Chapter 15 - § 15.13 • SECURITIES LAWS

• Jurisdiction: Colorado

§ 15.13 • SECURITIES LAWS

§ 15.13.1—General Comment

As discussed in § 15.6.2, when bringing members into a cooperative, the cooperative provides membership status through voting memberships or by issuing one or more shares of voting stock to qualified applicants. In addition, cooperatives issue patronage dividends through written notices of allocation, portions of which may be used to establish equity accounts for patrons in the cooperative and may even be reflected as shares of a class of non-voting stock. Per-unit retain certificates are evidence of a provision of equity capital in a cooperative. Cooperatives also borrow money and issue notes or certificates of indebtedness to evidence the repayment obligations. Do any of these arrangements or instruments constitute the issuance of a security by a cooperative, which is then subject to federal or state securities regulation? If the cooperative uses the arrangements or instruments with parties who are not members, there is no question that federal and state securities regulations apply.¹⁵² The answer is not as easy where the arrangements are with, or instruments are issued to, members.

§ 15.13.2—Colorado Exemption

Generally, the Co-op Act as well as article 58 of title 7 exempt from Colorado's securities law registration requirements instruments issued to patrons of a cooperative organized under the Co-op Act, article 58 of title 7, or a similar statute in another state and qualified to do business in Colorado.¹⁵³ Despite the exemption language, each situation should be reviewed with respect to the statutory language. In other states, the availability of securities registration exemptions varies widely.

§ 15.13.3—Federal Laws

Federal law provides exemptions with respect to certain types of securities issued by cooperatives,¹⁵⁴ but the exemptions do not extend beyond the relatively narrow parameters of the types of cooperatives for which they are provided. The U.S. Supreme Court held that stock in a government-subsidized housing cooperative that was acquired to secure a unit in which to live does not constitute a security under the federal securities statutes.¹⁵⁵ The reasoning by the majority and of the dissenters provides an interesting contrast of perspectives as to whether cooperative instruments issued to members as part of the member-cooperative relationship have the attributes necessary to bring them under the purview of the federal securities laws. The nature of a cooperative's relationship to its...