Raise member equity and capital

Who this is for#

Founders planning how members and investors fund the cooperative, and advisers checking the sequence of steps the statute requires.

The short answer#

In a 308B cooperative, money and property come in as contributions, and what you get in return is a membership interest. The board must authorize each contribution, state its value in the required records, and no interest may be issued until the subscription price is paid in money or in property the board has valued ^{P1, § 308B.701; § 308B.601, subd. 2}. Adopt bylaws before accepting contributions to a class whose rights are determined in the bylaws, and before making any distribution to members ^{P1, § 308B.241, subd. 3}.

Steps#

1. Decide the classes. One class of membership interests unless the articles or bylaws establish more or authorize the board to ^{P1, § 308B.611, subd. 3}. Terms may include redemption, preferences, convertibility and voting rights ^{P1, § 308B.611, subd. 6}.
2. Set the economic floors. Patron membership interests collectively must hold at least 60 percent of financial rights to profit allocations and distributions, or at least 15 percent if authorized as § 308B.601, subd. 3 describes. Separately, § 308B.721 sets default 50 percent patron floors for annual profit allocations and distributions. Each reduction has its own authorization conditions and a 15 percent minimum; subdivision 2's distribution reduction does not have subdivision 1's original-articles-alone route. See the counsel note below ^P1.
3. Authorize nonpatron interests, if any. They need authorization in the articles and a member control agreement or bylaw conditions ^{P1, § 308B.601, subd. 5}.
4. Give the disclosure. The cooperative must disclose to each person acquiring interests its organization, capital structure, known business prospects and risks, and the nature of the governance and financial rights of the interest and of other classes ^{P1, § 308B.601, subd. 2}. It must also notify all members of interests being issued ^{P1, § 308B.601, subd. 2}.
5. Get a signed contribution agreement. A contribution agreement, made before or after formation, is not enforceable against the contributor unless it is in a writing signed by the would-be contributor ^{P1, § 308B.711, subd. 1}. Unless otherwise provided it is irrevocable for six months ^{P1, § 308B.711, subd. 2}.
6. Board acceptance. The board accepts the contribution only when authorized; the acceptance describes it and states its value; the value goes into the required records ^{P1, § 308B.701}. Directors who overvalue are liable ^{P1, § 308B.701}.
7. Collect, then issue. Interests issue after payment in money or board-valued property ^{P1, § 308B.601, subd. 2}. Interests may be certificated or uncertificated; the statute specifies certificate contents ^{P1, § 308B.615}.
8. Restate old contributions. Each new contribution triggers restatement of prior contributions under § 308B.705. Articles or bylaws may change the statutory methods identified in subdivisions 3 and 4; that is not a blanket permission to omit restatement ^P1.

If someone defaults#

Unless the contribution agreement provides otherwise, the cooperative may collect the unpaid amount as a debt. If the amount stays unpaid 20 days after written notice of demand, the cooperative may offer the interests for sale or cancel the agreement ^{P1, § 308B.711, subd. 4}.

Transfers, assignment and restrictions#

• Interests may be sold or transferred only with board approval ^{P1, § 308B.601, subd. 4}.
• Financial rights are generally assignable, but an assignee gets only the share of profits, losses and distributions and no governance rights or notices ^{P1, § 308B.605, subds. 1-2}.
• Restrictions on assignment or transfer may be imposed by the articles, bylaws, member control agreement or member action, and must be noted as the statute requires to bind outsiders ^{P1, § 308B.605, subd. 3; § 308B.625}.
• A first privilege to purchase exists only if the articles or bylaws provide it § 308B.601, subdivision 6. Subdivision 7 supplies qualified dissent rights for materially adverse amendments to nonpatron interests, subject to articles or bylaws; see Amend the articles and bylaws for timing ^P1.
• A contribution agreement right may not be assigned to a nonmember unless all members approve by unanimous written consent, unless the articles or bylaws provide otherwise ^{P1, § 308B.711, subd. 5}.

In practice#

[OPINION] Treat capital planning as three documents that must agree: articles (if you use the 15 percent option), bylaws (class rights, allocations) and a signed contribution agreement for each contributor. If the member-facing summary says one thing and the bylaws say another, the statute does not tell you which controls; avoid the question by drafting them together.

Common mistakes#

1. Taking a deposit before bylaws exist and the board has accepted the contribution.
2. Issuing an interest before the full subscription price is paid.
3. Not recording the board's stated value of non-cash contributions.
4. Assuming an assignee of financial rights can vote.
5. Using a verbal promise instead of a signed contribution agreement.