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The National Council of Farmer Cooperatives' Sample Bylaw Project National Council of Farmer Cooperatives Sample Bylaws Project Volume I Overview of Cooperative Articles of Incorporation Sample Bylaws Commentary www.ncfc.org This publication is the product of a special Working Group of the Legal, Tax and Accounting (LTA) Committee of the National Council of Farmer Cooperatives (NCFC). The Working Group solicits comments and additional input on the publication from readers by contacting NCFC at [email protected] or 202-626-8700. COPYRIGHT © 2017 NATIONAL COUNCIL OF FARMER COOPERATIVES. ALL RIGHTS RESERVED. No part of this work may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying and recording, or by any information storage or retrieval system without the prior written permission of the National Council of Farmer Cooperatives unless such copying is expressly permitted by federal copyright law. Address inquiries to Reference Permissions, National Council of Farmer Cooperatives, 50 F Street, N.W., Suite 900, Washington, DC 20001. NATIONAL COUNCIL OF FARMER COOPERATIVES ACKNOWLEDGMENT This publication is a product of the National Council of Farmer Cooperatives (NCFC), a trade association established in 1929 to represent the interests of America’s farmer-owned cooperatives. Farmer-owned cooperatives are central to America’s abundant, safe, and affordable food, feed, fiber, and fuel supply. Through cooperatives, farmers can better manage risk, strengthen bargaining power, and improve their income from the marketplace, allowing individual producers to compete globally in a way that would be impossible as individual producers. Cooperatives share the financial value they create with their farmer-owners. They also create and sustain quality jobs, businesses, and consumer spending in their local communities. The majority of our nation’s more than two million farmers and ranchers belong to one or more farmer cooperatives. NCFC members also include twenty-one state and regional councils of cooperatives. This publication is a product of NCFC’s Legal, Tax and Accounting (LTA) Committee. The all-volunteer committee is made up of professionals who work with or for NCFC’s member cooperatives. LTA Committee members graciously donate their time and expertise to many NCFC efforts, including legal, regulatory, and legislative endeavors. NCFC is grateful for LTA Committee members’ generous contributions. - i - SAMPLE BYLAWS PROJECT - VOLUME I SAMPLE BYLAWS WORKING GROUP The names and responsibilities of the members of the Sample Bylaws Working Group are set out below. Additional information about the background and contact information for the Sample Bylaws Working Group members is included as an Attachment at the end of Volume II. Co-Chairs: Teree Castanias Todd R. Eskelsen Charles J. Sullivan Reporters: Marlis L. Carson Todd R. Eskelsen Executive Assistants: Marianne Marshall & Janet Peterson, NCFC Nicole Smith, Schiff Hardin LLP Graphic Designer: Becca Smith, NCFC Working Group Members: Teree Castanias, CPA* Marlis L. Carson, JD* William I. Covey, JD Principal Sr. VP and Gen. Counsel Sr. Assoc. Gen. Counsel Teresa Castanias, CPA NCFC GROWMARK, Inc. Todd R. Eskelsen, JD* Robert P. Glass, CPA Daniel S. Hall, JD Partner (inactive) Deputy General Counsel Eskelsen Law Group, LLC Tax Director GROWMARK, Inc. Land O’Lakes, Inc. Eric V. Krienert, CPA Daniel C. Mott, JD* Ronald C. Peterson, JD* Director Shareholder Partner Moss Adams LLP Fredrikson & Byron P.A. Hanson Bridgett LLP Charles J. Sullivan, JD* David P. Swanson, JD Member Partner Bond, Schoeneck & King, Dorsey & Whitney LLP PLLC *Members of Editorial Subgroup The Working Group also wishes to thank the following individuals for their review and valuable insights on the draft volumes: Donald A. Frederick David M. Hayes USDA (retired) Bond, Schoeneck & King, PLLC Jay W. McWatters, CPA Sue Ann Nelson, Esq. Dopkins & Company, LLP Fredrikson & Byron - ii - NATIONAL COUNCIL OF FARMER COOPERATIVES Commentary Responsibilities Drafter Reviewers Eskelsen Overview of Cooperative Articles of Incorporation Mott Peterson Castanias Bylaws Article Title Drafter Reviewers Eskelsen I Members Peterson Sullivan Eskelsen II Members' Meetings Peterson Sullivan Castanias III Authorized Capital Stock and Equity Eskelsen Swanson Eskelsen IV Operation on a Cooperative Basis Castanias Glass Glass V Consent Castanias Swanson Covey VI First Lien; Right of Set-Off Eskelsen Peterson Castanias VII Board of Directors Sullivan Peterson Carson VIII Officers Peterson Sullivan Eskelsen IX Indemnification and Insurance Sullivan Peterson Mott X Dissolution Castanias Peterson XI Arbitration Mott Eskelsen Castanias XII Fiscal Year; Miscellaneous Eskelsen Sullivan Eskelsen XIII Amendments Sullivan Carson Covey Hall Peterson XIV Unclaimed Property Peterson Eskelsen Sullivan - iii - SAMPLE BYLAWS PROJECT - VOLUME I NCFC SAMPLE BYLAWS PROJECT BACKGROUND The articles (or certificate) of incorporation and bylaws (collectively, the “Organizational Documents”) that underpin any farmer cooperative are critical to defining the structure of the organization and the legal relationships among the cooperative and its members and indirectly also affect the cooperative’s relationship with third parties and government actors. Having properly drafted provisions in Organizational Documents may profoundly impact outcomes on many important issues, such as (1) the cooperative’s ability to claim limited immunity from the antitrust laws under the Capper-Volstead Act, (2) the tax treatment of the cooperative’s earnings under the Internal Revenue Code (the “Code”) and applicable state tax law, (3) the property rights of members (and their voluntary and involuntary assignees), and (4) the internal governance of the cooperative. Despite their importance, many cooperatives, large and small, have failed to give adequate attention to their Organizational Documents. Some cooperatives appear to have merely adapted their Organizational Documents from standard corporate forms, without giving careful thought to the special antitrust, tax, securities, governance and other issues which make the cooperative form of business entity so unique. At the 2014 Annual Meeting of the National Council of Farmer Cooperatives (the “NCFC”), members of NCFC’s Legal, Tax and Accounting Committee (the “LTA Committee”) observed that cooperatives and their advisors would benefit greatly from a resource that identifies key issues to be considered when drafting or amending the Organizational Documents of a cooperative and that suggests language addressing those aspects of cooperative corporations that make them unique from other business entities. Such sample language could then be adapted by cooperatives and their advisors for the particular needs of the cooperative and implement the law of the state in which the cooperative was to be organized. The LTA Committee determined that such a resource would also be helpful to organizers of new cooperatives, who often lack relationships with attorneys, tax professionals and accountants familiar with the cooperative form of business. To respond to this perceived need, the LTA Committee authorized the formation of a special Working Group (the “Sample Bylaws Working Group”) of experienced LTA Committee members to define and develop such a resource. The Organizational Documents of any cooperative are highly dependent on the state of incorporation, the specific operations of the cooperative and the numerous choices and compromises made by cooperative organizers for the individual cooperative. Because of the wide variety of cooperatives and the multiple differences within and among state cooperative incorporation laws, the Sample Bylaws Working Group determined that it would be difficult to provide a model set of Organizational Documents that would be useful to practitioners without being confusingly long, dense and unreadable. Instead, the Sample Bylaws Working Group opted for simplicity and determined to develop an Overview of Cooperative Articles of Incorporation (the “Articles Overview”) explaining the various issues to be addressed in state-specific charter documents and a sample set of Bylaws (the “Sample Bylaws Text”) which included the typical provisions found in cooperative bylaws. Using such sample documents, the Sample Bylaws Working Group developed a more detailed commentary on the Sample Bylaws Text (the “Sample Bylaws Commentary”) to address and explain the drafting considerations associated with both articles of incorporation and bylaw documents. The Articles Overview and Sample Bylaws Commentary is included in this work as Volume I and the Sample Bylaws Text as Volume II. - iv - NATIONAL COUNCIL OF FARMER COOPERATIVES In late December 2017, as this Sample Bylaws Commentary and Text was being finalized for printing and distribution, the U.S. Congress and President Trump enacted the Tax Cuts and Jobs Act of 2017 into law. This new law will have an immediate effect on farmer cooperatives by repealing Code §199 (the deduction for domestic production activities income), effective as of December 31, 2017, and replacing it (effective as of January 1, 2018) with a new Section 199A to provide certain other deductions for farmer cooperatives and their members. Such change in law may have significant impact on the operations of cooperatives which are not wholly foreseeable at this time and some of which may make certain changes to a cooperative’s Bylaws advisable to reflect the further guidance on Section 199A that may become available to cooperatives through
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