Bill clears up cooperative securities requirements

A bill awaiting Gov. Scott Walker's signature will make it easier for new cooperatives to form and for existing cooperatives to raise money for new investments.

Last week Assembly Bill 228, a measure that had been sought by the cooperative community, got unanimous approval in the state Senate. It had earlier passed the Assembly on a unanimous vote.

Several legislative committees that considered AB 228 also gave unanimous approval to the measure.

The bill is considered very important to cooperative development. Under state law, cooperatives had had a blanket exemption from securities regulations, but that changed in 2009 when lawmakers updated state regulations to harmonize them with federal securities law.

With that update to the federal Uniform Securities Law the state's securities registration exemption for cooperatives tightened, but no one really noticed at the time.

Since then people in the cooperative community have been saying that the narrowed exemption has been a significant barrier to cooperative development.

Rep. Al Ott (R-Forest Junction) and Sen. Dale Schultz (R-Richland Center) authored AB 228, to reinstate the exemption for cooperatives.

Ott said the bill was an "important economic development" measure, adding that it will restore vitality to cooperative business development in the state and "will likely get a number of stalled cooperative projects off the ground."

The current restrictive exemption has resulted in confusion, delays, and substantial new legal costs for cooperative business start-ups, Ott said, and the uncertainty and added costs have been a deciding factor in whether or not some cooperatives moved forward.

"Wisconsin is home to the second most cooperative businesses in the nation, which means the continued development and success of these businesses is vital to the state's economy," he added.

Ott considers the measure an important one to "revitalize cooperative business development and spur local economic growth." The functional securities exemption has proven to be "critical to establishing successful Wisconsin cooperative businesses," he added.

The measure relieves new or existing cooperatives from having to file with the Department of Financial Institutions (DFI) if they want to issue securities such as preferred stock, notes, bonds, investment contracts or something like limited partnership interests - often the instruments that they use to start a business or expand one.

John Manske, director of government relations for Cooperative Network, said his association had been hearing from the co-op organizing sector that this change was needed. Cooperative lawyers and organizers at federal agencies and the University of Wisconsin were unsure about where would-be cooperatives stood with the state.

Manske told Wisconsin State Farmer that people have held back on creating food, farmer and even solar power cooperatives because of uncertainty about whether or not they'd need to file with the DFI.

"The 2009 change left these folks scratching their heads. They just didn't know where they stood and there were financial and legal expenses that they would incur if this law hadn't been changed," Manske said.

"They all wanted state law to go back to the way it used to be."

There are some existing farmer cooperatives that will take advantage of the clarity offered by the measure when it becomes law, he said. They have held off on plans to offer stock for expansions and development until this bill is signed into law.

Walker is expected to sign AB 228 into law. The measure received Senate approval on January 17 during the first floor session of 2012.

Passage of the bill was a priority of Cooperative Network. An aide in Ott's office said that though the DFI testified "for information only" during the bill's hearings, officials there were recognized the problem and were supportive of the bill to fix it.

There was no opposition to the measure as it worked its way through legislative channels, she said.

Lawmakers also passed a second bill that was sought by Cooperative Network. Assembly Bill 59 drops two requirements from state law governing small winery cooperative wholesalers.

The bill eliminates the requirement for a meeting every six months with the winery cooperatives' board of directors, the Department of Revenue, and University of Wisconsin Center for Cooperatives.

The measure also eliminates the requirement for a publicly available report from these meetings. The bill was authored by Rep. Jim Steineke (R-Kaukauna), and Sen. Rob Cowles (R-Green Bay).