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Worker Cooperative Bill Provisions A bill to establish a legal entity for worker cooperatives, and standardize the definition and basic operating rules for worker cooperatives. 1. Global Provisions: This Act can be added to the LLC Section (Corporations Code Title 2.6, Sections 17000 et. seq.), as a new special purpose LLC. 2. Name: This Bill shall be called the Limited Liability Worker Cooperative Act. 3. Cooperative Purpose: A company may be formed under this part for any lawful purpose provided that it shall be organized and shall conduct its business primarily for the mutual benefit of its members as patrons of the company. 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. a. Such 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. 4. Definition: A worker cooperative (hereinafter cooperative or company) is a business majority-controlled by its worker-members. 5. Definition of member: A member has the same meaning as member in Section 17701.02(p) of the California Corporations Code. A member may also be a patron of the cooperative. 6. Definition of worker: A worker is a natural person who provides labor to the cooperative with the expectation of receiving compensation. 7. Definition of worker-member: A worker-member is a worker and a member of a cooperative whose patronage consists of, but not limited to, providing labor to the cooperative. 8. Definition of patron: A patron is a member who provides labor to, purchases goods from, or uses the services of the cooperative. A patron may also be a person who uses the cooperative to market, process or handle their products or services. The cooperatives primary class of patrons shall be the worker-members. 9. Definition of distribution: The term distribution shall apply to dividend distributions and patronage distributions. 10. Definition of majority of the members: majority of the member unless otherwise provided in the operating agreement, means more than 50 percent of the membership interests of members in current profits of the limited liability company. 11. Definition of majority of the worker-members: majority of the worker-members unless otherwise provided in the operating agreement, means more than 50 percent of the worker-member class. 12. Operating agreement: This bill imposes additional requirements beyond Corporations Code Section 17701.10 as to provisions that may not be modified beyond the operating agreement.

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13. Agency: Notwithstanding Corporations Code Section 17703.01(a), only worker-members are presumed to be agents of the company, unless the articles indicate that the LLC is manager-managed. 14. Equal voting rights: Each member shall have an equal vote in their membership class, but the worker-member class shall have ultimate decision making authority, as described in section 23. Notwithstanding Corporations Code Section 17704.07(r), voting by membership class is always permitted. 15. Unequal proprietary rights: If the proprietary interests of the members are unequal, the cooperative must state this in its articles. 16. Membership without a transferable interest: Notwithstanding Corporations Code Section 17704.01(d), a person may not become a member without acquiring a transferable interest or being obligated to make a contribution unless such a membership is provided for in the operating agreement. 17. Minimum number of worker-members required: In addition to the requirements set forth in Corporations Code Section 17707.01(c) (that an LLC is dissolved if it has no members for 90 days), a cooperative shall consist of at least 3 worker-members, but it is permitted to have fewer than 3 worker-members for a maximum of 12 months during any 36 month period. 18. Percentage of workers required to be worker-members: In a typical year: a. at least a simple majority (50% + 1) of all the workers in a cooperative company shall be worker-members; and b. the majority of labor or hours shall be contributed by the worker-members 19. Worker membership required: The cooperatives members shall include a class of worker-members. Only current workers in a cooperative are eligible for membership in the worker-member class. 20. Presumption of member-management: Unless otherwise specified in the operating agreement, a worker cooperative is presumed to be member-managed. 21. Additional member classes permitted: The cooperative may create other classes of members in addition to the worker-member class, and such other classes may include non-patron members; provided, however, that the powers and authority of such other classes shall be subject to the limitations of section 23. 22. Qualifications for membership: Qualification requirements and the process for accepting and terminating all members shall be reflected in the cooperatives organizing articles or operating agreement. Upon resignation, termination, or death, the individuals membership in the cooperative shall immediately cease. 23. Ultimate decision-making authority: a. Subject to the provisions of subsection (b), the activities and affairs of the cooperative 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 section 24. Subject to the provisions of subsection (b), at no point shall other classes of members created pursuant to section 21 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 section 17. 2

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b. The cooperative may grant other classes of members created pursuant to Section 14 veto power over decisions that are outside the ordinary course of the cooperatives business or that affect the membership, proprietary or voting interests of such other classes in a manner that is different from or disproportionate to their effect on the interests of the worker-member class. 24. Representative governance: The worker-member class may delegate authority to a manager, managers, board of managers, or other elected decision-making body or individuals (the representatives). The worker-member class may allocate the power to elect such representatives among the various classes of members; provided, however, that at least the majority of such representatives shall be elected by, and subject to removal by, the worker-member class. 25. Membership Meetings: A cooperative shall hold an annual membership meeting. The cooperative may hold any other meetings on a frequency decided by the worker-member class and reflected in the articles or operating agreement. 26. Quorum: Notwithstanding Corporations Code Section 17704.07(m)(1), a minimum of 20% of the members of the cooperative shall constitute a quorum for the purpose of conducting general business at a meeting of the members. a. Where a cooperative is authorized to conduct a meeting with a quorum of less than 51% of the membership, matters that may be voted upon at such meeting shall be listed in the notice of the meeting. b. If there is a quorum present at the beginning of a meeting and then some members leave so that less than a quorum remains, the remaining members may continue to conduct business, as long as any actions they take (other than adjournment) reflect at least a simple majority of the members required to constitute a quorum. c. In the absence of quorum, a majority of present members can vote to adjourn the meeting, and no other business may be transacted, except as provided above. 27. Decision making: Except for the decisions listed in sections 44 and 45, decisions shall be made by at least a simple majority of the quorum required for a meeting. 28. Notice: Notwithstanding Corporations Code Section 17704.07 (h), all meetings of the worker-member class shall have a minimum of 48 hours notice and a maximum of 60 days notice. All meetings that include other classes shall have a minimum of 10 days notice and a maximum of 60 days notice. 29. Who may call a meeting: Notwithstanding Corporations Code Section 17704.07(g), any member of the worker-member class may call a meeting. The cooperatives articles may allow non-worker-members to call a meeting. 30. Action without meeting: 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 cooperative 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 at least a quorum of members entitled to vote thereon were present and voted. 3

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31. Voting by proxy: 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. 32. Inspection rights: In accordance with Corporations Code Section 17704.10, all workermembers shall have access to all financial and governance information of the worker cooperative, related to their needs as members, including articles, operating agreement, policies, bookkeeping and the membership list. The details of these inspection rights may be reflected in the cooperatives articles or operating agreement. 33. Availability of worker-membership: Worker-membership shall be available to all workers in a worker cooperative, excluding temporary workers. 34. Membership candidacy period: The cooperative may have a candidacy period for all workers on the track to worker-membership, which shall not exceed three years. 35. Base compensation ratio: At no time shall the highest-compensated worker-member or employee receive more than seven times the compensation of the lowest-paid workermember or employee. For purposes of this section, compensation shall not include patronage distributions. 36. Resignation, termination, or death of worker-members: a. A decision to terminate a worker-member requires a minimum of 51% vote of the quorum of the worker-member class or a delegated decision-making body, as provided in the cooperatives bylaws/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 decision-making body. Upon termination, resignation or death, a worker-members account shall be returned to the worker-member in the manner prescribed by the articles or operating agreement. 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. Notwithstanding Corporations Code Section 17704.03, a worker-members obligation to make a contribution to the LLC is excused by death, disability, or inability to perform personally. 37. Suspension of membership upon bankruptcy: A persons membership in the cooperative shall be suspended when the member becomes a debtor in bankruptcy. 38. Transfer of membership rights: Notwithstanding Corporations Code Section 17705.02(b), members generally may not transfer their governance or economic rights, but the cooperatives articles of incorporation may allow members to transfer only their right to dividend distributions. 39. Dividend Distributions: In addition to the distribution requirements set out in Corporations Code Section 17704.04(a), dividend distributions on individual member 4

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accounts, not including patronage distributions, shall not exceed 15% of invested capital in any fiscal year. A dividend is a return on member capital. 40. Patronage distributions: Patronage distribution means any transfer of the companys earnings, or allocation of company income, made to a member of the company, the amount of which is computed with reference to the members patronage of the company. Patronage shall be distributed solely to worker-members unless the worker-members elect to distribute patronage according to other members on the basis of those members patronage of the cooperative. 41. Patronage: Patronage of a member is primarily measured by the volume or value, or both, of the members contribution of labor to the cooperative. Contribution of labor may include hours worked, wages earned, jobs created, or other measures of value. Patronage may also be measured by a patrons purchase of goods from or use of the services of the cooperative. 42. Patronage rules apply to coops taxed as partnerships or corporations: A cooperative shall comply with Sections 40 and 42, without regard to its choice of taxation as a corporation or a partnership. 43. Member and capital accounts: a. A cooperative shall have individual member accounts; and may create a cooperative account. b. Individual member accounts may include any of the following, as provided in the operating agreement: the members initial capital contribution, the members share of undistributed patronage, founders credit, or any other credit reflected in the cooperatives operating agreement. c. The cooperative account may reflect retained earnings and other cooperative equity. The articles or operating agreement may authorize the worker-member class, or its representatives, to assign a portion of annual earnings to the cooperative account. Earnings assigned to the cooperative account may be used for any and all company purposes, as determined by the worker-member class or its representatives. d. A cooperative may designate a portion of its cooperative account as an indivisible reserve account that is prohibited from being distributed to the members. A cooperative may only distribute or allocate non-member-sourced income to the indivisible reserve account. e. The indivisible reserve account shall, in a manner determined by the operating agreement or the worker-member class, or its representatives, be used as capital for the cooperative or, notwithstanding Corporations Code Section 17707.05, distributed to one more organizations that are either: (i) worker cooperatives organized under this Act; or (ii) International Cooperative Alliance-approved national federation or its designated regional body in California. 5

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44. Amendment of Governing Documents: Only worker-members can amend the articles or operating agreement of the cooperative. Amendment may only take place at a properly-noticed meeting at which a quorum of worker-members is present. Amendments require at least a two-thirds vote of the worker-member class. 45. Dissolution/merger/revocation/demutualization/sale of major assets: Notwithstanding Corporations Code Sections 17704.07(c)(4), 17707.01(b), 17710.03(b)(1), and 17710.12(a), only the worker-member class can vote to dissolve, merge, revoke or demutualize the cooperative; or sell, lease, convey, exchange, transfer or otherwise dispose of all or substantially all of its assets. Dissolution, merger, revocation, demutualization, or sale of major assets requires at least a two-thirds vote of the workermember class. The worker-member class may permit other classes voting rights on such decisions, and such rights which may be provided in the cooperatives articles or operating agreement. 46. Securities exemptions: a. Worker-member capital contributions to the cooperative do not constitute securities under California law. b. Investments by non-worker-members qualify for the exemption found in 25100(r) of the Corporations Code (which provision shall be amended to reflect this change). 47. Use of the name cooperative: Companies formed under this Part may use the name cooperative, and Corporations Code Section 12311(b) and Corporations Code Section 17701.08(a) shall be amended to reflect this change. 48. Secretary of State: The Secretary of State shall provide information and sample documents for forming worker cooperatives on its website.