(Pix (c) Larry Catá Backer 2014)
I have been considering the issue of of labor cooperatives as a central element of the reform (though quite limited and preliminary) of the Cuban economic system. (Backer, Larry Catá, The Cooperative as Proletarian Corporation: Property Rights between Corporation, Cooperatives and Globalization in Cuba. Northwestern Journal of International Law &
Business, Vol. 33, 2013).
This is part of a broader issue of the problem of labor in both capitalist and Marxist theory, both of which approach labor in surprising similar, and troubling, ways.I had suggested, as had many others over more than a century, that the aggregation of labor on a parity with that offered capital, might prove of some interest in reforming the imbalance within both capitalist (free market) and Marxist systems, between labor and capital power in economic activity. (Posted Conference Paper: "The Problem of Labor and the Construction of Socialism in Cuba").
Now California may be moving in that direction. California legislators Rob Bonta and Marc Levine introduced AB 2525 (Bonta and Levine): Limited Liability Worker Cooperative Act. This post briefly considers this new effort in the U.S.
As described by Mr. Bonta:
Assemblymember Rob Bonta is proud to announce the introduction of AB 2525, which he is joint authoring with Assemblymember Marc Levine (D-San Rafael). This first-of-its-kind bill will remove unnecessary barriers to the creation of new worker cooperatives in California and provide workers the flexibility they need to operate a startup efficiently and effectively.
"Worker owned businesses are a central piece to a full economic recovery. AB 2525 will benefit working Californians by not only providing jobs but a means to build long-term wealth and assets for individuals who have traditionally been denied these opportunities," said Assemblymember Bonta.
"It is important to look at innovative options for companies to use when they organize," said Assemblymember Levine, joint author of AB 2525. "This bill will help allow companies to create a business model that gives workers a larger stake in the business and creates a more productive, cooperative, and sustainable organizational structure." (Rob Bonta, Press Releases: Worker-Owned Job Creation on the Rise: Assemblymembers Bonta and Levine Introduce Limited Liability Worker Cooperative Act to Facilitate Worker-Owned Business Development Feb. 24, 2014).
What makes this proposal interesting is its extension of limited asset partitioning (limited liability) to risk taking individuals who wish to pool their labor. (Backer, Larry Catá, The Autonomous Global Enterprise: On the Role of Organizational Law Beyond Asset Partitioning and Legal Personality. Tulsa Law Journal, Vol 41, 2006). It is in this way that the ideal of proletarian corporation can be utilized in ways that may make the device as useful as that of the capital aggregating conventional corporation.
However, the bill also reveals a number fo challenges. The first is the creation of a capital structure that reflects the contributions to the coop but that is as flexible and intuitive as basic corporate securities instruments. The second involves the internal governance structures of limited liability cooperatives. Among the most important challenge, not clearly dealt with int he bill, is that of responsibility. Corporate law is grounded on agency principles articulated through our notions of "fiduciary duty." A similar regime, though more flexible, is a foundation of limited liability companies. Limited Liability Coops will require a similar clear set fo lines of authority and obligation, and standards under which to gauge them if they are to be as useful as capital privileging economic enterprises. Lastly, the newness of these devices makes their legal potential unclear. Perhaps a set of basic governance devices as models would serve a useful purpose as well.
In any case, this has been a long time coming in the United States. "In 1886, then Senator Leland Stanford introduced a bill in the U.S. Senate to authorize the formation of cooperative worker associations in the District of Columbia. In an interview with the New York Tribune shortly thereafter, he asserted “I have always been fully persuaded that, through co-operation, labor could become its own employer.” Co-operation of Labor, Leland Stanford (May 4, 1887) at 2. Senator Stanford’s vision may soon be realized if two members of of the California Assembly have their legislative way." (Keith Paul Bishop, In The Year 2525, If Man Is Still Alive, If Woman Can Survive, They May Find Limited Liability Worker Cooperatives, California Corporate and Securities Law, March 5, 2014).
"The bill is supported by the Arizmendi Association of Cooperatives, the East Bay Community Law Center, the Sustainable Economies Law Center and a broad coalition of worker-owned businesses, entrepreneurs, business developers, and community-based organizations." ((Rob Bonta, Press Release, supra). The Sustainable Economies Law Center maintains a legal resource library, Co-opLaw.org in partnership with the Green Collar Communities Clinic (GC3).
The draft of the legislation and additional commentary follow.
AB 2525 (Bonta and Levine): Limited Liability Worker Cooperative Act
bill text: text | pdf:___________
Summary
Existing law, the California Revised Uniform Limited Liability Company Act, governs the formation and operation of limited liability companies. Existing law authorizes a limited liability company to engage in any lawful business activity, except as specified, but prohibits construing the act to permit a limited liability company to render professional services, as defined. Existing law provides for the filing of specified records and further provides that an individual who signs such a record affirms under penalty of perjury that the information in the record is accurate.
Existing law, the Consumer Cooperative Corporation Law, provides for the organization and operation of primarily consumer cooperatives, and is also applicable to other cooperatives. Existing law provides for, among other things, information to be included in a cooperative corporation’s by laws, the definition of terms for purposes of that law, and requirements as to voting rights of members and time periods for sending notice of meetings at which members are entitled to vote. Existing law requires a cooperative corporation to include in its name the word “cooperative.”
This bill would establish the Limited Liability Worker Cooperative Act, which would provide for the organization and operation of worker cooperative companies. The bill would authorize a worker cooperative company to be formed for any lawful purpose provided that it is organized and conducts its business primarily for the mutual benefit of its members as patrons of the worker cooperative company. The bill would authorize a worker cooperative company to engage in any lawful business activity, except as specified, but would prohibit construing the act to permit a worker cooperative company to render professional services, as defined. The bill would authorize certain classes of membership in the worker cooperative company, including a worker-member class. The bill would provide that members of the worker cooperative company have equal votes, but would authorize the worker-member class to have ultimate decisionmaking authority. The bill would authorize members of a class to vote separately on any matter. The bill would authorize a worker cooperative company to include in its name the word “cooperative.” The bill would define certain terms for its purposes. The bill would specify that the provisions of the California Revised Uniform Limited Liability Act apply to worker cooperative companies, except as provided. Because this bill would expand the scope of the crime of perjury, the bill would impose a state-mandated local program.
Existing law, the Corporate Securities Law of 1968, provides for the regulation of the issuance of corporate securities, requires the qualification of an offer or sale of securities, and provides for exemptions from qualification.
This bill would exempt the issuance of a membership by a worker cooperative company, as specified, from certain securities requirements.
The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.
This bill would provide that no reimbursement is required by this act for a specified reason.
BILL NUMBER: AB 2525 INTRODUCED BILL TEXT INTRODUCED BY Assembly Members Bonta and Levine FEBRUARY 21, 2014 An act to amend Sections 12311 and 25100 of, to amend the heading of Title 2.6 (commencing with Section 17701.01) of, to add the heading of Division 1 (commencing with Section 17701.01) to, and to add Division 2 (commencing with Section 17801.01) to, Title 2.6 of, the Corporations Code, relating to worker cooperative companies. LEGISLATIVE COUNSEL'S DIGEST AB 2525, as introduced, Bonta. Limited Liability Worker Cooperative Act. Existing law, the California Revised Uniform Limited Liability Company Act, governs the formation and operation of limited liability companies. Existing law authorizes a limited liability company to engage in any lawful business activity, except as specified, but prohibits construing the act to permit a limited liability company to render professional services, as defined. Existing law provides for the filing of specified records and further provides that an individual who signs such a record affirms under penalty of perjury that the information in the record is accurate. Existing law, the Consumer Cooperative Corporation Law, provides for the organization and operation of primarily consumer cooperatives, and is also applicable to other cooperatives. Existing law provides for, among other things, information to be included in a cooperative corporation's by laws, the definition of terms for purposes of that law, and requirements as to voting rights of members and time periods for sending notice of meetings at which members are entitled to vote. Existing law requires a cooperative corporation to include in its name the word "cooperative." This bill would establish the Limited Liability Worker Cooperative Act, which would provide for the organization and operation of worker cooperative companies. The bill would authorize a worker cooperative company to be formed for any lawful purpose provided that it is organized and conducts its business primarily for the mutual benefit of its members as patrons of the worker cooperative company. The bill would authorize a worker cooperative company to engage in any lawful business activity, except as specified, but would prohibit construing the act to permit a worker cooperative company to render professional services, as defined. The bill would authorize certain classes of membership in the worker cooperative company, including a worker-member class. The bill would provide that members of the worker cooperative company have equal votes, but would authorize the worker-member class to have ultimate decisionmaking authority. The bill would authorize members of a class to vote separately on any matter. The bill would authorize a worker cooperative company to include in its name the word "cooperative." The bill would define certain terms for its purposes. The bill would specify that the provisions of the California Revised Uniform Limited Liability Act apply to worker cooperative companies, except as provided. Because this bill would expand the scope of the crime of perjury, the bill would impose a state-mandated local program. Existing law, the Corporate Securities Law of 1968, provides for the regulation of the issuance of corporate securities, requires the qualification of an offer or sale of securities, and provides for exemptions from qualification. This bill would exempt the issuance of a membership by a worker cooperative company, as specified, from certain securities requirements. The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement. This bill would provide that no reimbursement is required by this act for a specified reason. Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: yes. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. Section 12311 of the Corporations Code is amended to read: 12311. (a) The names of all corporations formed under this part shall include "cooperative." No corporation shall be formed under this part unless there is affixed or prefixed to its name some word or abbreviation which will indicate that it is a corporation, as distinguished from a natural person, a firm, or an unincorporated association. (b) No person shall adopt or use the word "cooperative" or any abbreviation or derivation thereof, or any word similar thereto, as part of the name or designation under which it does business in this state, unless incorporated as provided in this part or organized as a worker cooperative company under Division 2 (commencing with Section 17801.01) of Title 2.6, or unless incorporated as a nonprofit cooperative association under Chapter 1 (commencing with Section 54001) of Division 20 of the Food and Agricultural Code, as a stock cooperative, as defined in Section 11003.2 of the Business and Professions Code, as a limited-equity housing cooperative, as defined in Section 817 of the Civil Code, as a credit union or organization owned for the mutual benefit of credit unions, or under some other law of this state enabling it to do so. However, the foregoing prohibition shall be inapplicable to any credit union or organization owned for the mutual benefit of credit unions, any housing cooperative, the financing of which is insured, guaranteed, or provided, in whole or in part, by a public or statutorily chartered entity pursuant to a program created for housing cooperatives, a nonprofit corporation, a majority of whose membership is composed of cooperative corporations, or an academic institution that serves cooperative corporations. (c) A domestic or foreign corporation or association which did business in this state under a name or designation including the word "cooperative" prior to September 19, 1939, and which conducts business on a cooperative basis substantially as set forth in this part, may continue to do business under that name or designation. (d) Any person, firm, individual, partnership, trust, domestic corporation, foreign corporation, or association which did business in this state under a name or designation including the word "cooperative" prior to September 19, 1939, but which does not conduct business on a cooperative basis as contemplated by Section 12201 of this part, may continue to do business under that name or designation if the words "not organized under the law relating to cooperative corporations" are always placed immediately after the name or designation wherever it is used. (e) Any foreign corporation, organized under and complying with the cooperative law of the state or other jurisdiction of its creation, may use the term "cooperative" in this state if it has complied with the laws of this state applicable to foreign corporations, insofar as those laws are applicable to it, and if it is doing business on a cooperative basis as contemplated by Section 12201. SEC. 2. The heading of Title 2.6 (commencing with Section 17701.01) of the Corporations Code is amended to read: TITLE 2.6.CALIFORNIA REVISED UNIFORM LIMITED LIABILITY COMPANY ACTLIMITED LIABILITY COMPANIES SEC. 3. The heading of Division 1 (commencing with Section 17701.01) is added to Title 2.6 of the Corporations Code, to read: DIVISION 1. California Revised Uniform Limited Liability Company Act SEC. 4. Division 2 (commencing with Section 17801.01) is added to Title 2.6 of the Corporations Code, to read: DIVISION 2. Limited Liability Worker Cooperative Act Article 1. General Provisions 17801.01. (a) The Legislature finds and declares that the formation of employee-owned businesses and the participation of employees in the management of businesses in this state will promote the stabilization of local economies, anchor business activity, and increase productivity. The Legislature further finds that the encouragement of employee-owned businesses will increase and broaden community investments in this state and encourage new capital formation through employee ownership. (b) This division may be cited as the Limited Liability Worker Cooperative Act. (c) (1) A worker cooperative company may be formed under this division for any lawful purpose provided that it is organized and conducts its business primarily for the mutual benefit of its members as patrons of the worker cooperative company. (2) The earnings, savings, or benefits of the company shall be used for the general welfare of the members or shall be proportionately and equitably distributed to some or all of its members or its patrons, based upon their patronage of the company, in the form of cash, property, evidences of indebtedness, capital credits, memberships, or services. (3) Worker cooperative companies are democratically controlled and are not organized to make a profit for themselves, as such, or for their members, as such, but primarily for their members as patrons. 17801.02. (a) Except as provided in this section, the definitions of Section 17701.02 shall apply to this division. (b) For purposes of this division, the following definitions apply: (1) "Class" refers to those memberships that: (A) are identified in the articles of organization or operating agreement as being a different type of membership; or (B) have the same rights with respect to voting, dissolution, redemption, distributions, and transfer. For the purpose of this subdivision, rights shall be considered the same if they are determined by a formula applied uniformly. (2) "Distribution" shall mean both dividend distribution and patronage distribution. (3) "Member" has the same meaning as in subdivision (p) of Section 17701.02. A member may also be a patron of the worker cooperative company. (4) "Patron" means any of the following: (A) A member who provides personal services to, purchases goods from, or uses the services of the worker cooperative company. (B) A person who uses the worker cooperative company to market, process, or handle their products or services. (5) "Patronage" means the amount of value created by a member measured as provided in the articles of organization or operating agreement of the worker cooperative company. Value may include personal services contributed, number of hours worked, job creation, or any other measure as provided in the articles of organization or operating agreement. (6) "Patronage distribution" means any transfer of cash or property made to a patron of the worker cooperative company, the amount of which is computed with reference to the patron's patronage of the worker cooperative company. (7) "Worker" means a natural person who provides labor to the worker cooperative company in exchange for compensation. (8) "Worker cooperative company," means an entity formed under this division or an entity that becomes subject to this division. A worker cooperative company is majority-controlled by its worker-members. (9) "Worker-member" means a worker who is a member of the worker cooperative company and whose patronage includes providing labor to the worker cooperative company. 17801.03. (a) A worker cooperative company is an entity distinct from its members. (b) A worker cooperative company may have any lawful purpose, regardless of whether for profit, except the banking business, the business of issuing policies of insurance and assuming insurance risks, or the trust company business. A worker cooperative company may render services that may be lawfully rendered only pursuant to a license, certificate, or registration authorized by the Business and Professions Code, the Chiropractic Act, the Osteopathic Act, or the Yacht and Ship Brokers Act, if the applicable provisions of the Business and Professions Code, the Chiropractic Act, the Osteopathic Act, or the Yacht and Ship Brokers Act authorize a worker cooperative company to hold that license, certificate, or registration. (c) A worker cooperative company has perpetual duration. (d) Nothing in this division shall be construed to permit a worker cooperative company to render professional services, as defined in subdivision (a) of Section 13401 and in Section 13401.3, in this state. 17801.04. (a) Each member of the worker cooperative company shall have an equal vote in their membership class, but the worker-member class shall have ultimate decisionmaking authority. (b) Notwithstanding subdivision (r) of Section 17704.07, members of a specified class or group of members may vote separately or with all or any class or group of members on any matter. (c) If the proprietary interests of the members are unequal, the worker cooperative company must state this in its articles. 17801.05. The Secretary of State shall provide on its Internet Web site information and sample documents for forming a worker cooperative company. 17801.06. The provisions of Division 1 (commencing with Section 17701.01) shall apply to a worker cooperative company, except where a provision is in conflict with, or inconsistent with the provisions of this division. SEC. 5. Section 25100 of the Corporations Code is amended to read: 25100. The following securities are exempted from Sections 25110, 25120, and 25130: (a) Any security (including a revenue obligation) issued or guaranteed by the United States, any state, any city, county, city and county, public district, public authority, public corporation, public entity, or political subdivision of a state or any agency or corporate or other instrumentality of any one or more of the foregoing; or any certificate of deposit for any of the foregoing. (b) Any security issued or guaranteed by Canada, any Canadian province, any political subdivision or municipality of that province, or by any other foreign government with which the United States currently maintains diplomatic relations, if the security is recognized as a valid obligation by the issuer or guarantor; or any certificate of deposit for any of the foregoing. (c) Any security issued or guaranteed by and representing an interest in or a direct obligation of a national bank or a bank or trust company incorporated under the laws of this state, and any security issued by a bank to one or more other banks and representing an interest in an asset of the issuing bank. (d) Any security issued or guaranteed by a federal savings association or federal savings bank or federal land bank or joint land bank or national farm loan association or by any savings association, as defined in subdivision (a) of Section 5102 of the Financial Code, which is subject to the supervision and regulation of the Commissioner of Financial Institutions of this state. (e) Any security (other than an interest in all or portions of a parcel or parcels of real property which are subdivided land or a subdivision or in a real estate development), the issuance of which is subject to authorization by the Insurance Commissioner, the Public Utilities Commission, or the Real Estate Commissioner of this state. (f) Any security consisting of any interest in all or portions of a parcel or parcels of real property which are subdivided lands or a subdivision or in a real estate development; provided that the exemption in this subdivision shall not be applicable to: (1) any investment contract sold or offered for sale with, or as part of, that interest, or (2) any person engaged in the business of selling, distributing, or supplying water for irrigation purposes or domestic use that is not a public utility except that the exemption is applicable to any security of a mutual water company (other than an investment contract as described in paragraph (1)) offered or sold in connection with subdivided lands pursuant to Chapter 2 (commencing with Section 14310) of Part 7 of Division 3 of Title 1. (g) Any mutual capital certificates or savings accounts, as defined in the Savings Association Law, issued by a savings association, as defined by subdivision (a) of Section 5102 of the Financial Code, and holding a license or certificate of authority then in force from the Commissioner of Financial Institutions of this state. (h) Any security issued or guaranteed by any federal credit union, or by any credit union organized and supervised, or regulated, under the Credit Union Law. (i) Any security issued or guaranteed by any railroad, other common carrier, public utility, or public utility holding company which is (1) subject to the jurisdiction of the Interstate Commerce Commission or its successor or (2) a holding company registered with the Securities and Exchange Commission under the Public Utility Holding Company Act of 1935 or a subsidiary of that company within the meaning of that act or (3) regulated in respect of the issuance or guarantee of the security by a governmental authority of the United States, of any state, of Canada or of any Canadian province; and the security is subject to registration with or authorization of issuance by that authority. (j) Any security (except evidences of indebtedness, whether interest bearing or not) of an issuer (1) organized exclusively for educational, benevolent, fraternal, religious, charitable, social, or reformatory purposes and not for pecuniary profit, if no part of the net earnings of the issuer inures to the benefit of any private shareholder or individual, or (2) organized as a chamber of commerce or trade or professional association. The fact that amounts received from memberships or dues or both will or may be used to construct or otherwise acquire facilities for use by members of the nonprofit organization does not disqualify the organization for this exemption. This exemption does not apply to the securities of any nonprofit organization if any promoter thereof expects or intends to make a profit directly or indirectly from any business or activity associated with the organization or operation of that nonprofit organization or from remuneration received from that nonprofit organization. (k) Any agreement, commonly known as a "life income contract," of an issuer (1) organized exclusively for educational, benevolent, fraternal, religious, charitable, social, or reformatory purposes and not for pecuniary profit and (2) which the commissioner designates by rule or order, with a donor in consideration of a donation of property to that issuer and providing for the payment to the donor or persons designated by him or her of income or specified periodic payments from the donated property or other property for the life of the donor or those other persons. ( l ) Any note, draft, bill of exchange, or banker's acceptance which is freely transferable and of prime quality, arises out of a current transaction or the proceeds of which have been or are to be used for current transactions, and which evidences an obligation to pay cash within nine months of the date of issuance, exclusive of days of grace, or any renewal of that paper which is likewise limited, or any guarantee of that paper or of that renewal, provided that the paper is not offered to the public in amounts of less than twenty-five thousand dollars ($25,000) in the aggregate to any one purchaser. In addition, the commissioner may, by rule or order, exempt any issuer of any notes, drafts, bills of exchange or banker's acceptances from qualification of those securities when the commissioner finds that the qualification is not necessary or appropriate in the public interest or for the protection of investors. (m) Any security issued by any corporation organized and existing under the provisions of Chapter 1 (commencing with Section 54001) of Division 20 of the Food and Agricultural Code. (n) Any beneficial interest in an employees' pension, profit-sharing, stock bonus or similar benefit plan which meets the requirements for qualification under Section 401 of the federal Internal Revenue Code or any statute amendatory thereof or supplementary thereto. A determination letter from the Internal Revenue Service stating that an employees' pension, profit-sharing, stock bonus or similar benefit plan meets those requirements shall be conclusive evidence that the plan is an employees' pension, profit-sharing, stock bonus or similar benefit plan within the meaning of the first sentence of this subdivision until the date the determination letter is revoked in writing by the Internal Revenue Service, regardless of whether or not the revocation is retroactive. (o) Any security listed or approved for listing upon notice of issuance on a national securities exchange, if the exchange has been certified by rule or order of the commissioner and any warrant or right to purchase or subscribe to the security. The exemption afforded by this subdivision does not apply to securities listed or approved for listing upon notice of issuance on a national securities exchange, in a rollup transaction unless the rollup transaction is an eligible rollup transaction as defined in Section 25014.7. That certification of any exchange shall be made by the commissioner upon the written request of the exchange if the commissioner finds that the exchange, in acting on applications for listing of common stock, substantially applies the minimum standards set forth in either subparagraph (A) or (B) of paragraph (1), and, in considering suspension or removal from listing, substantially applies each of the criteria set forth in paragraph (2). (1) Listing standards: (A) (i) Shareholders' equity of at least four million dollars ($4,000,000). (ii) Pretax income of at least seven hundred fifty thousand dollars ($750,000) in the issuer's last fiscal year or in two of its last three fiscal years. (iii) Minimum public distribution of 500,000 shares (exclusive of the holdings of officers, directors, controlling shareholders, and other concentrated or family holdings), together with a minimum of 800 public holders or minimum public distribution of 1,000,000 shares together with a minimum of 400 public holders. The exchange may also consider the listing of a company's securities if the company has a minimum of 500,000 shares publicly held, a minimum of 400 shareholders and daily trading volume in the issue has been approximately 2,000 shares or more for the six months preceding the date of application. In evaluating the suitability of an issue for listing under this trading provision, the exchange shall review the nature and frequency of that activity and any other factors as it may determine to be relevant in ascertaining whether the issue is suitable for trading. A security that trades infrequently shall not be considered for listing under this paragraph even though average daily volume amounts to 2,000 shares per day or more. Companies whose securities are concentrated in a limited geographical area, or whose securities are largely held in block by institutional investors, normally may not be considered eligible for listing unless the public distribution appreciably exceeds 500,000 shares. (iv) Minimum price of three dollars ($3) per share for a reasonable period of time prior to the filing of a listing application; provided, however, in certain instances an exchange may favorably consider listing an issue selling for less than three dollars ($3) per share after considering all pertinent factors, including market conditions in general, whether historically the issue has sold above three dollars ($3) per share, the applicant's capitalization, and the number of outstanding and publicly held shares of the issue. (v) An aggregate market value for publicly held shares of at least three million dollars ($3,000,000). (B) (i) Shareholders' equity of at least four million dollars ($4,000,000). (ii) Minimum public distribution set forth in clause (iii) of subparagraph (A) of paragraph (1). (iii) Operating history of at least three years. (iv) An aggregate market value for publicly held shares of at least fifteen million dollars ($15,000,000). (2) Criteria for consideration of suspension or removal from listing: (i) If a company that (A) has shareholders' equity of less than one million dollars ($1,000,000) has sustained net losses in each of its two most recent fiscal years, or (B) has net tangible assets of less than three million dollars ($3,000,000) and has sustained net losses in three of its four most recent fiscal years. (ii) If the number of shares publicly held (excluding the holdings of officers, directors, controlling shareholders and other concentrated or family holdings) is less than 150,000. (iii) If the total number of shareholders is less than 400 or if the number of shareholders of lots of 100 shares or more is less than 300. (iv) If the aggregate market value of shares publicly held is less than seven hundred fifty thousand dollars ($750,000). (v) If shares of common stock sell at a price of less than three dollars ($3) per share for a substantial period of time and the issuer shall fail to effectuate a reverse stock split of the shares within a reasonable period of time after being requested by the exchange to take that action. A national securities exchange, certified by rule or order of the commissioner under this subdivision, shall file annual reports when requested to do so by the commissioner. The annual reports shall contain, by issuer: the variances granted to an exchange's listing standards, including variances from corporate governance and voting rights' standards, for any security of that issuer; the reasons for the variances; a discussion of the review procedure instituted by the exchange to determine the effect of the variances on investors and whether the variances should be continued; and any other information that the commissioner deems relevant. The purpose of these reports is to assist the commissioner in determining whether the quantitative and qualitative requirements of this subdivision are substantially being met by the exchange in general or with regard to any particular security. The commissioner after appropriate notice and opportunity for hearing in accordance with the provisions of the Administrative Procedure Act, Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, may, in his or her discretion, by rule or order, decertify any exchange previously certified that ceases substantially to apply the minimum standards or criteria as set forth in paragraphs (1) and (2). A rule or order of certification shall conclusively establish that any security listed or approved for listing upon notice of issuance on any exchange named in a rule or order of certification, and any warrant or right to purchase or subscribe to that security, is exempt under this subdivision until the adoption by the commissioner of any rule or order decertifying the exchange. (p) A promissory note secured by a lien on real property, which is neither one of a series of notes of equal priority secured by interests in the same real property nor a note in which beneficial interests are sold to more than one person or entity. (q) Any unincorporated interindemnity or reciprocal or interinsurance contract, that qualifies under the provisions of Section 1280.7 of the Insurance Code, between members of a cooperative corporation, organized and operating under Part 2 (commencing with Section 12200) of Division 3 of Title 1, and whose members consist only of physicians and surgeons licensed in California, which contracts indemnify solely in respect to medical malpractice claims against the members, and which do not collect in advance of loss any moneys other than contributions by each member to a collective reserve trust fund or for necessary expenses of administration. (1) Whenever it appears to the commissioner that any person has engaged or is about to engage in any act or practice constituting a violation of any provision of Section 1280.7 of the Insurance Code, the commissioner may, in the commissioner's discretion, bring an action in the name of the people of the State of California in the superior court to enjoin the acts or practices or to enforce compliance with Section 1280.7 of the Insurance Code. Upon a proper showing a permanent or preliminary injunction, a restraining order, or a writ of mandate shall be granted and a receiver or conservator may be appointed for the defendant or the defendant's assets. (2) The commissioner may, in the commissioner's discretion, (A) make public or private investigations within or outside of this state as the commissioner deems necessary to determine whether any person has violated or is about to violate any provision of Section 1280.7 of the Insurance Code or to aid in the enforcement of Section 1280.7, and (B) publish information concerning the violation of Section 1280.7. (3) For the purpose of any investigation or proceeding under this section, the commissioner or any officer designated by the commissioner may administer oaths and affirmations, subpoena witnesses, compel their attendance, take evidence, and require the production of any books, papers, correspondence, memoranda, agreements, or other documents or records which the commissioner deems relevant or material to the inquiry. (4) In case of contumacy by, or refusal to obey a subpoena issued to, any person, the superior court, upon application by the commissioner, may issue to the person an order requiring the person to appear before the commissioner, or the officer designated by the commissioner, to produce documentary evidence, if so ordered, or to give evidence touching the matter under investigation or in question. Failure to obey the order of the court may be punished by the court as a contempt. (5) No person is excused from attending or testifying or from producing any document or record before the commissioner or in obedience to the subpoena of the commissioner or any officer designated by the commissioner, or in any proceeding instituted by the commissioner, on the ground that the testimony or evidence (documentary or otherwise), required of the person may tend to incriminate the person or subject the person to a penalty or forfeiture, but no individual may be prosecuted or subjected to any penalty or forfeiture for or on account of any transaction, matter, or thing concerning which the person is compelled, after validly claiming the privilege against self-incrimination, to testify or produce evidence (documentary or otherwise), except that the individual testifying is not exempt from prosecution and punishment for perjury or contempt committed in testifying. (6) The cost of any review, examination, audit, or investigation made by the commissioner under Section 1280.7 of the Insurance Code shall be paid to the commissioner by the person subject to the review, examination, audit, or investigation, and the commissioner may maintain an action for the recovery of these costs in any court of competent jurisdiction. In determining the cost, the commissioner may use the actual amount of the salary or other compensation paid to the persons making the review, examination, audit, or investigation plus the actual amount of expenses including overhead reasonably incurred in the performance of the work. The recoverable cost of each review, examination, audit, or investigation made by the commissioner under Section 1280.7 of the Insurance Code shall not exceed twenty-five thousand dollars ($25,000), except that costs exceeding twenty-five thousand dollars ($25,000) shall be recoverable if the costs are necessary to prevent a violation of any provision of Section 1280.7 of the Insurance Code. (r) (1) Any shares or memberships issued by any corporation organized and existing pursuant to the provisions of Part 2 (commencing with Section 12200) of Division 3 of Title 1, provided the aggregate investment of any shareholder or member in shares or memberships sold pursuant to this subdivision does not exceed three hundred dollars ($300). This exemption does not apply to the shares or memberships of that corporation if any promoter thereof expects or intends to make a profit directly or indirectly from any business or activity associated with the corporation or the operation of the corporation or from remuneration, other than reasonable salary, received from the corporation. This exemption does not apply to nonvoting shares or memberships of that corporation issued to any person who does not possess, and who will not acquire in connection with the issuance of nonvoting shares or memberships, voting power (Section 12253) in the corporation. This exemption also does not apply to shares or memberships issued by a nonprofit cooperative corporation organized to facilitate the creation of an unincorporated interindemnity arrangement that provides indemnification for medical malpractice to its physician and surgeon members as set forth in subdivision (q). (2) Notwithstanding paragraph (1), any membership issued by a worker cooperative company organized and existing pursuant to the provisions of Division 2 (commencing with Section 17801.01) of Title 2.6, provided the primary motivation of the purchaser is to use or consume the products or services of the worker cooperative company or to otherwise patronize the worker cooperative company and is not primarily motivated by the prospect of a return on investment, shall be exempted from Sections 25110, 25120, and 25130. (s) Any security consisting of or representing an interest in a pool of mortgage loans that meets each of the following requirements: (1) The pool consists of whole mortgage loans or participation interests in those loans, which loans were originated or acquired in the ordinary course of business by a national bank or federal savings association or federal savings bank having its principal office in this state, by a bank incorporated under the laws of this state or by a savings association as defined in subdivision (a) of Section 5102 of the Financial Code and which is subject to the supervision and regulation of the Commissioner of Financial Institutions, and each of which at the time of transfer to the pool is an authorized investment for the originating or acquiring institution. (2) The pool of mortgage loans is held in trust by a trustee which is a financial institution specified in paragraph (1) as trustee or otherwise. (3) The loans are serviced by a financial institution specified in paragraph (1). (4) The security is not offered in amounts of less than twenty-five thousand dollars ($25,000) in the aggregate to any one purchaser. (5) The security is offered pursuant to a registration under the Securities Act of 1933, or pursuant to an exemption under Regulation A under that act, or in the opinion of counsel for the issuer, is offered pursuant to an exemption under Section 4(2) of that act. (t) (1) Any security issued or guaranteed by and representing an interest in or a direct obligation of an industrial loan company incorporated under the laws of the state and authorized by the Commissioner of Financial Institutions to engage in industrial loan business. (2) Any investment certificate in or issued by any industrial loan company that is organized under the laws of a state of the United States other than this state, that is insured by the Federal Deposit Insurance Corporation, and that maintains a branch office in this state. SEC. 6. No reimbursement is required by this act pursuant to Section 6 of Article XIII B of the California Constitution because the only costs that may be incurred by a local agency or school district will be incurred because this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the definition of a crime within the meaning of Section 6 of Article XIII B of the California Constitution.
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