AB 816: California Worker Cooperative Statute DRAFT Bill Provisions,

April 2015
A working group of worker cooperative support organizations in California has drafted the
following proposed legislation, AB 816 introduced by Assemblymember Rob Bonta in the 2015
California Assembly, which would amend the California Consumer Cooperative Statute to create
a worker cooperative subsection.
Because these changes would impact existing cooperatives and startup worker cooperatives
across the state, the US Federation of Worker Cooperatives seeks comment from the California
membership in order to inform the final bill language.
Please review and email your questions and comments to Amy Johnson- amy@usworker.coop.
BACKGROUND:
1. Legislative Finding and Purpose
a. The Assembly finds that a worker cooperative has the purpose of creating and
maintaining sustainable jobs and generating wealth, in order to improve the quality of life
of its worker-members, dignify human work, allow workers democratic selfmanagement and promote community and local development.
b. The purpose of the amendments to the California Consumer Cooperative Corporation
Law is 1) to clarify that the law applies to cooperatives in general, not just consumer
cooperatives, and 2) to create more visibility for worker cooperatives.
GENERAL PROVISIONS:
1. Rename the law, The General Cooperative Corporation Law
a. Amend Title 1, Division 3, Part 2:
i. Current: Consumer Cooperative Corporations
ii. Amended: Cooperative Corporations
b. Amend Section 12200:
i. Current: This part shall be known as the Consumer Cooperative Corporation
Law.
ii. Amended: This part shall be known as the General Cooperative Corporation
Law.
c. Amend Section 12200:
i. Current: This part is intended primarily to apply to the organization and
operation of consumer cooperatives. It is also applicable to other cooperatives,
including, but not limited to, cooperatives formed for the purpose of recycling or
treating hazardous wastes, which elect to incorporate under it.
ii. Amended: This part is intended to apply to the organization and operation of
cooperatives, including but not limited to consumer cooperatives, worker
cooperatives and cooperatives formed for the purpose of recycling or treating
hazardous wastes, which elect to incorporate under it.

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d. Amend Section 12310(b):

i. Current: This corporation is a cooperative corporation organized under the
Consumer Cooperative Corporation Law. The purpose of this corporation is to
engage in any lawful act or activity for which a corporation may be organized
under such law.
ii. Amended: This corporation is a cooperative corporation organized under the
General Cooperative Corporation Law. The purpose of this corporation is to
engage in any lawful act or activity for which a corporation may be organized
under such law.
2. Increase the securities exemption for general cooperatives
a. Current: Coops can issue memberships up to $300 under the existing coop securities
exemption (Section 25100(r))
b. Amended: Increase the coop securities exemption to $1000.
3. Add definition of a worker cooperative:
a. A worker co-operative is a corporation formed under this part which includes a class of
worker-members who are natural persons whose patronage consists of labor contributed
to, personal services performed for, or other work performed for the corporation.
PROVISIONS GOVERNING WORKER COOPERATIVES:
1. Definition of Worker Member: Worker member means a member who is a natural person and
also a patron of a worker cooperative, as defined in subdivision (b) of Section 12243.
2. Definition of Non-worker member: Non-worker member means a member of a worker
cooperative who is not a worker member
3. Requirement that at least 51% of workers are worker-members within two years of stating
work.
4. Election to be a worker cooperative
a. Any corporation organized under this Part may elect to be governed as a worker
cooperative by so stating in its articles of incorporation or amended articles.
i. The articles shall state,
1. This corporation is a worker cooperative corporation organized under
Section __________.
ii. Add Section 12310(g): the articles of incorporation will identify whether the
cooperative has elected to be a worker cooperative corporation.
b. A corporation so electing shall be governed by all provisions of this Part, other than
sections _______.
5. Securities exemption for worker-members:
a. The investments of the worker member class in a worker cooperative are exempt from
registration (Sections 25110, 25120, and 25130), up to $5,000.
6. Collective Board election:
[This allows collective boards to never have to conduct a meeting of the members. All meetings will
be meetings of the board.]

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a. A collective board is a worker cooperative where:

i. there is only one class of members, which is the worker-member class; and
ii. all worker-members are on the board
b. The annual meeting requirement (Section 12460(b)) does not apply to collective board
worker cooperatives.
7. Securities exclusion for collective board worker coops:
a.

Applies the same exclusion from definition of security for managing members of an
LLC.
b.
Reasoning: Current law provides a blanket exclusion from the definition of security
for managing members of an LLC. A collective board worker coop is almost identical in
governance structure to an LLC in which all members are managing members, so the
same exemption should apply to collective board worker coops.

FINANCIAL PROVISIONS:
[Note the Capital Account Provisions are borrowed from the Massachusetts employee cooperative
statute: https://malegislature.gov/laws/generallaws/parti/titlexxii/chapter157a]
1. Definition of labor as patronage:
a. If the corporation is organized as a worker cooperative, the corporations patrons are the
worker-members.
b. If the corporation is a worker cooperative, patronage may be measured by work
performed or personal services contributed, including wages earned, number of hours
worked, seniority in the cooperative, number of jobs created in the previous tax year, or
some combination of these measures.
2. Net Earnings and Losses:
a. The net earnings or losses of a worker cooperative shall be apportioned and distributed at
such times and in such manner as the articles of organization or by-laws shall specify.
b. Net earnings declared as patronage distributions with respect to a period of time, and paid
or credited to members, shall be apportioned among the members in accordance with the
ratio which each members patronage during the period involved bears to total patronage
by all members during that period.
c. The apportionment, distribution, and payment of net earnings required by subsection (a)
may be in cash, credits, written notices of allocation, or capital stock issued by the worker
cooperative.
3. Definition of capital account cooperative, Member Capital Accounts and Unallocated
Account:
a. A worker cooperative may establish through its articles of organization or by-laws that it
is a capital account cooperative.
b. A capital account cooperative is a worker cooperative whose entire net book value is
reflected in member capital accounts, one for each member, and an unallocated capital
account, if any.
c. In a capital account cooperative, each member shall have one and only one vote in any
matter requiring voting by member.

Revised April 6, 2015

d. The articles of organization or by-laws may authorize assignment of a portion of retained

net earnings and net losses to an unallocated capital account. The unallocated capital
account in a capital account cooperative shall reflect any paid-in capital, net losses, and
retained net earnings not allocated to individual members.
e. Earnings assigned to the unallocated capital account may be used for any and all
corporate purposes as determined by the board of directors.
f. The system of member and unallocated capital accounts may be used to determine the
redemption price of membership shares, capital stock, and written notices of allocation.
As used in this Part, written notice of allocation means a written instrument which
discloses to a member the stated dollar amount of such members patronage distribution
and the terms for payment of that amount by the worker cooperative.
g. The articles of organization or by-laws of a worker cooperative may permit the periodic
redemption of written notices of allocation and capital stock, and must provide for recall
and redemption of the membership share upon termination of membership in the
cooperative. No redemption shall be made if such redemption would result in the liability
of any director or officer of the worker cooperative.
h. The articles of organization or by-laws may provide for the worker cooperative to pay or
credit interest on the balance in each members capital account.
4. Voting Power
a. Amended:
i. Section 12253 Worker members have voting power in the cooperative, defined
as the power to vote for the election of directors.
ii. Add a new section 12253(c)- Non-worker members only have voting power over
limited decisions- merger, sale of major assets, reorganization, and dissolution of
the Corporation.
5. Notice for Member Meetings
a. Current: Minimum 10 days notice for member meetings.
b. Amended: For worker cooperatives, a written notice of a meeting of the members shall be
given not less than 48 hours nor more than 30 days after the receipt of the request if the
meeting involves only members of the worker-member class.
6. Suspension / Termination Procedure
a. Current: A member may not be suspended or terminated without 15 days notice.
b. Amended: A worker-member in a worker cooperative may be suspended immediately, so
long as the member has an opportunity to be heard, orally or in writing, not more than
five days after the effective date of the suspension.
i. Note: This would not affect the notice requirement for termination.
CHANGE OF CONTROL EVENTS:
7. Merger:
a. A worker cooperative which has not revoked its election under this Part may not
consolidate or merge with another corporation, unless the consolidated or merged
corporation is a general cooperative or a worker cooperative. Two or more corporations
may consolidate or merge to create a general cooperative or a worker cooperative.
8. Dissolution and Demutualization protections:
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a. Upon dissolution or demutualization, the majority of the unallocated capital account shall
be distributed to members on the basis of: 1) patronage, 2) capital contributions, or 3)
some combination of the two. This provision shall not apply to any amounts in the
indivisible reserve account. A worker cooperative is permitted to include patronage
provided by past and current members in its distribution of the unallocated account.
OTHER PROVISIONS:
9. Indivisible Reserves
a. A worker cooperative is permitted to create an indivisible reserves account.
b.
An indivisible reserves account is prohibited from being distributed to the
members. Funds in the indivisible reserves accounts shall, in a manner determined by the
articles or bylaws or board, be used as capital for the cooperative.
c.
Upon dissolution, the indivisible reserves account shall be allocated to an
International Cooperative Alliance-approved national federation or a designated regional
body in this State.

Revised April 6, 2015