Chapter 15 - § 15.6 • DOCUMENTS

• Jurisdiction: Colorado

§ 15.6 • DOCUMENTS

§ 15.6.1—Documentation Generally

Proper documentation for the cooperative is important. The articles of incorporation or organization, bylaws, membership agreements, and other documents governing the relationship between the cooperative and its members need to be developed with care.⁶² See Exhibits 15B through 15E. Additionally, like any business entity, the cooperative should give due consideration to its documentation relating to real estate, employment, contractual, vendor, banking, and other commercial matters.

The relationships between cooperative members and the cooperative are contractual in na-ture.⁶³ "Private provision for use of the cooperative by members in a corporate cooperative [such as those organized under the Co-op Act] historically has been written in one, or a combination of, the following places: discrete contracts, the bylaws, the articles of incorporation, or the separate membership agreements."⁶⁴

§ 15.6.2—Articles of Incorporation

Once the plan for the cooperative is developed, under the Co-op Act the cooperative is formed by one or more persons over the age of 18, acting as incorporators, filing the articles of incorporation with the Colorado Secretary of State.⁶⁵ Although the Co-op Act provides that there need be only one in-corporator,⁶⁶ the concept of "cooperation" requires that multiple persons participate for there to be a cooperative. In addition, the Internal Revenue Service (IRS) has said that there must be several persons in a cooperative for it to be operating "on a cooperative basis" and obtain cooperative tax treatment under Subchapter T of the Code.⁶⁷

While the single-incorporator provision provides for some ease in the formation of a cooperative, for initial organizers to feel that they are part of the cooperative organizing process, it can be beneficial to form the cooperative with multiple incorporators. Although Colorado's statutes have abandoned the need to sign articles of incorporation to form a legal entity, it still may be beneficial for more than one person to be involved in filing the articles of incorporation with the Secretary of State, to build a sense of inclusion in the incorporation process.

Subsection 7-56-201(2) of the Co-op Act sets forth the minimal requirements for the articles of incorporation. Subsection 201(3) lists other optional provisions that might be included in the articles, including "any other provision not inconsistent with law."⁶⁸

Pursuant to C.R.S. § 7-90-302, the Secretary of State has prescribed forms or "cover sheets" for articles of incorporation for cooperatives organized under article 55 or 56 of title 7, C.R.S. For article 58 limited cooperative associations, there is also a cover sheet for the articles of organization. The forms or cover sheets allow for attachments that can include items not provided for specifically in the forms. Unlike most other entities that are formed under Colorado law by completing a form or cover sheet, cooperatives formed under article 55 or 56 of title 7, C.R.S. must have at least one attachment providing the details for membership or stock.⁶⁹ An article 58 cooperative association does not have that requirement. Exhibit 15C contains examples of provisions that one may wish to consider placing in an attachment for articles of incorporation or articles of organization for a cooperative organized with voting stock under either the Co-op Act or the Limited Cooperative Association Act.

Stock or Non-Stock

A cooperative may be organized with shares of stock or with memberships.⁷⁰ In either case, a member must hold a voting membership or a share of voting stock.

In cooperatives organized with stock, the stockholders are customarily called "patrons" or "members." There must exist one class of common stock that has all the voting rights in the cooperative and is owned solely by members. There may be other classes of non-voting common stock and non-voting preferred stock.

In cooperatives with memberships ("without common voting stock"),⁷¹ only full members are permitted to vote. However, it is possible to authorize preferred stock, preferred equity shares, or other equity interests in the cooperative as long as they are non-voting. If a cooperative is organized with voting stock, information to be provided regarding the shares of stock is similar to that to be provided under the Colorado Business Corporation Act.⁷²

For cooperatives organized without common voting stock, details regarding the "property rights and interests of each member" must be provided.⁷³ Additional details regarding the method of determining "property rights and interests" and their value may be contained in the bylaws of the cooperative.⁷⁴ What is meant by "property rights and interests" is not defined, nor have Colorado courts addressed this in any reported decision. Many practitioners in the cooperative field interpret the phrase to refer to the value of the individual members' equity interests in the cooperative. It is generally believed that the phrase does not mean that a member has a direct interest in or divisible claim on the...