80R13226 BEF-F

By: Swinford H.B. No. 2671

Substitute the following for H.B. No. 2671:

By: Garcia C.S.H.B. No. 2671

A BILL TO BE ENTITLED

AN ACT

relating to limited agricultural cooperatives; providing penalties.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Title 4, Agriculture Code, is amended by adding Chapter 53 to read as follows: CHAPTER 53. LIMITED AGRICULTURAL COOPERATIVES SUBCHAPTER A. GENERAL PROVISIONS

Sec. 53.001. SHORT TITLE. This Act may be cited as the Limited Agricultural Cooperatives Act.

Sec. 53.002. DEFINITIONS. In this chapter:

(1) "Address" means mailing address, including a zip code. In the case of a registered address, the term means the mailing address and the actual office location, which may not be a post office box.

(2) "Articles of organization" means the articles of organization of a cooperative as originally filed and subsequently amended.

(3) "Association" means an organization conducting business on a cooperative plan under the laws of this state or another state that is chartered to conduct business under other laws of this state or another state.

(4) "Board" means the board of directors of a cooperative.

(5) "Business entity" means:

(A) a corporation, limited liability company, limited partnership, limited liability partnership, or other legal entity, whether domestic or foreign;

(B) an association; or

(C) a body vested with the power or function of a legal entity.

(6) "Cooperative" means an association organized under this chapter conducting business on a cooperative plan as provided under this chapter.

(7) "Domestic business entity" means a business entity organized under the laws of this state.

(8) "Foreign business entity" means a business entity that is not a domestic business entity.

(9) "Governing documents" has the meaning assigned by Section 1.002, Business Organizations Code.

(10) "Jurisdiction of formation" has the meaning assigned by Section 1.002, Business Organizations Code.

(11) "Member" means a person or entity shown on the books of a cooperative as the owner of governance rights of a membership interest of the cooperative and includes patron and nonpatron members.

(12) "Membership interest" means a member's interest in a cooperative consisting of a member's financial rights, a member's right to assign financial rights, a member's governance rights, and a member's right to assign governance rights. Membership interest includes a patron membership interest and a nonpatron membership interest.

(13) "Members' meeting" means a regular or special members' meeting.

(14) "Merger" means:

(A) the division of a cooperative into two or more new cooperatives or other business entities or into a surviving cooperative and one or more new domestic or foreign business entities; or

(B) the combination of one or more cooperatives with one or more domestic or foreign business entities, resulting in:

(i) one or more surviving cooperatives or domestic or foreign business entities;

(ii) the creation of one or more new cooperatives or domestic or foreign business entities; or

(iii) one or more surviving cooperatives or business entities and the creation of one or more new cooperatives or business entities.

(15) "Nonpatron membership interest" means a membership interest that does not require the holder to conduct patronage business for or with the cooperative to receive financial rights or distributions.

(16) "Patron" means a person or entity that conducts patronage business with a cooperative.

(17) "Patronage" means business, transactions, or services done for or with the cooperative as defined by the cooperative.

(18) "Patron member" means a member who holds a patron membership interest.

(19) "Patron membership interest" means a membership interest that requires the holder to conduct patronage business for or with the cooperative, as specified by the cooperative, to receive financial rights or distributions.

Sec. 53.003. APPLICATION OF OTHER LAW. To the extent the provision is not inconsistent with this chapter, the provisions of Title 1, Business Organizations Code, apply to a cooperative in the same manner as if the cooperative were a domestic limited liability company.

Sec. 53.004. FEES. The secretary of state shall impose a fee of:

(1) $300 for filing articles of organization under this chapter;

(2) $150 for filing articles of amendment under this chapter;

(3) $300 for filing restated articles of organization under this chapter;

(4) $15 for filing a statement of change of registered agent or change of registered office, or both, under this chapter;

(5) $300 for filing a merger or conversion under this chapter, which is in addition to any fee imposed for filing formation documents for a domestic business entity or cooperative created by the merger or conversion;

(6) $40 for filing articles of dissolution under this chapter;

(7) $75 for filing an application for reinstatement under this chapter;

(8) $15 for filing a certificate of correction under this chapter; and

(9) $15 for filing any other instrument permitted or authorized by this chapter. [Sections 53.005-53.050 reserved for expansion] SUBCHAPTER B. PURPOSE AND POWERS

Sec. 53.051. ORGANIZATIONAL PURPOSE. A cooperative may be formed and organized on a cooperative plan under this chapter to market, process, or otherwise change the form or marketability of crops, livestock, and other agricultural products, including manufacturing and further processing of products, and other purposes that are necessary or convenient to facilitate the production or marketing of agricultural products by patron members or that are related to the business of the cooperative.

Sec. 53.052. POWERS. (a) In addition to other powers, a cooperative:

(1) may perform each act or thing necessary or proper to the conduct of the cooperative's business or the accomplishment of the purposes of the cooperative;

(2) has the rights, powers, and privileges granted to a domestic entity under Chapter 2, Business Organizations Code, except those that are inconsistent with this chapter; and

(3) has the powers provided by this section.

(b) A cooperative may buy, sell, or deal in its own products, the products of the cooperative's individual members, patrons, or nonmembers, the products of another cooperative association or of its members or patrons, or the products of another person or entity. A cooperative may negotiate the price for which the products the cooperative sells may be sold.

(c) A cooperative may enter into or become a party to a contract or agreement for the cooperative or for the cooperative's individual members or patrons or between the cooperative and its members.

(d) A cooperative may purchase and hold, lease, mortgage, encumber, sell, exchange, or convey real property, buildings, and personal property as the business of the cooperative may require, including the sale or other disposition of assets required by the business of the cooperative as determined by the board.

(e) A cooperative may erect buildings or other structures or facilities on land owned or leased by the cooperative or on a right-of-way acquired by the cooperative.

(f) A cooperative may issue bonds or other evidence of indebtedness and may borrow money to finance the business of the cooperative.

(g) A cooperative may make advances to the cooperative's members or patrons on products delivered by the members or patrons to the cooperative.

(h) A cooperative may accept deposits of money from other cooperatives, associations, or its members.

(i) A cooperative may extend trade credit to or borrow money from individual members, cooperatives, or associations from which it is constituted using security that it considers sufficient in dealing with the members, cooperatives, or associations.

(j) If reasonably necessary or incidental to accomplish the purposes stated in its articles of organization, a cooperative may purchase, acquire, hold, or dispose of an ownership interest in another business entity, whether organized under the laws of this state or another state, and assume all rights, interests, privileges, responsibilities, and obligations arising out of the ownership interest.

(k) A cooperative may acquire and hold an ownership interest in another business entity organized under the laws of this or another state, including a business entity organized:

(1) as a federation of associations;

(2) for the purpose of forming a district, state, or national marketing, sales, or service agency; or

(3) for the purpose of acquiring marketing facilities at terminal or other markets in this state or other states.

(l) A cooperative may purchase, own, and hold ownership interests, memberships, interests in nonstock capital, or evidences of indebtedness of any domestic business entity or foreign business entity if reasonably necessary or incidental to accomplish the purposes stated in the articles of organization.

(m) A cooperative may exercise any fiduciary power in relations with the members, cooperatives, associations, or business entities from which it is constituted.

(n) A cooperative may take, receive, and hold real and personal property, including the principal of and interest on money or other funds and rights in a contract, in trust for any purpose not inconsistent with the purposes of the cooperative stated in its articles of organization and may exercise fiduciary powers in relation to the taking, receiving, or holding of the property.

(o) A cooperative may not act as a credit union, bank, trust company, savings bank, or savings association regulated under the Finance Code.

Sec. 53.053. AGRICULTURAL PRODUCT MARKETING CONTRACTS. (a) A cooperative and its patron member or patron may make and execute a marketing contract that requires the patron member or patron to sell a specified portion of the patron member's or patron's agricultural product or specified commodity produced from a certain area exclusively to or through the cooperative or a facility established by the cooperative.

(b) If a sale is contracted to the cooperative, the sale transfers title to the product absolutely, subject only to a recorded lien or security interest, to the cooperative on delivery of the product or at another specified time if expressly provided in the contract. The contract may allow the cooperative to sell or resell the product with or without taking title to the product and pay the resale price to the patron member or patron after deducting all necessary selling, overhead, and other costs and expenses, including other proper reserves and interest.

(c) The term of a marketing contract may not exceed 10 years, but a marketing contract may be made self-renewing for subsequent periods of five years each, subject to the right of either party to terminate by giving written notice of the termination as specified in the contract.

(d) The bylaws or the marketing contract, or both, may set a specific sum as liquidated damages to be paid by the patron member or patron to the cooperative for a breach of any provision of a marketing contract regarding the sale, delivery, or withholding of a product and may provide that the patron member or patron shall pay the costs, premiums for bonds, expenses, and fees if an action is brought on the contract by the cooperative. The remedies for breach of contract are valid and enforceable in the courts of this state. The provisions shall be enforced as liquidated damages and may not be considered or regarded as a penalty.

(e) On a breach or threatened breach of a marketing contract by a patron member or patron, the cooperative is entitled to seek an injunction to prevent the breach and to specific performance of the contract. Pending the adjudication of the action, the cooperative may be granted a temporary restraining order and preliminary injunction against the patron member or patron.

(f) A person commits an offense if the person knowingly induces or attempts to induce a member or patron of a cooperative to breach a marketing contract with the cooperative or knowingly spreads false reports about the finances or management of a cooperative organized under this chapter. An offense under this subsection is a misdemeanor punishable by a fine of not less than $100 or more than $1,000. It is a defense to prosecution under this subsection that the person is a bona fide creditor of the cooperative or the agent or attorney of a bona fide creditor attempting to collect a debt of the cooperative.

(g) A person is liable to the cooperative for civil damages if the person:

(1) knowingly induces a member or patron of a cooperative to breach a marketing contract with the cooperative; or

(2) knowingly spreads false reports about the finances or management of a cooperative.

Sec. 53.054. DISTRIBUTION OF UNCLAIMED PROPERTY. (a) A cooperative may, instead of paying or delivering unclaimed property to this state, distribute the unclaimed property to a corporation or organization that is exempt from federal income taxation. To be valid, a cooperative that elects to distribute unclaimed property must file with the comptroller:

(1) a verified, written explanation of the proof of claim of an owner establishing a right to receive the abandoned property;

(2) any error in the presumption of abandonment;

(3) the name, address, and exemption number of the corporation or organization to which the property was or is to be distributed; and

(4) the approximate date of distribution.

(b) This section does not alter any procedure provided by law for a cooperative to report unclaimed property to this state or a requirement that the claims of an owner be made to the cooperative for a period following the publication of a list of abandoned property.

(c) The entitlement of an owner to unclaimed property held by a cooperative is extinguished when the property is distributed under this section. [Sections 53.055-53.100 reserved for expansion] SUBCHAPTER C. FILINGS

Sec. 53.101. WHEN FILINGS TAKE EFFECT. (a) Except as permitted by Subsection (b) or as otherwise provided by this chapter, a filing instrument submitted to the secretary of state takes effect when filed.

(b) The date and time at which a filing instrument takes effect may be delayed as provided by Subchapter B, Chapter 4, Business Organizations Code.

Sec. 53.102. ABANDONMENT BEFORE EFFECTIVENESS. The parties to a filing instrument may abandon the filed instrument if the instrument has not taken effect by filing a certificate of abandonment in accordance with Section 4.057, Business Organizations Code.

Sec. 53.103. CORRECTING AN ERRONEOUS OR DEFECTIVE INSTRUMENT. (a) A cooperative may, by filing a certificate of correction in accordance with Subchapter C, Chapter 4, Business Organizations Code, correct any instrument filed with the secretary of state if the instrument is an inaccurate record of the event or transaction evidenced in the instrument, contains an inaccurate or erroneous statement, or was defectively or erroneously signed, sealed, acknowledged, or verified.

(b) The certificate of correction must be signed by a director or authorized officer of the cooperative.

(c) Except as provided by Subsection (d), after the certificate of correction is filed by the secretary of state, the filing instrument is considered to have been corrected on the date the filing instrument was originally filed.

(d) With respect to a person who is adversely affected by the correction, the filing instrument is considered to have been corrected on the date the certificate of correction is filed.

(e) A certificate issued by the secretary of state before a filing instrument is corrected, with respect to the effect of filing the original filing instrument, applies to the corrected filing instrument as of the date the corrected filing instrument is considered to have been filed under this section.

Sec. 53.104. SIGNATURE AND GENERAL FILING REQUIREMENTS. (a) Unless otherwise provided by this chapter, a filing instrument submitted by or on behalf of a cooperative must be signed by an authorized officer of the cooperative.

(b) If the cooperative is under the control of a receiver, trustee, or other court-appointed fiduciary, a filing instrument may be signed by that fiduciary.

(c) A person authorized to sign a filing instrument for a cooperative is not required to show evidence of the person's authority as a requirement for filing.

(d) A photographic, photostatic, facsimile, electronic, or similar reproduction of a filing instrument, signature, acknowledgment of filing, certificate, or communication may be filed or issued in place of:

(1) an original filing instrument;

(2) an original signature on a filing instrument; or

(3) an original certificate or acknowledgment of filing or other written communication from the secretary of state relating to a filing instrument.

(e) To be accepted and filed by the secretary of state, an instrument that is submitted for filing must satisfy the filing requirements of this chapter, the requirements of any other law that is made applicable to the instrument or cooperative by this chapter, and any administrative rule adopted by the secretary of state relating to the instrument.

(f) If the secretary of state finds that a filing instrument conforms to the requirements of Subsection (e) and all required fees have been paid, the secretary of state shall:

(1) file the instrument by accepting it into the filing system adopted by the secretary of state and assigning the instrument a date of filing; and

(2) deliver a written acknowledgment or certificate evidencing filing to the cooperative or its representative.

(g) If a duplicate copy of a filing instrument is delivered to the secretary of state, on accepting the filing instrument the secretary of state shall endorse the duplicate copy with the word "Filed" and the month, day, and year of filing and return the duplicate copy to the cooperative or its representative with the written acknowledgment or certificate evidencing filing.

Sec. 53.105. APPEALS FROM SECRETARY OF STATE'S REFUSAL TO FILE INSTRUMENT. A person may appeal the secretary of state's disapproval of the filing of an instrument only as provided by Section 12.004, Business Organizations Code.

Sec. 53.106. PENALTY FOR SUBMISSION OF A FALSE OR FRAUDULENT INSTRUMENT. Section 4.008, Business Organizations Code, applies to a filing instrument under this chapter.

Sec. 53.107. SECRETARY OF STATE; DUTIES AND AUTHORITY. (a) The duty of the secretary of state to file instruments under this chapter is ministerial.

(b) The secretary of state may adopt procedural rules for the filing of instruments authorized to be filed with the secretary of state under this chapter.

(c) The secretary of state may adopt forms for a filing instrument authorized or required by this chapter.

(d) The secretary of state has the power and authority reasonably necessary to perform the duties imposed under this chapter. [Sections 53.108-53.150 reserved for expansion] SUBCHAPTER D. ORGANIZATION

Sec. 53.151. ORGANIZERS. A cooperative may be organized by one or more organizers who must be adult individuals and who may act for themselves or as agents for other entities. An organizer of the cooperative is not required to become a member of the cooperative.

Sec. 53.152. COOPERATIVE NAME. (a) The name of a cooperative must comply with Subchapters A and B, Chapter 5, Business Organizations Code, in the manner required of a domestic filing entity.

(b) A cooperative may conduct business under a name other than the name stated in the articles of organization if the cooperative files an assumed name certificate in accordance with Chapter 36, Business & Commerce Code.

(c) A cooperative's name may not infringe on the rights of another person under:

(1) the Trademark Act of 1946, as amended (15 U.S.C. Section 1051 et seq.);

(2) Chapter 16 or 36, Business & Commerce Code; or

(3) common law.

Sec. 53.153. ARTICLES OF ORGANIZATION. (a) The organizers shall prepare the articles of organization, which must include:

(1) the name of the cooperative;

(2) the purpose of the cooperative;

(3) the principal place of business for the cooperative;

(4) the period of duration for the cooperative, if the duration is not perpetual;

(5) the capital structure of the cooperative, including a statement of the classes and relative rights, preferences, and restrictions granted to or imposed on each type of member interest, the rights to share in profits or distributions of the cooperative, and the authority to issue member interests, which may be designated to be determined by the board;

(6) a provision designating the voting and governance rights, including which membership interests have voting power and any limitation or restriction on the voting power, which must be in accordance with the provisions of this chapter;

(7) a statement that a patron membership interest with voting power is restricted to one vote for each member regardless of the amount of the patron membership interest held in the affairs of the cooperative, or a statement describing a different allocation of voting power as provided for in this chapter;

(8) a statement that a membership interest held by a member is transferable only with the approval of the board or as provided in the bylaws;

(9) the names, mailing addresses, and terms of office of the directors of the initial board;

(10) a statement as to how profits and losses are to be allocated and cash distributed between patron membership interests collectively and nonpatron membership interests collectively;

(11) a statement that net income allocated to a patron membership interest as determined by the board in excess of dividends and additions to reserves is to be distributed on the basis of patronage and that the records of the cooperative are to include the interests of patron membership interests and nonpatron membership interests, which may be additionally described in the bylaws of any class and in the reserves; and

(12) the street address of the cooperative's initial registered office and the name of the cooperative's registered agent at the office.

(b) The articles of organization must indicate if a cooperative is being formed under a plan of conversion or a plan of merger. If the cooperative is being formed under a plan of conversion, the articles of organization must state the name, address, date of formation, organizational form, and jurisdiction of formation of the entity being converted to a cooperative under the plan.

(c) The articles of organization shall contain the provisions described by Subsections (a) and (b), except that the names and mailing addresses of the directors of the initial board may be omitted after their successors have been elected by the members or the articles of organization are amended or restated in their entirety.

(d) The articles of organization may contain any other lawful provision. The articles of organization are not required to state any of the powers provided to the cooperative under this chapter.

(e) The articles of organization must be signed by the organizers.

(f) Except as otherwise provided by this subsection, the original articles of organization must be filed with the secretary of state. The articles of organization for a cooperative that is formed under a plan of merger or conversion must be filed with the articles of merger or certificate of conversion and are not required to be separately filed. If the secretary of state determines that articles of organization submitted with articles of merger or a certificate of conversion meet the requirements of this chapter, the secretary of state shall file the articles of organization and issue a certificate of organization. In the case of a merger or conversion, the certificate of organization of the cooperative that is the converted entity or that is created under the plan of merger becomes effective when the merger or conversion becomes effective.

(g) When the articles of organization are filed with the secretary of state and the required fee is paid, it is presumed that:

(1) all conditions precedent required to be performed by the organizers have been complied with;

(2) the cooperative has been chartered by this state as a separate legal entity; and

(3) the secretary of state will issue a certificate of organization to the cooperative.

Sec. 53.154. AMENDMENT OF ARTICLES OF ORGANIZATION. (a) The articles of organization of a cooperative may be amended as follows:

(1) the board by majority vote must pass a resolution stating the text of the proposed amendment;

(2) the text of the proposed amendment and an attached mail ballot if the board has provided for a mail ballot in the resolution, or a description of an alternative voting method approved by the board and stated in the resolution, must be mailed or distributed with a regular or special meeting notice to each member;

(3) the notice must designate the time and place of the meeting for the proposed amendment to be considered and voted on; and

(4) if a quorum of the members is registered as being present or represented by alternative vote at the meeting, the proposed amendment is adopted:

(A) when approved by a majority of the votes cast; or

(B) if the cooperative has articles of organization or bylaws that require more than majority approval or other conditions for approval, when approved by a proportion of the votes cast or a number of total members as required by the articles of organization or bylaws and when the conditions for approval in the articles of organization or bylaws have been complied with.

(b) After an amendment has been adopted, the cooperative shall file with the secretary of state articles of amendment signed by the chair, vice chair, records officer, or assistant records officer that:

(1) state the name of the cooperative;

(2) identify by reference or description each provision being added, altered, or deleted;

(3) provide the amended text of each section that is added or altered; and

(4) include a statement that the amendment was approved in the manner required by this section and by the cooperative's governing documents.

(c) A certificate shall be prepared stating:

(1) the vote and meeting of the board adopting a resolution of the proposed amendment;

(2) the notice given to members of the meeting at which the amendment was adopted;

(3) the quorum registered at the meeting; and

(4) the votes cast adopting the amendment.

(d) The certificate shall be signed by the chair, vice chair, records officer, or financial officer and filed with the records of the cooperative.

(e) A majority of directors may amend the articles of organization if the cooperative does not have any members with voting rights.

Sec. 53.155. RESTATED ARTICLES OF ORGANIZATION. (a) A cooperative may authorize, execute, and file restated articles of organization using the procedures for amending the articles of organization under Section 53.154. The restated articles of organization must restate the entire text of the cooperative's articles of organization and incorporate all amendments previously filed with the secretary of state. The restated articles of organization may incorporate new amendments not previously filed with the secretary of state.

(b) Unless otherwise provided by the articles of organization or bylaws, member approval is not required to file restated articles of organization if the restated text consists only of the text of articles of organization and amendments previously filed with the secretary of state.

(c) Restated articles of organization must be signed by an authorized officer of the cooperative and filed in accordance with Section 3.059, Business Organizations Code.

(d) Restated articles of organization may omit the name and address of each organizer and may insert the names and addresses of the current directors of the cooperative in place of similar information concerning the initial directors.

Sec. 53.156. CONVERSION OF AN EXISTING ASSOCIATION TO BE GOVERNED BY THIS CHAPTER. (a) Notwithstanding any other law of this state, an existing association incorporated under this code or organized under another law of this state is authorized to convert and become subject to the provisions of this chapter by adopting a plan of conversion.

(b) To effect a conversion, the converting association must act on and the members of the association must approve a plan of conversion in the manner provided for the approval of a plan of merger by an association if the association does not survive the merger. If a law or the governing documents of the association do not provide a method to approve a merger if the association does not survive the merger, the members of the association may approve a plan of conversion in the manner provided by Chapter 10, Business Organizations Code, for the adoption and approval of a conversion by a domestic entity.

(c) The plan of conversion must include:

(1) the name of the association that is the converting entity;

(2) the name of the cooperative that is the converted entity;

(3) a statement that the converting entity is continuing its existence as a cooperative governed by this chapter;

(4) the proposed effect of the conversion on the members and patron members of the converting entity;

(5) the manner and basis of converting the membership interests of the converting entity into membership interests of the cooperative; and

(6) the articles of organization of the cooperative, which must meet the requirements of Section 53.153 and may be included as an attachment or exhibit to the plan of conversion.

(d) A plan of conversion may include any other provisions relating to the conversion allowed by law.

(e) On approval of the plan of conversion, a certificate of conversion must be filed with the secretary of state for the conversion to be effective. The certificate of conversion must include:

(1) the plan of conversion, or a statement certifying:

(A) the name, entity type, and jurisdiction of organization of the converting entity;

(B) the name of the cooperative that is the converted entity;

(C) that the converting entity is continuing its existence as a cooperative governed by this chapter;

(D) that a signed plan of conversion is on file at the principal place of business of the converting entity and certifying the address of the principal place of business;

(E) that a signed plan of conversion will be on file at the principal place of business of the converted entity and certifying the address of the principal place of business; and

(F) that a copy of the plan of conversion will be furnished, without cost, on written request to any member of the converting entity or the converted entity by:

(i) the converting entity before the conversion; or

(ii) the converted entity after the conversion;

(2) a statement that the plan of conversion has been approved as required by this section, by the law governing the converting entity, and by the governing documents of the converting entity; and

(3) the articles of organization of the cooperative that is to be formed under the plan of conversion.

(f) When a conversion takes effect, each member of the converting association has a membership interest in the cooperative resulting from the conversion. This subsection does not apply to:

(1) a member who receives payment for the person's interest under a law providing for dissent and appraisal; or

(2) a person who agrees to an alternative disposition of the person's interest under the conversion.

(g) An association may not convert under this section if, as a result of the conversion, a member of the association would become personally liable for a liability or other obligation of the cooperative without that person's consent.

(h) When the conversion takes effect:

(1) the converting entity continues to exist, without interruption, as a cooperative governed by this chapter rather than in the organizational form of the entity before the conversion;

(2) each right or title to or interest in property owned by the converting entity continues to be owned, subject to any existing lien or other encumbrance on the property, by the cooperative without:

(A) reversion or impairment;

(B) further act or deed; or

(C) any transfer or assignment having occurred;

(3) each liability or obligation of the converting entity continues to be a liability or obligation of the cooperative without impairment or diminution because of the conversion;

(4) the rights of creditors or other parties with respect to or against the previous members of the converting entity in their capacities as members continue to exist and may be enforced by the creditors and obligees as if a conversion had not occurred;

(5) a proceeding pending by or against the converting entity or by or against any of the converting entity's members in their capacities as members may be continued by or against the cooperative and by or against the previous members without substituting a party;

(6) the membership interests of the converting entity are converted into membership interests of the converted entity as provided in the plan of conversion and the former members of the converting entity are entitled only to the rights provided in the plan of conversion or under a right of dissent and appraisal as provided by law; and

(7) if a member of the converted entity is liable after the conversion takes effect for the liabilities or obligations of the converted entity in the person's capacity as a member, the person is liable for the liabilities and obligations of the converting entity that existed before the conversion took effect only to the extent that the person:

(A) agrees in writing to be liable for the liabilities or obligations;

(B) was liable, before the conversion took effect, for the liabilities or obligations; or

(C) becomes liable under other applicable law for the existing liabilities and obligations of the converted entity as a result of becoming a member of the converted entity.

Sec. 53.157. CONVERSION OF AN EXISTING BUSINESS ENTITY TO BE GOVERNED BY THIS CHAPTER. (a) A business entity other than an association described by Section 53.156 may convert to a cooperative governed by this chapter by adopting a plan of conversion and by filing a certificate of conversion as provided by Section 53.156.

(b) To effect the conversion, the business entity must take any action that may be required for a conversion under the laws of the entity's jurisdiction of formation and the entity's governing documents.

(c) The conversion must be permitted by the laws under which the business entity is incorporated or organized, or by its governing documents if the governing documents are not inconsistent with the laws of the entity's jurisdiction of formation.

Sec. 53.158. EXISTENCE. (a) The existence of a cooperative begins when the filing of the articles of organization takes effect as provided by this chapter.

(b) A cooperative has a perpetual duration unless the articles of organization provide for a limited period of duration.

Sec. 53.159. REGISTERED AGENT; CHANGE OF REGISTERED OFFICE OR REGISTERED AGENT. (a) Each cooperative must continuously maintain in this state:

(1) a registered office, which may be the same as its place of business; and

(2) a registered agent, which may be:

(A) an individual resident of this state whose business office is the same as the cooperative's registered office; or

(B) a domestic business entity, or a foreign business entity authorized to transact business in this state, whose business office is the same as the cooperative's registered office.

(b) A cooperative may change its registered office or agent on filing with the secretary of state a statement that includes:

(1) the name of the cooperative;

(2) the address of the cooperative's current registered office;

(3) the address of the cooperative's new registered office if the cooperative is changing its registered office;

(4) the name of the cooperative's current registered agent;

(5) the name of the cooperative's new registered agent if the cooperative is changing its registered agent;

(6) a certification that the address of the cooperative's registered office and the address of the business office of the cooperative's registered agent are identical; and

(7) a certification that the change in the cooperative's registered agent or registered office was authorized by an affirmative vote of a majority of the board of directors of the cooperative.

(c) The statement under Subsection (b) shall be signed and delivered to the secretary of state. If the secretary of state finds that the statement meets the requirements of this section, the secretary of state shall file the statement. The change of address of the registered office or the appointment of a new registered agent is effective when filed by the secretary of state.

(d) A registered agent of a cooperative may resign as agent in the manner provided by Section 5.204, Business Organizations Code.

(e) The registered agent of a cooperative may change its name, its address as the address of the cooperative's registered office, or both, by filing a statement of the change in accordance with Section 5.203, Business Organizations Code.

Sec. 53.160. FAILURE TO MAINTAIN REGISTERED AGENT OR REGISTERED OFFICE; INVOLUNTARY DISSOLUTION AND REINSTATEMENT. (a) If the secretary of state determines that a cooperative has failed to maintain a registered agent or registered office in this state as required by law, the secretary of state may notify the cooperative of the failure by regular or certified mail addressed to the cooperative's registered office or principal place of business as shown on the records of the secretary of state.

(b) The secretary of state may involuntarily dissolve a cooperative at any time after the 90th day after the date that notice under Subsection (a) was mailed if the cooperative has continuously failed to maintain a registered agent or registered office as required by law.

(c) If the secretary of state involuntarily dissolves a cooperative under this section, the secretary of state shall:

(1) issue a certificate of involuntary dissolution; and

(2) deliver the certificate of involuntary dissolution by regular or certified mail to the cooperative at its registered office or principal place of business.

(d) The certificate of involuntary dissolution must state:

(1) that the cooperative has been involuntarily dissolved; and

(2) the date of and the reason for the involuntary dissolution.

(e) Except as otherwise provided by this section, the existence of the cooperative is terminated on the issuance of the certificate of involuntary dissolution by the secretary of state.

(f) The secretary of state shall reinstate a cooperative that has been involuntarily dissolved under this section if the cooperative files an application for reinstatement with the secretary of state as prescribed for a filing entity by Section 11.253, Business Organizations Code, and:

(1) the entity files a statement of change of registered agent or registered office, or both; or

(2) the secretary of state finds that the circumstances that led to the involuntary dissolution did not exist at the time of termination.

(g) The secretary of state may not reinstate a cooperative if the cooperative name is the same as or deceptively similar or similar to a name of a cooperative or other domestic or foreign business entity already on file, reserved, or registered with the secretary of state. This subsection does not prevent a cooperative from being reinstated if the cooperative files an amendment to its articles of organization, accompanied by the required fee, to change its name to a name that does not violate this subsection.

(h) Section 11.253(d), Business Organizations Code, applies to a cooperative that is reinstated under Subsection (f) to the same extent it applies to a filing entity reinstated under Section 11.253, Business Organizations Code. [Sections 53.161-53.200 reserved for expansion] SUBCHAPTER E. BYLAWS

Sec. 53.201. BYLAWS. (a) A cooperative shall adopt bylaws governing the cooperative's business affairs and structure, the qualifications, classification, rights, and obligations of its members, and the classifications, allocations, and distributions of membership interests.

(b) The bylaws of a cooperative may be adopted or amended by the directors as provided by Subsection (c) or at a regular or special members' meeting if:

(1) the notice of the meeting contains a statement that the bylaws or restated bylaws will be voted on and copies are included with the notice, or copies are available on request from the cooperative and summary statement of each proposed bylaw or amendment is included with the notice;

(2) a quorum is registered as being present or represented by mail or alternative voting method if the mail or alternative voting method is authorized by the board; and

(3) the bylaw or amendment is approved by a majority of votes cast, or for a cooperative with articles of organization or bylaws requiring more than majority approval or other conditions for approval, the bylaw or amendment is approved when the conditions for approval in the articles of organization or bylaws are complied with.

(c) Until the next annual or special members' meeting, the majority of directors may adopt and amend bylaws for the cooperative that are consistent with Subsection (d) and that may be additionally amended or repealed by the members at an annual or special members' meeting.

(d) Bylaws may contain any provision relating to the management or regulation of the affairs of the cooperative that is not inconsistent with the laws of this state or the articles of organization and must include:

(1) the number of directors and the qualifications, manner of election, powers, duties, and compensation, if any, of directors;

(2) the qualifications of members and any limitation on their number;

(3) the manner of admission, withdrawal, suspension, and expulsion of members; and

(4) the governance rights, financial rights, assignability of governance or financial rights, and other rights, privileges, and obligations of members and their membership interests, which may be additionally described in a member control agreement. [Sections 53.202-53.250 reserved for expansion] SUBCHAPTER F. MEMBERSHIP INTERESTS

Sec. 53.251. INTERESTS. (a) The authorized amount and divisions of patron membership interests and nonpatron membership interests may be increased or decreased or established or altered in accordance with the restrictions in this chapter by amending the articles of organization at a regular members' meeting or at a special members' meeting called for the purpose of acting on the amendment.

(b) Authorized membership interests may be issued on terms prescribed in the articles of organization, bylaws, or as determined by the board. The cooperative shall disclose to any person or entity who acquires a membership interest issued by the cooperative the organization, capital structure, and business prospects and risks of the cooperative and the nature of the governance and financial rights of the membership interest acquired and of other classes of membership and membership interests. The cooperative shall notify all members of the membership interests being offered by the cooperative. A membership interest may not be issued until the subscription price of the membership interest has been paid in cash or a cash equivalent or property with the agreed-on value.

(c) The patron membership interests collectively may have at least 15 percent of the cooperative's financial rights to profit allocations and distributions.

(d) After issuance by the cooperative, a membership interest in a cooperative may be sold or transferred only with the approval of the board.

(e) The cooperative may solicit and issue nonpatron membership interests on terms determined by the board and disclosed in the articles of organization, bylaws, or by separate disclosure to the members. Each member acquiring a nonpatron membership interest must sign a member control agreement that describes the rights and obligations of the member as they relate to the nonpatron membership interest, the financial and governance rights, the transferability of the nonpatron membership interest, the division and allocations of profits and losses among the membership interests and membership classes, and financial rights on liquidation. If the bylaws do not otherwise provide for the allocation of the profits and losses between patron membership interests and nonpatron membership interests, the allocation of profits and losses among nonpatron membership interests individually and patron membership interests collectively shall be allocated on the basis of the value of contributions to capital made according to the patron membership interests collectively and the nonpatron membership interests individually to the extent the contributions have been accepted by the cooperative. Distributions of cash or other assets of the cooperative shall be allocated among the membership interests as provided in the articles of organization and bylaws, subject to the provisions of this chapter. If not otherwise provided, distributions shall be made on the basis of value of the capital contributions of the patron membership interests collectively and the nonpatron membership interests to the extent the contributions have been accepted by the cooperative.

(f) The bylaws may provide that the cooperative or the patron members, individually or collectively, have the first privilege to purchase the membership interest of any class of patron member's membership interest offered for sale. The first privilege to purchase a patron membership interest may be complied with by notice to other patron members that the patron membership interest is for sale and a procedure by which patron members may proceed to attempt to purchase and acquire the patron membership interest. A patron membership interest acquired by the cooperative may be held to be reissued or may be retired and canceled.

(g) Subject to the bylaws, a member may dissent from and obtain payment for the fair value of the member's nonpatron membership interest in the cooperative if the articles of organization or bylaws are amended in a manner that materially and adversely affects the rights and preferences of the nonpatron membership interest of the dissenting member. The dissenting member must file a notice of intent to demand fair value of the membership interest with the records officer of the cooperative before the 30th day after the amendment of the bylaws and notice of the amendment to members, or the right of the dissenting member to demand payment of fair value for the membership interest is waived. If a proposed amendment of the articles of organization or bylaws is approved by the members, a member who is entitled to dissent and who elects to exercise dissenter's rights must file a notice to demand fair value of the membership interest with the records officer of the cooperative before the vote on the proposed action and may not vote in favor of the proposed action, or the right to demand fair value for the membership interest by the dissenting member is waived. After receipt of the dissenting member's demand notice and approval of the amendment, the cooperative shall not later than the 60th day after the date of the approval of the amendment rescind the amendment or remit the fair value for the one member's interest to the dissenting member before the 180th day after the date the cooperative received the notice. On receipt of the fair value for the membership interest, the member has no further member rights in the cooperative.

Sec. 53.252. ALLOCATIONS AND DISTRIBUTIONS TO MEMBERS. (a) The bylaws shall prescribe the allocation of profits and losses between patron membership interests collectively and other membership interests. If the bylaws do not otherwise provide, the profits and losses between patron membership interests collectively and other membership interests shall be allocated on the basis of the value of contributions to capital made by the patron membership interests collectively and other membership interests and accepted by the cooperative. The allocation of profits to the patron membership interests collectively may not be less than 15 percent of the total profits in any fiscal year of the cooperative.

(b) The bylaws shall prescribe the distribution of cash or other assets of the cooperative among the membership interests of the cooperative. If not otherwise provided in the bylaws, distribution shall be made to the patron membership interests collectively and other members on the basis of the value of contributions to capital made and accepted by the cooperative by the patron membership interests collectively and other membership interests. The distributions to patron membership interests collectively may not be less than 15 percent of the total distributions in any fiscal year of the cooperative.

Sec. 53.253. ALLOCATIONS AND DISTRIBUTIONS TO PATRON MEMBERS. (a) The board of a cooperative may set aside a portion of net income allocated to the patron membership interests to create or maintain a capital reserve.

(b) In addition to a capital reserve, the board may, for patron membership interests:

(1) set aside an amount not to exceed five percent of the annual net income of the cooperative for promoting and encouraging the cooperative; and

(2) establish and accumulate reserves for new buildings, machinery and equipment, depreciation, losses, and other proper purposes.

(c) Net income allocated to patron members that exceeds dividends on equity and additions to reserves shall be distributed to patron members on the basis of patronage. A cooperative may establish allocation units, whether functional, divisional, departmental, geographic, or otherwise, establish pooling arrangements, and account for and distribute net income to patrons on the basis of allocation units and pooling arrangements. A cooperative may offset the net loss of an allocation unit or pooling arrangement against the net income of other allocation units or pooling arrangements.

(d) Distribution of net income shall be made at least annually. The board shall present to the members at the annual meeting a report covering the operations of the cooperative during the preceding fiscal year of the organization.

(e) A cooperative may distribute net income to patron members in cash, capital credits, allocated patronage equities, revolving fund certificates, or its own or other securities.

(f) A cooperative may provide in its bylaws that nonmember patrons are allowed to participate in the distribution of net income payable to patron members on equal terms with patron members.

(g) If a nonmember patron with patronage credits is not qualified or eligible for membership, a refund owed may be credited to the patron's individual account. The board may issue a certificate of interest to reflect the credited amount. After the patron is issued a certificate of interest, the patron may participate in the distribution of income on the same basis as a patron member. [Sections 53.254-53.300 reserved for expansion] SUBCHAPTER G. MEMBERS

Sec. 53.301. GROUPING OF MEMBERS. (a) A cooperative may group members and patron members in districts, units, or another basis if and as authorized by its articles of organization and bylaws, which may include authorization for the board to determine the groupings.

(b) The board may do anything necessary to implement the use of districts or units, including setting the time and place and prescribing the rules of conduct for holding a meeting by a district or unit to elect delegates to members' meetings.

Sec. 53.302. MEMBER VIOLATIONS; LIABILITY FOR COOPERATIVE DEBTS. (a) A member who knowingly, intentionally, or repeatedly violates a provision of the articles of organization, bylaws, member control agreement, or marketing contract with the cooperative may be required by the board to surrender the financial right of membership interest of any class owned by the member.

(b) The cooperative shall refund to the member for the surrendered financial right of membership interest the lesser of the book value or market value of the financial right of the membership interest payable in not more than seven years from the date of surrender or transfer all of any patron member's financial rights to a class of financial rights held by members who are not patron members, or to a certificate of interest that carries liquidation rights on par with a membership interest and is redeemable within seven years after the transfer as provided in the certificate.

(c) A membership interest required to be surrendered may be reissued or retired and canceled by the board.

(d) A member who knowingly, intentionally, or repeatedly violates a provision of the articles of organization, bylaws, member control agreement, or marketing contract may be required by the board to surrender the member's entitlement to vote in the cooperative.

(e) A member is not, merely because of the member's status, personally liable for the acts, debts, liabilities, or obligations of a cooperative. A member is liable for any unpaid subscription for the membership interest, unpaid membership fees, or debt for which the member has separately contracted with the cooperative.

Sec. 53.303. REGULAR MEMBERS' MEETINGS. (a) Regular members' meetings shall be held annually at a time determined by the board, unless otherwise provided for in the bylaws.

(b) The regular members' meeting shall be held at the principal place of business of the cooperative or at another conveniently located place as determined by the bylaws or the board.

(c) The officers shall submit reports to the members at the regular members' meeting covering the business of the cooperative for the previous fiscal year that show the condition of the cooperative at the end of the fiscal year of the organization.

(d) Directors shall be elected at the regular members' meeting for the terms of office prescribed in the bylaws, other than directors elected at a district or unit meeting.

(e) The cooperative shall give notice of regular members' meetings by mailing a notice to each member at the member's last known mailing address or by other notification approved by the board and agreed to by the members. Notice of a regular members' meeting shall be published or otherwise given by an approved method at least two weeks before the date of the meeting or mailed at least 15 days before the date of the meeting.

Sec. 53.304. SPECIAL MEMBERS' MEETINGS. (a) A special members' meeting may be called by:

(1) a majority vote of the board; or

(2) a written petition submitted to the chair of at least 20 percent of the patron members, 20 percent of the nonpatron members, or 20 percent of all members collectively.

(b) The cooperative shall give notice of a special members' meeting by mailing a notice to each member personally at the person's last known mailing address or an alternative method approved by the board and the member individually or the members generally. For a member that is an entity, notice mailed or delivered by an alternative method must be to an officer of the entity. The notice shall state the time, place, and purpose of the special members' meeting. The notice shall be issued not later than the 10th day after the date the members' petition is submitted and the meeting held within 30 days after the date the members' petition is submitted.

Sec. 53.305. CERTIFICATION OF MEETING NOTICE. (a) After mailing or delivering of the special or regular members' meeting notices, the chair or records officer shall execute a certificate containing the date of mailing or delivery of the notices and a statement that the notices were mailed or delivered as prescribed by law.

(b) The certificate shall be made a part of the record of the meeting.

Sec. 53.306. FAILURE TO RECEIVE MEETING NOTICE. Failure of a member to receive notice of a special or regular members' meeting does not invalidate an action taken by the members at the meeting.

Sec. 53.307. QUORUM. (a) The quorum for a members' meeting is:

(1) 10 percent of the total number of members for a cooperative with 500 or fewer members; or

(2) 50 members for a cooperative with more than 500 members.

(b) In determining a quorum at a meeting, on a question submitted to a vote by mail or an alternative method, members present in person or represented by mail vote or the alternative voting method shall be counted. The attendance of a sufficient number of members to establish a quorum shall be determined by a registration of the members of the cooperative present at the meeting. Registration shall be verified by the chair or the records officer and reported in the minutes of the meeting.

(c) An action by a cooperative is invalid in the absence of a quorum at the meeting at which the action was taken.

Sec. 53.308. MEMBER VOTING RIGHTS. (a) A patron member is only entitled to one vote on an issue to be voted on by members who hold a patron membership interest, except that a patron member of a cooperative described by Section 53.309 may be entitled to more than one vote as provided by that section. On any matter of the cooperative, the entire patron members' voting power shall be voted collectively based on the vote of the majority of patron members voting on the issue. A nonpatron member has voting rights according to the member's nonpatron membership interest granted in the bylaws, subject to the provisions of this chapter.

(b) A member or delegate may exercise the member's voting rights on any matter that is before the members as provided by the articles of organization or bylaws at a members' meeting from the time the member or delegate arrives at the members' meeting, unless the articles of organization or bylaws specify an earlier and specific time for the expiration of the member's right to vote.

(c) A member's vote at a members' meeting must be in person or by mail if a mail vote is authorized by the board or by an alternative method authorized by the board and not by proxy except as provided by Subsection (d).

(d) A cooperative may provide in the articles of organization or bylaws that a unit or district of members is entitled to be represented at a members' meeting by delegates chosen by the members of the unit or district. The delegates may vote on matters at the members' meeting in the same manner as a member. The delegates may only exercise the voting rights on a basis of and with the number of votes as provided by the articles of organization or bylaws. If the approval by a certain number of the members is required for the adoption of amendments, a dissolution, a merger, a conversion, or a sale of assets, the votes of delegates shall be counted as votes by the members represented by the delegate. Patron members may be represented by a delegate who is a patron member. Nonpatron members may be represented by a delegate if authorized in the bylaws.

(e) A member who is or will be absent from a members' meeting may vote by mail or by an approved alternative method on any motion, resolution, or amendment that the board submits for vote by mail or alternative method to the members. A properly executed ballot shall be accepted by the board and counted as the vote of the absent member at the meeting.

(f) The ballot used for a vote under Subsection (e) must:

(1) be in the form prescribed by the board;

(2) contain the exact text of the proposed motion, resolution, or amendment to be acted on at the meeting;

(3) contain the text of the motion, resolution, or amendment for which the member may indicate an affirmative or negative vote; and

(4) allow the member to express a choice by marking an appropriate choice on the ballot and mailing, delivering, or otherwise submitting the ballot to the cooperative in a plain, sealed envelope inside another envelope bearing the member's name or by an alternative method approved by the board.

Sec. 53.309. PATRON MEMBER VOTING IN COOPERATIVES CONSTITUTED ENTIRELY OR PARTIALLY OF OTHER COOPERATIVES OR ASSOCIATIONS. (a) The articles of organization or the bylaws of a cooperative that is constituted wholly or partly of other cooperatives or associations may authorize the patron members of a subsidiary cooperative to have an additional vote for:

(1) a stipulated amount of business transacted between the parent cooperative and the subsidiary cooperative to which the patron member is a member;

(2) a stipulated number of patron members in the subsidiary cooperative;

(3) a stipulated amount of equity allocated to or held by the subsidiary cooperative in the parent cooperative; or

(4) a combination of the reasons in Subdivisions (1)-(3).

(b) The articles of organization or the bylaws of a cooperative that is organized into units or districts of patron members may authorize the delegates elected by its patron members to have an additional vote for:

(1) a stipulated amount of business transacted between the patron members in the unit or district and the cooperative;

(2) a stipulated amount of equity allocated to or held by the patron members of the units or districts of the cooperative; or

(3) a combination of the reasons in Subdivisions (1) and (2). [Sections 53.310-53.350 reserved for expansion] SUBCHAPTER H. ADMINISTRATION

Sec. 53.351. GOVERNANCE. A cooperative is governed by its board.

Sec. 53.352. NUMBER OF DIRECTORS. The board must have at least three directors.

Sec. 53.353. ELECTION OF DIRECTORS. (a) Directors are elected for the term, at the time, and in the manner provided by this section and the bylaws. A majority of the directors must be members, and at least one director must be elected exclusively by the members holding patron membership interests. The voting entitlement of the directors may be allocated according to allocation units or equity classifications of the cooperative provided that at least one-half of the voting power on general matters of the cooperative must be allocated to one or more directors elected by members holding a patron membership interest.

(b) Directors are elected for the terms of office prescribed in the bylaws. Other than directors elected at a district meeting, all directors are elected at the regular members' meeting.

(c) For a cooperative with districts or other units, members may elect directors on a district or unit basis if provided for by the bylaws. The directors may be nominated or elected at a district meeting if authorized by the bylaws. Directors who are nominated at district meetings are elected at the annual regular members' meeting by vote of the entire membership unless the bylaws provide that a director who is nominated at a district meeting is to be elected by vote of the members of the district at the annual regular members' meeting.

(d) A member must vote in person at a meeting for a director unless an alternative method of voting is authorized for the election of directors by the articles of organization or bylaws.

(e) If alternative voting for directors is authorized:

(1) the ballot must be in a form prescribed by the board;

(2) a member shall mark the ballot for the candidate chosen and mail the ballot to the cooperative in a sealed plain envelope inside another envelope bearing the member's name, or shall vote in the alternative manner prescribed by the board; and

(3) the ballot shall be accepted and counted as the vote of the absent member if the ballot of the member is received by the cooperative on or before the date of the regular members' meeting.

(f) If a member is not a natural person and the bylaws do not provide otherwise, the member may nominate one or more natural persons for election to the board.

Sec. 53.354. FILLING VACANCIES. If a director who was elected by patron members vacates the director's position, the board shall appoint a patron member of the cooperative to fill the vacancy until the next regular or special members' meeting. If the vacating director was not a patron member, the board shall appoint a patron member to fill the vacancy. At the next regular or special members' meeting, the members or patron members shall elect a director for the unexpired term of the vacant position.

Sec. 53.355. REMOVAL OF DIRECTORS. At a members' meeting the class of members who elected a director may remove the director for cause related to the duties of the position and fill the vacancy caused by the removal.

Sec. 53.356. LIMITATION OF DIRECTOR'S LIABILITY. (a) Except as provided by Subsection (b), a director's personal liability to the cooperative or its members for monetary damages for a breach of fiduciary duty as a director may be eliminated or limited in the articles of organization.

(b) The articles of organization may not eliminate or limit the liability of a director for:

(1) a breach of the director's duty of loyalty to the cooperative or its members;

(2) an act or omission that is not in good faith, that involves intentional misconduct, or that is a knowing violation of law;

(3) a transaction from which the director derived an improper personal benefit; or

(4) an act or omission occurring before the date when the provision in the articles of organization eliminating or limiting liability becomes effective.

Sec. 53.357. OFFICERS. (a) The board shall:

(1) elect a chair and one or more vice chairs; and

(2) elect or appoint a records officer and a financial officer.

(b) The board may elect additional officers as the articles of organization or bylaws authorize or require.

(c) The offices of records officer and financial officer may be combined.

(d) The chair and first vice chair must be directors and members. The financial officer, records officer, and other officers are not required to be directors or members.

(e) The board may employ a chief executive officer to manage the day-to-day affairs and business of the cooperative.

(f) At a members' meeting, members may remove an officer, other than the chief executive officer, for cause related to the duties of the position of the officer and fill the vacancy caused by the removal.

Sec. 53.358. VOTE OF OWNERSHIP INTERESTS HELD BY COOPERATIVE. A cooperative that holds an ownership interest in another business entity may, by direction of the cooperative's board, elect or appoint a person to represent the cooperative at a meeting of that business entity. The representative may represent the cooperative and cast the cooperative's vote at the business entity's meeting. [Sections 53.359-53.400 reserved for expansion] SUBCHAPTER I. MERGER AND CONVERSION

Sec. 53.401. MERGER. (a) A cooperative may merge with one or more cooperatives or other business entities as provided by this subchapter.

(b) To initiate a merger, a written plan of merger must be prepared by the board or by a committee selected by the board to prepare a plan. The plan must contain:

(1) the name, organizational form, and jurisdiction of formation of each of the constituent cooperatives and other business entities;

(2) the name of each surviving or new cooperative or other business entity that is created by the plan;

(3) the manner and basis of converting the membership or ownership interests of the constituent cooperatives or business entities into membership or ownership interests in the surviving or new cooperative or business entity;

(4) the terms of the merger;

(5) the proposed effect of the merger on the members and patron members of the cooperative;

(6) for a merger that creates a new cooperative or business entity, the articles of organization or applicable organizational documents of each entity to be filed with the state in which the entity is organized; and

(7) any amendments made under the plan to the articles of organization or organizational documents of a surviving cooperative or business entity.

(c) If more than one business entity survives or is created under the plan of merger, the plan must include, in addition to each other requirement of this section:

(1) the manner and basis of allocating and vesting the property of each entity that is a party to the merger among the entities that survive or are created by the merger;

(2) the name of each surviving or new business entity that is primarily obligated to pay the fair value of an interest of an owner or member of a domestic business entity subject to dissenters' rights that is a party to the merger, if the owner or member complies with the requirements for dissent and appraisal applicable to the entity; and

(3) the manner and basis of allocating each liability and obligation of each business entity that is a party to the merger to one or more of the surviving or new entities, or an alternative arrangement that provides for the payment and discharge of each liability and obligation.

Sec. 53.402. NOTICE. (a) The board shall mail a merger plan or otherwise transmit or deliver notice to each member. The notice must contain:

(1) the full text of the plan; and

(2) the time and place of the meeting at which the plan will be considered.

(b) A cooperative with more than 200 members may provide the merger notice in the same manner as the notice of a regular members' meeting.

Sec. 53.403. ADOPTION OF MERGER PLAN. (a) A plan of merger is adopted if:

(1) a quorum of the members is registered as being present or represented by mail vote at the meeting; and

(2) the plan is approved by two-thirds of the votes cast, or for a cooperative with articles of organization or bylaws that require more than two-thirds of the votes cast or other conditions for approval, as required by the articles of organization or bylaws.

(b) After the plan has been adopted, articles of merger must be filed with the secretary of state for the merger to take effect.

(c) The articles of merger must be signed by an officer or other authorized representative on behalf of each cooperative and each business entity that is a party to the merger and must include:

(1) the plan of merger or a certified statement permitted by Section 10.151, Business Organizations Code;

(2) a statement that the plan of merger has been approved as required by this chapter and the laws of the jurisdiction of formation of each business entity; and

(3) a statement that the approval of the owners or members of a business entity that is a party to the plan of merger is not required under the laws of the entity's jurisdiction of formation, if applicable.

(d) The articles of organization of each surviving cooperative subject to this chapter are considered amended as provided in the plan of merger.

(e) Except as otherwise provided by Section 53.101, the merger is effective when the articles of merger are filed in the office of the secretary of state.

(f) If the plan of merger creates a new cooperative, the articles of organization must also be filed with the secretary of state.

(g) If the plan of merger creates a new domestic business entity to be formed or organized under the laws of this state and the entity is required to file a certificate of formation, the certificate of formation must also be filed with the secretary of state.

Sec. 53.404. MERGER AUTHORIZED. (a) Notwithstanding any other law of this state, an existing association incorporated under this code may merge with a cooperative governed by this chapter by adopting and approving a plan of merger in the same manner as a cooperative governed by this chapter.

(b) Notwithstanding any other law of this state, an existing association organized under a law of this state, other than an association organized under this code, may merge with a cooperative governed by this chapter by adopting and approving a plan of merger in the manner prescribed by the law governing the association, or if the law governing the association does not provide a method, in the same manner as a cooperative governed by this chapter.

Sec. 53.405. EFFECT OF MERGER. (a) When a merger takes effect:

(1) the separate existence of each domestic business entity that is a party to the merger, other than a surviving or new business entity, ceases;

(2) all rights, title, and interests to all real property and other property owned by each entity that is a party to the merger is allocated to and vested, subject to any existing lien or other encumbrance on the property, in one or more of the surviving or new business entities as provided in the plan of merger without:

(A) reversion or impairment;

(B) any further act or deed; or

(C) any transfer or assignment having occurred;

(3) all liabilities and obligations of each entity that is a party to the merger are allocated to one or more of the surviving or new entities in the manner provided by the plan of merger;

(4) each surviving or new domestic business entity to which a liability or obligation is allocated under the plan of merger is the primary obligor for the liability or obligation, and, except as otherwise provided by the plan of merger or by law or contract, no other party to the merger, other than a surviving domestic business entity liable or otherwise obligated at the time of the merger, and no other new domestic business entity created under the plan of merger is liable for the liability or obligation;

(5) a proceeding pending by or against a cooperative or another business entity that is a party to the merger may be continued as if the merger did not occur, or the surviving or new cooperative or business entity to which the matter involved in the proceeding is allocated under the plan of merger may be substituted in the proceeding;

(6) the articles of organization and bylaws of each surviving cooperative and the organizational documents and other governing documents of each surviving business entity shall be amended to the extent provided in the plan of merger;

(7) each new cooperative, the articles of organization of which are included in the plan of merger under Section 53.403, is formed as a cooperative under this chapter;

(8) each new business entity to be formed or organized under the laws of this state the organizational documents of which are included in the plan of merger is formed when an executed copy of the articles of merger is delivered to or filed with the governmental entity to which the organizational documents of the business entity are required to be delivered or filed and when any other requirements of law for formation are complied with;

(9) the ownership or membership interests of each cooperative and business entity that is a party to the merger that are to be converted or exchanged, in whole or in part, into ownership or membership interests, obligations, rights to purchase securities, or other securities of one or more of the surviving or new entities, into cash or other property, including ownership or membership interests, obligations, rights to purchase securities, or other securities of any entity, or into any combination of these are converted and exchanged and the former owners or members who held ownership or membership interests of each cooperative and domestic business entity that is a party to the merger are entitled only to the rights provided by the plan of merger or, if applicable, any rights to receive the fair value for the ownership interests provided by other state law; and

(10) notwithstanding Subdivision (4), the surviving or new entity named in the plan of merger as primarily obligated to pay the fair value of an ownership or membership interest under Section 53.401(c) is the primary obligor for that payment and all other surviving or new entities are secondarily liable for that payment.

(b) If the plan of merger does not provide for the allocation and vesting of the right, title, and interest in any particular property, each surviving and new cooperative or business entity that is a party to the merger owns an undivided interest in the property pro rata to the total number of surviving and new cooperatives and business entities resulting from the merger. If the plan of merger does not provide for the allocation of a liability or obligation of a party to the merger, each surviving or new cooperative or business entity that is a party to the merger is jointly and severally liable for the liability or obligation.

(c) The right of a creditor may not be impaired by a merger without the creditor's consent.

(d) If a surviving entity in a merger is not a cooperative or domestic business entity, the surviving entity is considered to have:

(1) appointed the secretary of state as the entity's agent for service of process in a proceeding to enforce any obligation of a cooperative or domestic business entity that is a party to the merger; and

(2) agreed to promptly pay any dissenting owners or members of each cooperative or domestic business entity that is a party to the merger who have the right of dissent and appraisal under state law any amount to which the dissenting owners or members are entitled under the law governing the formation of the entity.

(e) If the surviving entity in a merger is not a cooperative or domestic business entity, the entity must register to transact business in this state if the entity is required to register for that purpose by another law of this state.

Sec. 53.406. CONVERSION TO OTHER FORM OF BUSINESS ENTITY. (a) A cooperative may convert to another form of business entity by adopting and approving a plan of conversion.

(b) To initiate a conversion, the board or a committee selected by the board must prepare a written plan of conversion. The plan must include:

(1) the name of the cooperative that is the converting entity;

(2) the name, organizational form, and jurisdiction of formation of the converted entity;

(3) a statement that the converting entity is continuing its existence in the organizational form of the converted entity;

(4) the manner and basis of converting the membership interests of the cooperative into membership or ownership interests in the converted entity;

(5) the terms of the conversion;

(6) the proposed effect of the conversion on the members and patron members of the cooperative; and

(7) if the converted entity is a domestic business entity, any certificate of formation or similar organizational document that is required by law to form the entity.

(c) A plan of conversion may include other provisions relating to the conversion allowed by law.

(d) After approval of the plan of conversion, a certificate of conversion must be filed with the secretary of state for the conversion to take effect. The certificate of conversion must include:

(1) the plan of conversion, or a statement certifying:

(A) the name of the cooperative that is the converting entity;

(B) the name, entity type, and jurisdiction of organization of the business entity that is the converted entity;

(C) that the converting entity is continuing its existence in the organizational form of the converted entity;

(D) that a signed plan of conversion is on file at the principal place of business of the converting entity and certifying the address of the principal place of business;

(E) that a signed plan of conversion will be on file at the principal place of business of the converted entity and certifying the address of the principal place of business; and

(F) that a copy of the plan of conversion will be furnished, without cost, on written request to any owner or member of the converting entity or the converted entity by:

(i) the converting entity before the conversion; or

(ii) the converted entity after the conversion;

(2) a statement that the plan of conversion has been approved as required by this section, by the law governing the converting entity, and by the governing documents of the converting entity; and

(3) if the converted entity is a domestic business entity, any certificate of formation or organizational document required to form the entity under a law of this state.

(e) When a conversion takes effect, each member of the converting entity has a membership or ownership interest in the converted entity. This subsection does not apply to a member who agrees to an alternative disposition of the person's interest under the conversion.

(f) A cooperative may not convert under this section if, as a result of the conversion, a member of the converting entity would become personally liable for a liability or other obligation of the converted entity without that person's consent.

(g) When the conversion takes effect:

(1) the converting entity continues to exist without interruption in the organizational form of the converted entity rather than in the organizational form of the entity before the conversion;

(2) all rights, title, and interests to all property owned by the converting entity continues to be owned, subject to any existing lien or other encumbrance on the property, by the entity as converted without:

(A) reversion or impairment;

(B) further act or deed; or

(C) any transfer or assignment having occurred;

(3) all liabilities and obligations of the converting entity continue to be liabilities and obligations of the converted entity in its new organizational form without impairment or diminution because of the conversion;

(4) the rights of creditors or other parties with respect to or against the previous members of the converting entity in their capacities as members continue to exist and may be enforced by the creditors and obligees as if the conversion had not occurred;

(5) a proceeding pending by or against the converting entity or by or against any of the converting entity's members in their capacities as members may be continued by or against the converted entity and by or against the previous members without substituting a party;

(6) the membership interests of the converting entity are converted into ownership or membership interests of the converted entity as provided in the plan of conversion, and the former members of the converting entity are entitled only to the rights provided in the plan of conversion or under a right of dissent and appraisal as provided by law; and

(7) if a member of the converted entity is liable after the conversion takes effect for the liabilities or obligations of the converted entity in the person's capacity as a member, the person is liable for the liabilities and obligations of the converting entity that existed before the conversion took effect only to the extent that the person:

(A) agrees in writing to be liable for the liabilities or obligations;

(B) was liable before the conversion took effect for the liabilities or obligations; or

(C) becomes liable under other applicable law for the existing liabilities and obligations of the converted entity as a result of becoming an owner or member of the converted entity.

Sec. 53.407. ABANDONMENT OF MERGER OR CONVERSION. (a) At any time after a plan of merger or plan of conversion is approved as provided by this chapter and before the merger or conversion takes effect, a cooperative or domestic business entity that is a party to the plan may abandon the plan, without action by the owners or members, under the procedures provided by the plan of merger or plan of conversion. A cooperative or domestic business entity's right to abandon a plan of merger or plan of conversion is subject to the contractual rights of any party to the merger or conversion.

(b) If the plan of merger or plan of conversion does not provide procedures for abandonment, the board of directors or governing authority of the parties to the plan may determine the procedures for abandonment.

(c) If articles of merger or a certificate of conversion has been filed, the merger or conversion may be abandoned before its effectiveness in accordance with Section 53.102. [Sections 53.408-53.450 reserved for expansion] SUBCHAPTER J. LIQUIDATION

Sec. 53.451. LIQUIDATION. (a) A cooperative may be liquidated as provided in the articles of organization in a manner consistent with other business entities formed or organized in this state or, if not provided, may be liquidated in the same manner as a limited liability company formed or organized in this state.

(b) In addition to the methods in Subsection (a), the members may authorize a liquidation by adopting a resolution at a members' meeting. The notice of the members' meeting shall include a statement that the disposition of all of the assets of the cooperative will be considered at the meeting. If a quorum is present in person, by mail ballot, or alternative method approved by the board at the members' meeting, the resolution approving of the liquidation is adopted if:

(1) approved by two-thirds of the votes cast; or

(2) for a cooperative with articles of organization or bylaws requiring more than two-thirds for approval or other conditions for approval, the conditions for approval in the articles of organization or bylaws are complied with.

(c) The board of directors by resolution may liquidate a cooperative if the board obtains an opinion of an accountant that the cooperative is unlikely to continue as a business, based on its current finances. [Sections 53.452-53.500 reserved for expansion] SUBCHAPTER K. DISSOLUTION

Sec. 53.501. METHODS OF DISSOLUTION. A cooperative may be dissolved by the members or by the order of a court.

Sec. 53.502. WINDING UP. (a) After a notice of intent to dissolve has been filed with the secretary of state, the board or the officers acting under the direction of the board shall proceed as soon as possible to:

(1) collect or make provision for the collection of all debts due or owing to the cooperative, including unpaid subscriptions for shares; and

(2) pay or make provision for the payment of all debts, obligations, and liabilities of the cooperative according to their priorities.

(b) After a notice of intent to dissolve has been filed with the secretary of state, the board may sell, lease, transfer, or otherwise dispose of all or substantially all of the property and assets of the cooperative without a vote of the members.

(c) Tangible and intangible property, including money, remaining after the discharge of the debts, obligations, and liabilities of the cooperative may be distributed to the members and former members as provided in the bylaws. If previously authorized by the members, the tangible and intangible property of the cooperative may be liquidated and disposed of at the discretion of the board.

Sec. 53.503. REVOCATION OF DISSOLUTION PROCEEDINGS. (a) Dissolution proceedings may be revoked before the articles of dissolution are filed with the secretary of state.

(b) The chair may call a members' meeting to determine whether to revoke the dissolution proceedings. The question of the proposed revocation shall be submitted to the members at the members' meeting called to consider the revocation. The dissolution proceedings are revoked if the revocation is approved at the members' meeting by a majority of the members of the cooperative, or for a cooperative with articles of organization or bylaws requiring a greater number of members, the number of members required by the articles of organization or bylaws.

(c) Revocation of the dissolution proceedings is effective when a notice of revocation is filed with the secretary of state. After the notice is filed, the cooperative may resume business.

Sec. 53.504. STATUTE OF LIMITATIONS. The claim of a creditor or claimant against a dissolving cooperative is barred if the claim has not been enforced by legal, administrative, or arbitration proceedings relating to the claim initiated not later than two years after the date the notice of intent to dissolve is filed with the secretary of state.

Sec. 53.505. ARTICLES OF DISSOLUTION. (a) Articles of dissolution of a cooperative may be filed with the secretary of state only after payment of the claims of all known creditors and claimants has been made or provided for and the remaining property distributed by the board. The articles of dissolution must state that:

(1) all debts, obligations, and liabilities of the cooperative have been paid or discharged or adequate provisions have been made for them or time periods allowing claims have run and other claims are not outstanding;

(2) the remaining property, assets, and claims of the cooperative have been distributed among the members or under a liquidation authorized by the members; and

(3) legal, administrative, or arbitration proceedings by or against the cooperative are not pending or that adequate provision has been made for the satisfaction of a judgment, order, or decree that may be entered against the cooperative in any pending proceeding.

(b) The cooperative is dissolved when the articles of dissolution are filed with the secretary of state.

(c) The secretary of state shall issue to the dissolved cooperative or its legal representative a certificate of dissolution that contains:

(1) the name of the dissolved cooperative;

(2) the date the articles of dissolution were filed with the secretary of state; and

(3) a statement that the cooperative is dissolved.

Sec. 53.506. APPLICATION FOR COURT-SUPERVISED VOLUNTARY DISSOLUTION. After a notice of intent to dissolve is filed with the secretary of state and before a certificate of dissolution is issued, the cooperative, or, for good cause shown, a member or creditor, may apply to a district court for the county in which the registered address is located to have the dissolution conducted or continued under the supervision of the court as provided by Section 53.513.

Sec. 53.507. COURT-ORDERED REMEDIES OR DISSOLUTION. (a) A district court may grant equitable relief that it considers just and reasonable in the circumstances or may dissolve a cooperative and liquidate its assets and business:

(1) in a supervised voluntary dissolution that is applied for by the cooperative;

(2) in an action brought by a member if it is established that:

(A) the directors or the persons having the authority otherwise vested in the board are deadlocked in the management of the cooperative's affairs and the members are unable to break the deadlock;

(B) the directors or those in control of the cooperative in their capacities as members, directors, or officers have acted fraudulently, illegally, or in a manner unfairly prejudicial toward one or more members;

(C) the members of the cooperative are so divided in voting power that, for a period that includes the time when two consecutive regular members' meetings were held, they have failed to elect successors to directors whose terms have expired or would have expired on the election and qualification of their successors;

(D) the cooperative assets are being misapplied or wasted; or

(E) the period of duration as provided in the articles of organization has expired and has not been extended as provided in this chapter;

(3) in an action by a creditor when:

(A) the claim of the creditor against the cooperative has been reduced to judgment and an execution on the judgment has been returned unsatisfied; or

(B) the cooperative has admitted in writing that the claim of the creditor against the cooperative is due and payable and it is established that the cooperative is unable to pay its debts in the ordinary course of business; or

(4) in an action by the attorney general to dissolve the cooperative under this chapter if it is established that a decree of dissolution is appropriate.

(b) In determining whether to order equitable relief or dissolution, the court shall take into consideration the financial condition of the cooperative but may not refuse to order equitable relief or dissolution solely on the ground that the cooperative has accumulated operating net income or current operating net income.

(c) In deciding whether to order dissolution of the cooperative, the court shall consider whether lesser relief suggested by one or more parties, such as a form of equitable relief or a partial liquidation, would be adequate to permanently relieve the circumstances established under Subsection (a)(2)(B) or (C). Lesser relief may be ordered if it would be appropriate under the facts and circumstances of the case.

(d) If the court finds that a party to a proceeding brought under this section has acted arbitrarily, vexatiously, or otherwise not in good faith, the court in its discretion may award reasonable expenses, including attorney's fees and disbursements, to any of the other parties.

(e) Proceedings under this section must be brought in a district court for the county in which the registered address of the cooperative is located.

(f) Members are not necessary parties to the action or proceeding unless relief is sought against them personally.

Sec. 53.508. PROCEDURE IN INVOLUNTARY OR COURT-SUPERVISED VOLUNTARY DISSOLUTION. (a) In dissolution proceedings, before a hearing is completed the court may:

(1) issue an injunction;

(2) appoint a receiver with all powers and duties that the court directs; and

(3) take action required to preserve the cooperative's assets wherever located and to carry on the business of the cooperative.

(b) After a hearing is completed, on notice directed to be given to the parties to the proceedings and to other parties in interest designated by the court, the court may appoint a receiver to collect the cooperative's assets, including an amount owed to the cooperative by a subscriber on account of an unpaid portion of the consideration for the issuance of shares. The receiver may, subject to the order of the court, continue the business of the cooperative and sell, lease, transfer, or otherwise dispose of the property and assets of the cooperative at either a public or private sale.

(c) The assets of the cooperative or the proceeds resulting from a sale, lease, transfer, or other disposition shall be applied in the following order of priority:

(1) the costs and expenses of the proceedings, including attorney's fees and disbursements;

(2) debts, taxes, and assessments due the United States, this state, and other states, in that order;

(3) claims proved and allowed to employees under the provisions of the workers' compensation law, except that claims under this subdivision may not be allowed if the cooperative carried workers' compensation insurance at the time the injury was sustained;

(4) claims, including the value of all compensation paid in a medium other than money, proved and allowed to employees for any services performed within the three months before the date the receiver was appointed; and

(5) other claims proved and allowed.

(d) After payment of the expenses of receivership and claims of creditors are proved, any remaining assets may be distributed to the members or distributed under an approved liquidation plan.

Sec. 53.509. RECEIVER QUALIFICATIONS AND POWERS. (a) A receiver must be a natural person or a domestic or foreign corporation authorized to transact business in this state. A receiver shall give a bond as directed by the court with the sureties required by the court.

(b) A receiver may sue and defend in all courts as receiver of the cooperative. The court appointing the receiver has exclusive jurisdiction of the cooperative and its property.

Sec. 53.510. DISSOLUTION ACTION BY ATTORNEY GENERAL; ADMINISTRATIVE DISSOLUTION. (a) A cooperative may be dissolved involuntarily by order of a court in this state in an action filed by the attorney general if it is established that:

(1) the articles and certificate of organization were procured through fraud;

(2) the cooperative was organized for a purpose not permitted by this chapter or prohibited by state law;

(3) the cooperative has flagrantly violated a provision of this chapter, violated a provision of this chapter more than once, or violated more than one provision of this chapter; or

(4) the cooperative has acted or failed to act in a manner that constitutes a surrender or abandonment of the cooperative's franchise, privileges, or enterprise.

(b) An action may not be brought under Subsection (a) before the 31st day after the date notice is given to the cooperative by the attorney general of the reason for filing the action. If the reason for filing the action is an act or omission of the cooperative and the act or omission may be corrected by an amendment of the articles of organization or bylaws or by performance of or abstention from the act, the attorney general may file the action only if the cooperative fails to make the correction before the 31st day after notice is given to the cooperative by the attorney general.

Sec. 53.511. FILING CLAIMS IN COURT-SUPERVISED DISSOLUTION PROCEEDINGS. (a) In a proceeding to dissolve a cooperative, the court may require a creditor or claimant of the cooperative to file a claim made under oath with the court administrator or with the receiver in a form prescribed by the court.

(b) If the court requires the filing of claims, the court shall:

(1) set a date, by order, at least 120 days after the date the order is filed, as the last day for filing claims; and

(2) prescribe the form of a notice of the date set to be given to creditors and claimants.

(c) Before the date set by the court, the court may extend the time for filing claims. A creditor or claimant who fails to file a claim on or before the date may be barred by order of the court from claiming an interest in or receiving payment from the property or assets of the cooperative.

Sec. 53.512. DISCONTINUANCE OF COURT-SUPERVISED DISSOLUTION PROCEEDINGS. The involuntary or supervised voluntary dissolution of a cooperative may be discontinued at any time during the dissolution proceedings if it is established that cause for dissolution does not exist. The court shall dismiss the proceedings and direct the receiver, if any, to redeliver to the cooperative its remaining property and assets.

Sec. 53.513. COURT-SUPERVISED DISSOLUTION ORDER. (a) In an involuntary or supervised voluntary dissolution, the court shall enter an order dissolving the cooperative after the costs and expenses of the proceedings and all debts, obligations, and liabilities of the cooperative have been paid or discharged and the remaining property and assets have been distributed to its members or, if its property and assets are not sufficient to satisfy and discharge the costs, expenses, debts, obligations, and liabilities, when all the property and assets have been applied to their payment according to their priorities.

(b) When the court enters the order dissolving the cooperative or association, the cooperative or association is dissolved.

Sec. 53.514. FILING OF DISSOLUTION ORDER. After the court enters an order dissolving a cooperative, the court administrator shall cause a certified copy of the dissolution order to be filed with the secretary of state. The secretary of state may not charge a fee for filing the dissolution order.

Sec. 53.515. BARRING OF CLAIMS. (a) A person who is or becomes a creditor or claimant before, during, or after the conclusion of dissolution proceedings, who does not file a claim or pursue a remedy in a legal, administrative, or arbitration proceeding during the pendency of the dissolution proceeding, or who does not initiate a legal, administrative, or arbitration proceeding before the dissolution proceedings commenced and all those claiming through or under the creditor or claimant are forever barred from suing on that claim or otherwise realizing upon or enforcing it, except as provided by this section.

(b) Not later than the first anniversary of the date the articles of dissolution are filed with the secretary of state or a dissolution order is entered, a creditor or claimant who shows good cause for not having previously filed the claim may apply to a court in this state to allow a claim:

(1) against the cooperative to the extent of undistributed assets; or

(2) if the undistributed assets are not sufficient to satisfy the claim, against a member up to the amount distributed to the member.

(c) A debt, obligation, or liability incurred during the dissolution proceedings shall be paid or provided for by the cooperative before the distribution of assets to a member. A person to whom such a debt, obligation, or liability is owed but not paid may pursue any remedy against the officers, directors, or members of the cooperative before the expiration of the applicable statute of limitations. This subsection does not apply to dissolution under the supervision or order of a court.

Sec. 53.516. RIGHT TO SUE OR DEFEND AFTER DISSOLUTION. After a cooperative has been dissolved, any of its former officers, directors, or members may assert or defend, in the name of the cooperative, a claim by or against the cooperative.

SECTION 2. This Act takes effect September 1, 2007.