DANVILLE, Ind. — Depending on how a cooperative wants to grow may significantly color how its board and membership views the proposed Uniform Limited Cooperative Association Act.

The act, which is proposed legislation authored by the National Conference of Commissioners on Uniform State Laws (NCCUSL), went through a five-year writing and debate process before NCCUSL commissioners gave it final approval at its July 2007 meeting. In February 2008, it will go to the American Bar Assoc. for its stamp of approval, but Kieran Marion said some individual state legislatures may wish to start discussing it when they convene in January. Marion, a legislative counsel for NCCUSL, said Nebraska has already adopted an earlier version of the act, not waiting for its final form.

“Once it’s out there,” he explained of a proposal, “it’s its own creature.”

Peter Langrock is a private-practice attorney in Middlebury, Vt., and a 40-year state commissioner for NCCUSL (which is comprised of attorney-commissioners from each state, Washington, D.C., Puerto Rico and the Virgin Islands). He’s also a member of the National Farmers Organization, and explained this act stems from a situation in the late 1990s in which some Wyoming sheep producers lost their slaughterhouse.

When they decided they needed their own facility, they also realized as a cooperative, they would need outside investment to afford it – and investors wanted significant say in the project, which usually goes against a cooperative’s democratic makeup. Langrock said the state passed a law allowing the formation of a new type of “limited cooperative,” one that would allow the existing co-op to form a partnership with a monied investor for limited purposes, and market under the co-op’s name.

“It does not replace any co-op,” he said. “It’s a brand-new creature.”

The matter came to the attention of NCCUSL, which Marion said was formed in 1892 as attorneys working with various interest groups to craft acts which could be enacted as uniform legislation across state lines. Its work focuses mainly on business entities, and Marion explained typical writing usually takes at least two years, since every proposal has to be read and debated at two annual national meetings. Langrock said the act’s original purpose was for agricultural co-ops, but the difficulty of determining what qualified as “agricultural,” coupled with a handful of states passing their own all-inclusive cooperative statutes, forced NCCUSL to redraw its early draft into something more general.

The act basically proposes methods by which co-ops can do business with outside investors and suggests taxation based on individual returns (such as to co-op members), rather than the corporate method of paying taxes on profit, and then paying a second round of taxes on stockholder dividends.

While the example Langrock used was of wheat farmers cooperating with an investor to open a pasta factory, he said he sees real interest in the bioenergy field.

Some states do have statutes specifically for cooperatives, but he said many have not passed much co-op legislation since the 1920s and 1930s. He acknowledged there are people who think the act’s aims are good, while others question the wisdom of allowing outside investors a vote in any co-op – and said both were valid points of view. Two attorneys briefly debated the matter at the first Indiana Cooperative Development Center (ICDC) summit in Danville last week, to show its strong and weak points.

Joel Dahlgren, who represents cooperatives and agribusinesses and is based in Minneapolis, Minn., argued for passage of the act in Indiana. He pointed out this came about because ag producers wanted to keep their co-op flexibility, yet discovered they couldn’t always afford to finance expensive ventures on their own.

Dahlgren went over financial advantages the uniform statute offers a co-op, including protections of member returns (such as not having to pay self-employment taxes on that share of their income). He said there are state statutes that already allow for co-op membership for investors and non-participating members.

“Really, I don’t think there are that many differences (between that and this act),” he said, pointing out other ways co-ops have changed over the past several decades – such as some giving up political and religious neutrality.

While a co-op is service-oriented and nonprofit, Dahlgren said, “It’s easy to overlook the idea that co-ops need to make money (for operation and growth).” The most powerful, positive thing they can do, he added, is redistribute social wealth without bloodshed.

Jack Bailey, president and CEO of Independent Distributors Cooperative-USA of Indianapolis, Ind., spoke against passage of the act. He said Indiana statutes do address cooperatives where necessary in other codes and that the state doesn’t have a “one size fits all” statute for various cooperatives. Others address cooperative arrangements for various purposes.

“We start risking equity balance, we start risking tax-exempt status, when we start letting in outside investment,” he argued, adding this endangers the control members have over their co-ops. He said when his co-op needed funding, it applied for a line of credit at a co-op bank – as any business without big investors must do.

He suggested if there are parts of the act Hoosier co-ops wish to see enacted, they could be pulled out and proposed to the General Assembly for other pieces of legislation. While NCCUSL may not be able to forbid it, Langrock said it does try to discourage state changes in its proposed acts, since the whole point is uniformity among states.

To read the act itself – which is nearly 90 pages long – visit www.law.upenn. edu/bll/archives/ulc/uaarca/2007am_ final.pdf online.