Define members and membership classes

Who this is for#

Founders deciding who is a member, and members trying to understand what they own.

The short answer#

A member is a person or entity reflected on the cooperative's books as the owner of governance rights of a membership interest. The term includes patron and nonpatron members ^{P1, § 308B.005, subd. 15}. A membership interest bundles financial rights, the right to assign them, governance rights and the right to assign those ^{P1, § 308B.005, subd. 16}. A cooperative must have at least one member ^{P1, § 308B.501, subd. 1}.

Patron and nonpatron#

• A patron membership interest requires the holder to conduct patronage business for or with the cooperative, as the cooperative specifies, to receive financial rights or distributions ^{P1, § 308B.005, subd. 23}.
• A nonpatron membership interest does not require the holder to conduct patronage business to receive financial rights or distributions ^{P1, § 308B.005, subd. 19}.
• Patronage means business, transactions or services done for or with the cooperative "as defined by the cooperative" ^{P1, § 308B.005, subd. 21}. The bylaws are where you define it.
• Nonpatron interests need authorization in the articles and conditions in a member control agreement or the bylaws ^{P1, § 308B.601, subd. 5}.

What the bylaws must say about members#

Qualifications and any limits on membership; admission, withdrawal, suspension and expulsion; and the rights of members ^{P1, § 308B.241, subd. 2(b)}. The statute does not supply these rules for you.

Classes and series#

Membership interests are of one class unless the articles or bylaws establish, or authorize the board to establish, more than one class or series ^{P1, § 308B.611, subd. 3}. A class may be redeemable, may carry cumulative or noncumulative distributions, may have preference, may be convertible, and may have full, partial or no voting rights, except as provided in § 308B.555 ^{P1, § 308B.611, subd. 6}.

When the board creates rights by resolution, § 308B.611, subdivision 5, ordinarily requires a statement containing the resolution before accepting the affected contributions. If members were notified of the new class or series before acceptance, the statement may instead be filed within one year after acceptance of contributions, not after creation of the class. The ordinary route makes the resolution effective three days after delivery to members is deemed effective by the board; the advance-notice route makes it effective on adoption. The board should document the applicable route and effective date before accepting money ^P1.

Rights and limits#

• Voting. Each patron member has one vote unless additional patronage-based votes are authorized; patron members vote collectively and the bylaws cannot reduce the collective patron vote below 15 percent of the total ^{P1, § 308B.545}. See Member voting rules in Chapter 308B.
• Records. A member of at least one year, or holding at least five percent of outstanding equity interests, may demand inspection on at least five business days' written notice for a proper business purpose, describing the purpose and records with reasonable particularity and showing their direct connection. The provision excludes any person's equity-capital amounts, accounts receivable or amounts due, and personnel/employment records. The right cannot be abolished or limited by governing documents or board/member action § 308B.501, subdivision 4 ^P1.
• Statement of interest. On request the cooperative must state in writing the particular interest the member owns ^{P1, § 308B.611, subd. 2}.
• Liability. A member is not personally liable for cooperative debts merely as a member, but is liable for unpaid subscriptions, fees or separately contracted debts ^{P1, § 308B.505}; a member's obligation with respect to the interest is to pay the full consideration ^{P1, § 308B.611, subd. 9}.
• Discipline. A member who knowingly, intentionally or repeatedly violates the articles, bylaws, a member control agreement or a marketing contract may be required by the board to surrender voting power or financial rights, with a refund of the lesser of book or market value payable in not more than seven years, or a transfer to another class ^{P1, § 308B.501, subd. 3}.

Transfers and assignment#

Membership interests may be sold or transferred only with board approval; the board may adopt resolutions prescribing procedures to approve transfers in advance ^{P1, § 308B.601, subd. 4}. Financial rights are assignable, but an assignee does not get governance rights ^{P1, § 308B.605}. A member control agreement, which must be signed by all members and contribution signatories, may also affect transfers ^{P1, § 308B.627}.

Common mistakes#

1. Leaving "patron" and "patronage" undefined.
2. Creating investor classes in a board resolution without sending members the statement required by § 308B.611, subd. 5.
3. Promising governance rights to an assignee of financial rights.
4. Setting no expulsion or withdrawal rule, then having to improvise.
5. Forgetting that patron members vote collectively and must hold a minimum share of the total vote.