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S.B. 142






Sponsor: Leonard M. Blackham

             6      This act modifies the Agricultural Cooperative Associations Act to provide for
             7      one-member associations and allows for proportionate voting in cooperative associations
             8      based on patronage. This act allows for dividends exceeding 8% per annum on
             9      preferred, nonvoting stock. This act provides for the judicial dissolution of cooperative
             10      associations in certain circumstances.
             11      This act affects sections of Utah Code Annotated 1953 as follows:
             12      AMENDS:
             13          3-1-3, as last amended by Chapter 204, Laws of Utah 1994
             14          3-1-10, as last amended by Chapter 202, Laws of Utah 1994
             15          3-1-11, as last amended by Chapter 9, Laws of Utah 1996
             16          3-1-13, as last amended by Chapter 204, Laws of Utah 1994
             17      ENACTS:
             18          3-1-20.1, Utah Code Annotated 1953
             19          3-1-20.2, Utah Code Annotated 1953
             20          3-1-20.3, Utah Code Annotated 1953
             21          3-1-20.4, Utah Code Annotated 1953
             22      Be it enacted by the Legislature of the state of Utah:
             23          Section 1. Section 3-1-3 is amended to read:
             24           3-1-3. Qualifications of incorporators.
             25          (1) Five or more individuals may form an association if they are:
             26          (a) at least 18 years of age; and
             27          (b) engaged in agriculture.

             28          (2) [Two] One or more associations of individuals engaged in agriculture referred to in
             29      Subsection (1) may form an association.
             30          Section 2. Section 3-1-10 is amended to read:
             31           3-1-10. Members -- Qualifications and liabilities -- Voting rights.
             32          (1) As used in this section, "patronage" means business or services transacted or
             33      performed by a member or shareholder with an association.
             34          [(1)] (2) (a) An association may only have as members or issue common stock to:
             35          (i) current producers of agricultural products;
             36          (ii) tenants and landlords receiving a share of the crop; and
             37          (iii) cooperative associations of those producers.
             38          (b) The incorporators named in the articles shall be members of the association, and
             39      shall pay the same amount and in the same manner for their membership or stock as do other
             40      members.
             41          [(2)] (3) A stockholder may not hold more than one share of the common voting stock.
             42          [(3)] (4) (a) Under the terms and conditions prescribed in the bylaws, a member shall
             43      lose his or her membership if [he] that member no longer qualifies for membership under this
             44      section.
             45          (b) Despite termination of membership under Subsection [(3)] (4)(a), the former
             46      member shall remain subject to any liability [incurred by him] he or she incurs while a member
             47      of the association.
             48          [(4)] (5) A member is not personally liable for any debt or liability of the association.
             49          [(5)] (6) (a) (i) A member or stockholder is [only] entitled to:
             50          (A) one vote based on the amount of stock or membership capital owned; and
             51          (B) additional votes, if the bylaws provide that a member or shareholder is entitled to
             52      more than one vote based on actual patronage of the association.
             53          (ii) A vote may not be cast by proxy, unless the member is a corporation, in which case
             54      its vote may be cast by an authorized representative.
             55          (b) (i) The bylaws of an association may provide that a member may vote by signed
             56      ballot.
             57          (ii) The member's signature on a ballot shall be notarized by a notary public before the
             58      ballot can be counted in any election.

             59          Section 3. Section 3-1-11 is amended to read:
             60           3-1-11. Certificates of and termination of membership -- Dividends and
             61      distribution of reserves -- Preferred stock -- Certificates of interest -- Unclaimed credits.
             62          (1) No certificate for membership or stock shall be issued until fully paid for, but
             63      bylaws may provide that a member may vote and hold office prior to payment in full for his
             64      membership or stock.
             65          (2) Dividends in excess of eight per centum per annum on the actual cash value of the
             66      consideration received by the association shall not be paid on common [or preferred] stock or
             67      membership capital, but dividends may be cumulative if so provided in the articles or bylaws.
             68          (3) (a) Savings in excess of dividends and additions to reserves and surplus shall be
             69      distributed on the basis of patronage.
             70          (b) The bylaws may provide that any distribution to a nonmember, who is eligible for
             71      membership, may be credited to [such] that nonmember until the amount [thereof] of the
             72      distribution equals the value of a membership certificate, or a share of the association's
             73      common stock.
             74          (c) The distribution credited to the account of [such] the nonmember may be
             75      transferred to the membership fund at the option of the board, if, after two years, the amount is
             76      less than the value of the membership certificate or a share of common stock.
             77          (4) (a) The bylaws shall provide the time and manner of settlement of membership
             78      interests with members who withdraw from the association or whose membership is otherwise
             79      terminated.
             80          (b) Provisions for forfeiture of membership interests may be made in the bylaws.
             81          (c) After the termination of the membership, for whatever cause, the withdrawing
             82      member shall exercise no further control over the facilities, assets, or activities of the
             83      association.
             84          (5) (a) An association may issue preferred stock to members and nonmembers.
             85          (b) Preferred stock may be redeemed or retired by the association on [such] the terms
             86      and conditions as [may be] are provided in the articles or bylaws and printed on the stock
             87      certificates.
             88          (c) Preferred stockholders shall not be entitled to vote, but no change in their priority or
             89      preference rights shall be effective until the written consent of the holders of a majority of the

             90      preferred stock has been obtained.
             91          (d) Payment for preferred stock may be made in cash, services, or property on the basis
             92      of the fair value of the stock, services, and property, as determined by the board.
             93          (6) (a) The association may [from time to time] issue to each member a certificate of
             94      interest evidencing [his] the member's interest in any fund, capital investment, or other assets
             95      of the association.
             96          (b) Those certificates may be transferred only to the association, or to [such] other
             97      [purchaser as may be] purchasers, as approved by the board of directors, [upon such] under the
             98      terms and conditions [as shall be] provided for in the bylaws.
             99          (7) (a) As used in this Subsection (7), "reasonable effort" means:
             100          (i) a letter to a member's or former member's last-known address, a listing of
             101      unclaimed credits in an association publication, and the posting of a list of unclaimed credits at
             102      the association's principal place of business; and
             103          (ii) publishing a list of the unclaimed credits exceeding $25 each, or greater, in a
             104      newspaper of general circulation in the area where the association's principal offices are
             105      located.
             106          (b) [As] The association may retain revolving certificates of interest described in this
             107      Subsection (7) as an exception [from] to the provisions of Title 67, Chapter 4a, Unclaimed
             108      Property Act, [the association may retain certificates of interest described in this Subsection (7)
             109      that are called for revolving by] if:
             110          (i) the board of directors of the association determines to revolve the certificates and
             111      the certificates remain unclaimed by the association's members or former members for five
             112      years after the credit is declared [if:];
             113          [(i)] (ii) the association is authorized to retain those credits by its bylaws;
             114          [(ii)] (iii) the board of directors of the association approves the retention; and
             115          [(iii)] (iv) before retaining the credits, the association makes a reasonable effort to
             116      locate and communicate the issuance of the credits to the members or former members.
             117          (c) (i) The board of directors may either add the unclaimed credits as a contribution to
             118      the capital fund, or use them to establish an agricultural educational program as described in
             119      Subsection (7)(c)(ii).
             120          (ii) If the board of directors chooses to use the unclaimed credits to establish an

             121      agricultural educational program, it shall establish an agricultural educational program to:
             122          (A) provide scholarships for low income and worthy students to colleges and
             123      universities;
             124          (B) provide funding for director training and education;
             125          (C) provide funds for cooperative education programs in secondary or higher education
             126      institutions; or
             127          (D) provide [any] other educational [opportunity as declared by the board of directors]
             128      opportunities.
             129          (iii) The board of directors may not distribute unclaimed credits to current patrons of
             130      the association.
             131          (iv) Upon dissolution of an association, the board of directors shall report and remit
             132      unclaimed credits to the Division of Unclaimed Property.
             133          (d) (i) Each association that applies credits under Subsection (7)(c) during a calendar
             134      year, shall file an annual report with the State Treasurer by April 15 of the [next] following
             135      year.
             136          (ii) The report shall [identify] specify:
             137          (A) the dollar amount of credits applied during the year;
             138          (B) the dollar amount of credit paid to claimants during the year; and
             139          (C) the aggregate dollar amount of credits applied since January 1, 1996.
             140          (e) At any time after the association retains credits under this Subsection (7), the
             141      association shall pay the members, former members, or their successors in interest, the value of
             142      the credit, without interest, if the members, former members, or their successors in interest:
             143          (i) file a written claim for payment with the association; and
             144          (ii) surrender the certificate issued by the association that evidences the credit.
             145          Section 4. Section 3-1-13 is amended to read:
             146           3-1-13. Directors.
             147          (1) (a) (i) Except as provided in Subsection (1)(c), the business of the association shall
             148      be managed by a board of not less than three directors.
             149          (ii) At least two-thirds of the directors shall be members of the association, or officers,
             150      directors, or members of a member association.
             151          (b) A director shall hold office for the term for which he or she was named or elected

             152      and until [his] a successor is elected.
             153          (c) If an association has [only two] less than three associations of producers as its
             154      members, the association may be managed by a board of two directors, each of whom shall be
             155      an officer, director, or member of a member association.
             156          (2) Directors shall be elected by the members at the first meeting of the members held
             157      after the incorporation of the association.
             158          (3) Subject to the provisions of this chapter, the articles, or bylaws, shall specify the:
             159          (a) number;
             160          (b) qualifications;
             161          (c) terms of office;
             162          (d) manner of election;
             163          (e) time and place of meeting; and
             164          (f) powers and duties of the directors.
             165          (4) Unless otherwise provided in the articles or bylaws, a director shall be elected for a
             166      term of one year.
             167          (5) (a) (i) Unless otherwise provided in the articles or bylaws and except as provided in
             168      Subsection (5)(b), a vacancy on the board, other than by expiration of term, shall be filled by
             169      the remaining members of the board.
             170          (ii) A director elected by the remaining members of the board shall serve until a
             171      successor is elected by the members at the next annual meeting of the members, or at a special
             172      meeting.
             173          (b) (i) If the bylaws provide for the election of directors within districts, the board shall
             174      call a special meeting of the members in the district to elect a person qualified to fill the
             175      vacancy.
             176          (ii) Unless otherwise provided in the articles or bylaws, a director elected by a district
             177      shall serve until a successor is elected at the next regular meeting at which a director or
             178      directors are to be elected.
             179          (6) (a) If not restricted by the articles, the bylaws may provide that the:
             180          (i) area in which the association has members shall be divided into districts; and
             181          (ii) directors shall be elected within those districts.
             182          (b) The directors may be elected either directly or by district delegates elected by the

             183      members in that district.
             184          (c) The bylaws shall specify, or authorize the board of directors to determine:
             185          (i) the number of directors to be elected within each district;
             186          (ii) the apportionment of the directors; and
             187          (iii) the method of changing district boundaries.
             188          (d) The bylaws may provide that primary elections shall be held in each district to
             189      nominate its directors, and that the result of the primary elections may be:
             190          (i) ratified at the next regular meeting of the association; or
             191          (ii) considered to be the final election.
             192          (7) (a) The bylaws may provide for an executive committee to be elected by the board
             193      of directors from its members and may delegate to this committee the functions and powers of
             194      the board.
             195          (b) The executive committee shall be subject to the general direction and control of the
             196      board.
             197          Section 5. Section 3-1-20.1 is enacted to read:
             198          3-1-20.1. Grounds for judicial dissolution.
             199          (1) An association may be dissolved in a proceeding by the attorney general if it is
             200      established that the association:
             201          (a) obtained its articles of incorporation through fraud; or
             202          (b) has continued to exceed or abuse the authority conferred upon it by law.
             203          (2) An association may be dissolved in a proceeding brought by a shareholder if it is
             204      established that:
             205          (a) the directors are deadlocked in the management of the association affairs, the
             206      members are unable to break the deadlock, irreparable injury to the association is threatened or
             207      being suffered, or the business and affairs of the association can no longer be conducted to the
             208      advantage of the members generally, because of the deadlock;
             209          (b) the directors, or those in control of the association, have acted, are acting, or will
             210      act in a manner that is illegal, oppressive, or fraudulent;
             211          (c) the members are deadlocked in voting power and have failed, for a period that
             212      includes at least two consecutive annual meeting dates, to elect successors to directors whose
             213      terms have expired or would have expired on the election of their successors; or

             214          (d) the association's assets are being misapplied or wasted.
             215          (3) An association may be dissolved in a proceeding by a creditor if it is established
             216      that:
             217          (a) the creditor's claim has been reduced to a judgment, the execution on the judgment
             218      has been returned unsatisfied, and the association is insolvent; or
             219          (b) the association is insolvent and the association has admitted in writing that the
             220      creditor's claim is due and owing.
             221          (4) An association may be dissolved in a proceeding by the association to have its
             222      voluntary dissolution continued under court supervision.
             223          Section 6. Section 3-1-20.2 is enacted to read:
             224          3-1-20.2. Procedure for judicial dissolution.
             225          (1) (a) A proceeding by the attorney general to dissolve an association shall be brought
             226      in either the district court of the county in which the principal office or registered office of the
             227      association is situated, or the district court of Salt Lake County.
             228          (b) A proceeding brought by any other party specified in Section 3-1-20.1 shall be
             229      brought in the district court of the county where the association's principal office is or, if it has
             230      no principal office in this state, where its registered office is or was last located.
             231          (2) It is not necessary to make members parties to a proceeding to dissolve an
             232      association unless relief is sought against them individually.
             233          (3) A court, in a proceeding brought to dissolve an association, may issue injunctions,
             234      appoint a receiver or custodian pendent elite with all powers and duties the court directs, take
             235      other action required to preserve the association assets wherever located, and carry on the
             236      business of the association until a full hearing can be held.
             237          Section 7. Section 3-1-20.3 is enacted to read:
             238          3-1-20.3. Receivership or custodianship.
             239          (1) (a) A court, in a judicial proceeding to dissolve an association, may appoint one or
             240      more receivers to wind up and liquidate, or one or more custodians to manage, the business and
             241      affairs of the association.
             242          (b) The court shall hold a hearing, after giving notice to all parties to the proceeding
             243      and any interested persons designated by the court, before appointing a receiver or custodian.
             244          (c) The court, appointing a receiver or custodian, has exclusive jurisdiction over the

             245      association and all of its property wherever located.
             246          (2) (a) The court may appoint an individual, or a domestic or foreign corporation
             247      authorized to transact business in this state as a receiver or custodian.
             248          (b) The court may require the receiver or custodian to post bond, with or without
             249      securities, in an amount the court directs.
             250          (3) (a) The court shall describe the powers of the receiver or custodian in its appointing
             251      order, which may be amended.
             252          (b) The receiver:
             253          (i) may dispose of all or any part of the assets of the association wherever located, at a
             254      public or private sale, if authorized by the court; and
             255          (ii) may sue and defend in its own name as a receiver of the association in all courts of
             256      this state.
             257          (c) The custodian may exercise all of the powers of the association, through or in place
             258      of its board of directors or officers, to manage the affairs of the association in the best interests
             259      of its members and creditors.
             260          (4) During a receivership, the court may designate the receiver a custodian, and during
             261      a custodianship may designate the custodian a receiver, if the action is in the best interests of
             262      the association, its members, and its creditors.
             263          (5) During the receivership or custodianship, the court may order compensation paid
             264      and expense disbursements or reimbursements made to the receiver or custodian and the
             265      custodian's or receiver's counsel from the assets of the association or proceeds from the sale of
             266      the assets.
             267          Section 8. Section 3-1-20.4 is enacted to read:
             268          3-1-20.4. Decree of dissolution.
             269          (1) (a) If, after a hearing, the court determines that one or more grounds for judicial
             270      dissolution described in Section 3-1-20.1 exist, it may enter a decree dissolving the association
             271      and specifying the effective date of the dissolution.
             272          (b) The clerk of the court shall deliver a certified copy of the decree to the Division of
             273      Corporations and Commercial Code for filing.
             274          (2) After entering the decree of dissolution, the court shall direct the winding up and
             275      liquidation of the association's business and affairs in accordance with Section 3-1-20 and the

             276      giving of notice to its registered agent, or to the Division of Corporations and Commercial
             277      Code if it has no registered agent, and to claimants in accordance with said section.
             278          (3) The court's order may be appealed as in other civil proceedings.

Legislative Review Note
    as of 1-29-03 8:02 AM

A limited legal review of this legislation raises no obvious constitutional or statutory concerns.

Office of Legislative Research and General Counsel

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