COOPERATIVE ASSOCIATIONS -- PREFERRED STOCK

COOPERATIVE ASSOCIATIONS -- PREFERRED STOCK

A cooperative association may issue preferred stock.

                                                                  - - - - - - - - - - - - -

                                                                November 7, 1949

Honorable Earl Coe
Secretary of State
Legislative Building
Olympia, Washington                                                                                                              Cite as:  AGO 49-51 No. 154

Attention:  !ttMr. Ray Yeoman,
            Assistant Secretary of State

Dear Sir:

            You have requested the opinion of this office as to whether a cooperative association organized under chapter 19, Laws of 1913 as amended by chapter 37, Laws of 1927 [Rem. Rev. Stat. 3904, et seq.] may issue shares of preferred stock.

            Our conclusion is that such cooperative associations may issue shares of preferred stock.

                                                                     ANALYSIS

            In the opinion of this office to the Secretary of State dated March 26, 1927 [Ops. Atty. Gen. 1927-28, page 40], it was decided that associations formed under the cooperative act do not have the power to issue preferred stock.  That conclusion was premised upon section 13, chapter 19, Laws of 1913 which required such associations to apportion their net earnings by first paying dividends on the paid up capital stock at a rate not in excess of eight per cent per annum.  It was felt that since this section made no distinction between classes of stock, and since it required payment on capital stock regardless of preferences, that statute was  [[Orig. Op. Page 2]] inconsistent with the idea of preferred stock which gives its holders a preferred right with respect to the payment of dividends.  We feel that that opinion was correct under the laws which then existed.

            The statute upon which that opinion was based has been amended, however, by section 1, chapter 37, Laws of 1947 [3916 Rem. Supp. 1947].  That statute now provides:

            "The trustees may apportion the net earnings by paying dividends upon the paid-up capital stock at a rate not exceeding eight percent per annum.  They may set aside reasonable reserves out of such net earnings for any association purpose.  * * *"

            Under this statute, as amended, there is no inconsistency with the idea of preferred stock so as to prevent a cooperative association from issuing such stock.

            "* * * According to the weight of authority, even when no such power [to issue preferred stock] is expressly conferred upon a corporation at the time of its creation, it is implied, in the absence of prohibition or restriction, subject to the qualification that it must be exercised for a legitimate corporate purpose, and that contract rights of shareholders cannot be impaired * * *."  11 Fletcher, Cyclopedia of Corporations, § 5284.

            Accordingly, you are advised that a cooperative association may make provision for issuance of preferred stock.  We express no opinion as to the results which will obtain where preferred stock is issued after issuance of common stock.  We also express no opinion as to whether issuance of preferred stock may be authorized by less than all of the common stockholders where shares of common stock are then outstanding.

Very truly yours,

SMITH TROY
Attorney General

JOHN D. BLANKINSHIP
Assistant Attorney General