lands pursuant to Chapter 2 (commencing
with Section 14310) of Part 7 of Division 3 of Title 1.
(g) Any mutual capital certificates or savings accounts, as
defined in the Savings Association Law, issued by a savings
association, as defined by subdivision (a) of Section 5102 of the
Financial Code, and holding a license or certificate of authority
then in force from the Commissioner of Financial Institutions of this
state.
(h) Any security issued or guaranteed by any federal credit union,
or by any credit union organized and supervised, or regulated, under
the Credit Union Law.
(i) Any security issued or guaranteed by any railroad, other
common carrier, public utility, or public utility holding company
which is (1) subject to the jurisdiction of the Interstate Commerce
Commission or its successor or (2) a holding company registered with
the Securities and Exchange Commission under the Public Utility
Holding Company Act of 1935 or a subsidiary of that company within
the meaning of that act or (3) regulated in respect of the issuance
or guarantee of the security by a governmental authority of the
United States, of any state, of Canada or of any Canadian province;
and the security is subject to registration with or authorization of
issuance by that authority.
(j) Any security (except evidences of indebtedness, whether
interest bearing or not) of an issuer (1) organized exclusively for
educational, benevolent, fraternal, religious, charitable, social, or
reformatory purposes and not for pecuniary profit, if no part of the
net earnings of the issuer inures to the benefit of any private
shareholder or individual, or (2) organized as a chamber of commerce
or trade or professional association. The fact that amounts received
from memberships or dues or both will or may be used to construct or
otherwise acquire facilities for use by members of the nonprofit
organization does not disqualify the organization for this exemption.
This exemption does not apply to the securities of any nonprofit
organization if any promoter thereof expects or intends to make a
profit directly or indirectly from any business or activity
associated with the organization or operation of that nonprofit
organization or from remuneration received from that nonprofit
organization.
(k) Any agreement, commonly known as a "life income contract," of
an issuer (1) organized exclusively for educational, benevolent,
fraternal, religious, charitable, social, or reformatory purposes and
not for pecuniary profit and (2) which the commissioner designates
by rule or order, with a donor in consideration of a donation of
property to that issuer and providing for the payment to the donor or
persons designated by him or her of income or specified periodic
payments from the donated property or other property for the life of
the donor or those other persons.
( l ) Any note, draft, bill of exchange, or banker's
acceptance which is freely transferable and of prime quality, arises
out of a current transaction or the proceeds of which have been or
are to be used for current transactions, and which evidences an
obligation to pay cash within nine months of the date of issuance,
exclusive of days of grace, or any renewal of that paper which is
likewise limited, or any guarantee of that paper or of that renewal,
provided that the paper is not offered to the public in amounts of
less than twenty-five thousand dollars ($25,000) in the aggregate to
any one purchaser. In addition, the commissioner may, by rule or
order, exempt any issuer of any notes, drafts, bills of exchange or
banker's acceptances from qualification of those securities when the
commissioner finds that the qualification is not necessary or
appropriate in the public interest or for the protection of
investors.
(m) Any security issued by any corporation organized and existing
under the provisions of Chapter 1 (commencing with Section 54001) of
Division 20 of the Food and Agricultural Code.
(n) Any beneficial interest in an employees' pension,
profit-sharing, stock bonus or similar benefit plan which meets the
requirements for qualification under Section 401 of the federal
Internal Revenue Code or any statute amendatory thereof or
supplementary thereto. A determination letter from the Internal
Revenue Service stating that an employees' pension, profit-sharing,
stock bonus or similar benefit plan meets those requirements shall be
conclusive evidence that the plan is an employees' pension,
profit-sharing, stock bonus or similar benefit plan within the
meaning of the first sentence of this subdivision until the date the
determination letter is revoked in writing by the Internal Revenue
Service, regardless of whether or not the revocation is retroactive.
(o) Any security listed or approved for listing upon notice of
issuance on a national securities exchange, if the exchange has been
certified by rule or order of the commissioner and any warrant or
right to purchase or subscribe to the security. The exemption
afforded by this subdivision does not apply to securities listed or
approved for listing upon notice of issuance on a national securities
exchange, in a rollup transaction unless the rollup transaction is
an eligible rollup transaction as defined in Section 25014.7.
That certification of any exchange shall be made by the
commissioner upon the written request of the exchange if the
commissioner finds that the exchange, in acting on applications for
listing of common stock, substantially applies the minimum standards
set forth in either subparagraph (A) or (B) of paragraph (1), and, in
considering suspension or removal from listing, substantially
applies each of the criteria set forth in paragraph (2).
(1) Listing standards:
(A) (i) Shareholders' equity of at least four million dollars
($4,000,000).
(ii) Pretax income of at least seven hundred fifty thousand
dollars ($750,000) in the issuer's last fiscal year or in two of its
last three fiscal years.
(iii) Minimum public distribution of 500,000 shares (exclusive of
the holdings of officers, directors, controlling shareholders, and
other concentrated or family holdings), together with a minimum of
800 public holders or minimum public distribution of 1,000,000 shares
together with a minimum of 400 public holders. The exchange may also
consider the listing of a company's securities if the company has a
minimum of 500,000 shares publicly held, a minimum of 400
shareholders and daily trading volume in the issue has been
approximately 2,000 shares or more for the six months preceding the
date of application. In evaluating the suitability of an issue for
listing under this trading provision, the exchange shall review the
nature and frequency of that activity and any other factors as it may
determine to be relevant in ascertaining whether the issue is
suitable for trading. A security that trades infrequently shall not
be considered for listing under this paragraph even though average
daily volume amounts to 2,000 shares per day or more.
Companies whose securities are concentrated in a limited
geographical area, or whose securities are largely held in block by
institutional investors, normally may not be considered eligible for
listing unless the public distribution appreciably exceeds 500,000
shares.
(iv) Minimum price of three dollars ($3) per share for a
reasonable period of time prior to the filing of a listing
application; provided, however, in certain instances an exchange may
favorably consider listing an issue selling for less than three
dollars ($3) per share after considering all pertinent factors,
including market conditions in general, whether historically the
issue has sold above three dollars ($3) per share, the applicant's
capitalization, and the number of outstanding and publicly held
shares of the issue.
(v) An aggregate market value for publicly held shares of at least
three million dollars ($3,000,000).
(B) (i) Shareholders' equity of at least four million dollars
($4,000,000).
(ii) Minimum public distribution set forth in clause (iii) of
subparagraph (A) of paragraph (1).
(iii) Operating history of at least three years.
(iv) An aggregate market value for publicly held shares of at
least fifteen million dollars ($15,000,000).
(2) Criteria for consideration of suspension or removal from
listing:
(i)
(A) If a company that (A) has shareholders' equity of
less than one million dollars ($1,000,000) has sustained net losses
in each of its two most recent fiscal years, or (B) has net tangible
assets of less than three million dollars ($3,000,000) and has
sustained net losses in three of its four most recent fiscal years.
(ii)
(B) If the number of shares publicly held (excluding
the holdings of officers, directors, controlling shareholders and
other concentrated or family holdings) is less than 150,000.
(iii)
(C) If the total number of shareholders is less than
400 or if the number of shareholders of lots of 100 shares or more is
less than 300.
(iv)
(D) If the aggregate market value of shares publicly
held is less than seven hundred fifty thousand dollars ($750,000).
(v)
(E) If shares of common stock sell at a price of less
than three dollars ($3) per share for a substantial period of time
and the issuer shall fail to effectuate a reverse stock split of the
shares within a reasonable period of time after being requested by
the exchange to take that action.
A national securities exchange, certified by rule or order of
the commissioner under
this subdivision, shall file annual reports when requested to do so
by the commissioner. The annual reports shall contain, by issuer: the
variances granted to an exchange's listing standards, including
variances from corporate governance and voting rights' standards, for
any security of that issuer; the reasons for the variances; a
discussion of the review procedure instituted by the exchange to
determine the effect of the variances on investors and whether the
variances should be continued; and any other information that the
commissioner deems relevant. The purpose of these reports is to
assist the commissioner in determining whether the quantitative and
qualitative requirements of this subdivision are substantially being
met by the exchange in general or with regard to any particular
security.
The commissioner after appropriate notice and opportunity for
hearing in accordance with the provisions of the Administrative
Procedure Act, Chapter 5 (commencing with Section 11500) of Part 1 of
Division 3 of Title 2 of the Government Code, may, in his or her
discretion, by rule or order, decertify any exchange previously
certified that ceases substantially to apply the minimum standards or
criteria as set forth in paragraphs (1) and (2).
A rule or order of certification shall conclusively establish that
any security listed or approved for listing upon notice of issuance
on any exchange named in a rule or order of certification, and any
warrant or right to purchase or subscribe to that security, is exempt
under this subdivision until the adoption by the commissioner of any
rule or order decertifying the exchange.
(p) A promissory note secured by a lien on real property, which is
neither one of a series of notes of equal priority secured by
interests in the same real property nor a note in which beneficial
interests are sold to more than one person or entity.
(q) Any unincorporated interindemnity or reciprocal or
interinsurance contract, that qualifies under the provisions of
Section 1280.7 of the Insurance Code, between members of a
cooperative corporation, organized and operating under Part 2
(commencing with Section 12200) of Division 3 of Title 1, and whose
members consist only of physicians and surgeons licensed in
California, which contracts indemnify solely in respect to medical
malpractice claims against the members, and which do not collect in
advance of loss any moneys other than contributions by each member to
a collective reserve trust fund or for necessary expenses of
administration.
(1) Whenever it appears to the commissioner that any person has
engaged or is about to engage in any act or practice constituting a
violation of any provision of Section 1280.7 of the Insurance Code,
the commissioner may, in the commissioner's discretion, bring an
action in the name of the people of the State of California in the
superior court to enjoin the acts or practices or to enforce
compliance with Section 1280.7 of the Insurance Code. Upon a proper
showing a permanent or preliminary injunction, a restraining order,
or a writ of mandate shall be granted and a receiver or conservator
may be appointed for the defendant or the defendant's assets.
(2) The commissioner may, in the commissioner's discretion, (A)
make public or private investigations within or outside of this state
as the commissioner deems necessary to determine whether any person
has violated or is about to violate any provision of Section 1280.7
of the Insurance Code or to aid in the enforcement of Section 1280.7,
and (B) publish information concerning the violation of Section
1280.7.
(3) For the purpose of any investigation or proceeding under this
section, the commissioner or any officer designated by the
commissioner may administer oaths and affirmations, subpoena
witnesses, compel their attendance, take evidence, and require the
production of any books, papers, correspondence, memoranda,
agreements, or other documents or records which the commissioner
deems relevant or material to the inquiry.
(4) In case of contumacy by, or refusal to obey a subpoena issued
to, any person, the superior court, upon application by the
commissioner, may issue to the person an order requiring the person
to appear before the commissioner, or the officer designated by the
commissioner, to produce documentary evidence, if so ordered, or to
give evidence touching the matter under investigation or in question.
Failure to obey the order of the court may be punished by the court
as a contempt.
(5) No person is excused from attending or testifying or from
producing any document or record before the commissioner or in
obedience to the subpoena of the commissioner or any officer
designated by the commissioner, or in any proceeding instituted by
the commissioner, on the ground that the testimony or evidence
(documentary or otherwise), required of the person may tend to
incriminate the person or subject the person to a penalty or
forfeiture, but no individual may be prosecuted or subjected to any
penalty or forfeiture for or on account of any transaction, matter,
or thing concerning which the person is compelled, after validly
claiming the privilege against self-incrimination, to testify or
produce evidence (documentary or otherwise), except that the
individual testifying is not exempt from prosecution and punishment
for perjury or contempt committed in testifying.
(6) The cost of any review, examination, audit, or investigation
made by the commissioner under Section 1280.7 of the Insurance Code
shall be paid to the commissioner by the person subject to the
review, examination, audit, or investigation, and the commissioner
may maintain an action for the recovery of these costs in any court
of competent jurisdiction. In determining the cost, the commissioner
may use the actual amount of the salary or other compensation paid to
the persons making the review, examination, audit, or investigation
plus the actual amount of expenses including overhead reasonably
incurred in the performance of the work.
The recoverable cost of each review, examination, audit, or
investigation made by the commissioner under Section 1280.7 of the
Insurance Code shall not exceed twenty-five thousand dollars
($25,000), except that costs exceeding twenty-five thousand dollars
($25,000) shall be recoverable if the costs are necessary to prevent
a violation of any provision of Section 1280.7 of the Insurance Code.
(r) (1) Any shares or memberships issued by any corporation
organized and existing pursuant to the provisions of Part 2
(commencing with Section 12200) of Division 3 of Title 1, provided
the aggregate investment of any shareholder or member in shares or
memberships sold pursuant to this subdivision does not exceed three
hundred dollars ($300). This exemption does not apply to the shares
or memberships of that corporation if any promoter thereof expects or
intends to make a profit directly or indirectly from any business or
activity associated with the corporation or the operation of the
corporation or from remuneration, other than reasonable salary,
received from the corporation. This exemption does not apply to
nonvoting shares or memberships of that corporation issued to any
person who does not possess, and who will not acquire in connection
with the issuance of nonvoting shares or memberships, voting power
(Section 12253) in the corporation. This exemption also does not
apply to shares or memberships issued by a nonprofit cooperative
corporation organized to facilitate the creation of an unincorporated
interindemnity arrangement that provides indemnification for medical
malpractice to its physician and surgeon members as set forth in
subdivision (q).
(2) Notwithstanding paragraph (1), any membership issued by a
worker cooperative company organized and existing pursuant to the
provisions of Division 2 (commencing with Section 17801.01) of Title
2.6, provided the primary motivation of the purchaser is to use or
consume the products or services of the worker cooperative company or
to otherwise patronize the worker cooperative company and is not
primarily motivated by the prospect of a return on investment, shall
be exempted from Sections 25110, 25120, and 25130.
(s) Any security consisting of or representing an interest in a
pool of mortgage loans that meets each of the following requirements:
(1) The pool consists of whole mortgage loans or participation
interests in those loans, which loans were originated or acquired in
the ordinary course of business by a national bank or federal savings
association or federal savings bank having its principal office in
this state, by a bank incorporated under the laws of this state or by
a savings association as defined in subdivision (a) of Section 5102
of the Financial Code and which is subject to the supervision and
regulation of the Commissioner of Financial Institutions, and each of
which at the time of transfer to the pool is an authorized
investment for the originating or acquiring institution.
(2) The pool of mortgage loans is held in trust by a trustee which
is a financial institution specified in paragraph (1) as trustee or
otherwise.
(3) The loans are serviced by a financial institution specified in
paragraph (1).
(4) The security is not offered in amounts of less than
twenty-five thousand dollars ($25,000) in the aggregate to any one
purchaser.
(5) The security is offered pursuant to a registration under the
Securities Act of 1933, or pursuant to an exemption under Regulation
A under that act, or in the opinion of counsel for the issuer, is
offered pursuant to an exemption under Section 4(2) of that act.
(t) (1) Any security issued or guaranteed by and representing an
interest in or a direct obligation of an industrial loan company
incorporated under the laws of the state and authorized by the
Commissioner of Financial Institutions to engage in industrial loan
business.
(2) Any investment certificate in or issued by any industrial loan
company that is organized under the laws of a state of the United
States other than this state, that is insured by the Federal Deposit
Insurance Corporation, and that maintains a branch office in this
state.
SEC. 6. SEC. 7. No reimbursement is
required by this act pursuant to Section 6 of Article XIII B of the
California Constitution because the only costs that may be incurred
by a local agency or school district will be incurred because this
act creates a new crime or infraction, eliminates a crime or
infraction, or changes the penalty for a crime or infraction, within
the meaning of Section 17556 of the Government Code, or changes the
definition of a crime within the meaning of Section 6 of Article XIII
B of the California Constitution.
