California Cooperative Corporation Law

By Brette Sember, J.D.

California Cooperative Corporation Law

By Brette Sember, J.D.

A California cooperative corporation is a worker-owned entity that is now referred to under California law as a worker cooperative.

The 2021 California Worker Cooperative Act (AB-816) established this new designation. The most familiar kind of worker co-op is a co-op grocery store owned and staffed by members, where owners receive a discount on their purchases. However a co-op could be created for many other purposes, such as housing, child care, selling artisan goods, or even creating a credit union.

Purpose of a Co-op

A worker co-op is a way for regular people to work together to create a business they all will own, manage, and profit from. The focus is on building wealth for the worker-members, and not for outside investors. The entire concept is built on democratic participation and management. A co-op is a corporation, but it is a corporation by and for the workers who build it.

To qualify as a co-op in California, 51% of the workers must be owners or owner candidates, and must be California residents. This ensures that the business truly is worker owned and run. Profits that result from the worker-owners' efforts are distributed among them.

How to Form a Co-op in California

To form a worker cooperative in California, take the following steps:

  1. Select a name for your co-op (note that you must include the word “cooperative" in the name) and search California's secretary of state website to ensure that the name is available.
  2. Choose the members or directors of the co-op.
  3. Determine how you will issue membership shares.
  4. Write your co-op's bylaws.
  5. Write a member disclosure document.
  6. Choose a registered agent (person or company to receive legal service for the co-op).
  7. Create and file articles of incorporation with the California secretary of state, which must include a statement saying, “This corporation is a worker cooperative corporation organized under the Cooperative Corporation Law."
  8. Issue stock—each member gets one share in a co-op.
  9. File a statement of information with the California secretary of state within 90 days of filing the articles of incorporation.

Understanding the Roles in a Co-op

Worker-members do the actual work of the co-op, but they also have the right to vote on director positions. Each member has one vote. Under the AB-816 law, worker-members can be required to contribute equity up to $1,000 as an investment to become members, and these investments do not have to be registered under securities laws.

A co-op can also have community investors—people who invest money in the co-op but do not actually do the work of the co-op. These investors can also be required to invest up to $1,000 (and just like investments by worker-members, this does not have to be registered under securities laws) and must be California state residents. Community investors are not entitled to distributions of profits. Community investors have voting rights, but can only vote their approval on:

  • Mergers with other co-ops
  • Sales of the co-op's major assets
  • Reorganization of the co-op
  • Dissolution of the co-op

The board of directors makes the actual decisions about the day-to-day running of the co-op. The co-op can be set up as a Collective Board Cooperative in which the directors are all worker-members. If so, then an annual meeting is not required.

Running a Co-op

A worker co-op is a corporation and is run like any other business under California corporate law, but some special rules apply just to co-ops.

  • Capital dividends are capped at 15%.
  • Distribution of surplus may only be given to worker-members.
  • Special meetings can only be called by worker-members.
  • Only 48 hours notice is required for worker-member meetings.
  • An indivisible reserve can be created from a percent of yearly surpluses, which creates long-term investment capital that the members control, but can never distribute to themselves. If the co-op dissolves, the funds go to a cooperative support organization.

Worker co-ops provide exciting opportunities for community members to work together to build wealth and create important, viable companies.

 

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