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The New Kids in Town: Limited Worker Cooperative Associations in Illinois

Posted by Rachael J. Leah | Feb 26, 2020 | 0 Comments

Limited Worker Cooperative Association Act
Limited Worker Cooperative Association Act

On January 1, 2020, the "Limited Worker Cooperative Association Act" became law, paving the way for workers and other stakeholders to form an entirely new legal business entity: the Limited Worker Cooperative Association (LWCA). 

2021 Update: Illinois Congress Passes New Law to Amend the LWCA Act

Generally speaking, worker cooperatives are not new, but, until now, worker cooperatives had not received legal recognition and were largely organized as grassroots ventures. Prior to January 2020, legally recognized cooperatives were limited to those in the agricultural industry or those organized under the general Co-Operative Act

Under this new law, however, worker cooperatives may be formally organized as a Limited Worker Cooperative Association, enabling workers to organize and form a business venture in a broad range of industries.

The Limited Worker Cooperative Association Act also creates a few other sub-types of Limited Cooperative Association (LCA) structures:

  1. Collective Worker Cooperatives - a limited cooperative association whose membership consists entirely of worker-members who manage all of the affairs of the LCA.
  2. Multi-Stakeholder Cooperative - a cooperative organized under the LWCA Act and has different classes of members. At least 51% of the members must be worker-members or candidates (those being considered for membership).

Both Collective Worker Cooperatives and Multi-Stakeholder Cooperatives are considered "worker cooperatives" for purposes of the LWCA Act (meaning the benefits, restrictions, and protections afforded to LWCA's apply to these as well). 

What are Limited Worker Cooperative Associations?

Worker cooperatives are a way for workers to become voting members if they are "patrons" of the limited cooperative association. To be a "patron" of an LWCA, the person must provide "labor" or perform other work for the LWCA. LWCA's are required to have 51% of their members to be "worker-members" or "candidates." "Worker-members" are a class of members of an LWCA  who are "a natural person and also a patron of a worker cooperative." Candidates are those who are being considered for membership.

The LWCA Act clarifies that being "organized as a worker cooperative does not create a presumption that workers are employees of the corporation for any purposes." In other words, independent contractors, for example, may be a worker of an LWCA without automatically losing their status as an independent contractor and being considered an employee. Note that, while the statute makes clear that the LWCA Act does not create a "presumption" that an LWCA worker is an employee, that does not mean that an independent contractor (or worker) may be considered or found to be an employee for other reasons.

 How is a Limited Worker Cooperative Association Formed?

LWCA's are formed by filing Articles of Organization with the Illinois Secretary of State. In the Articles of Organization, the name of the LWCA must include "LWCA," "L.W.C.A.," or "Limited Worker Cooperative Association." Due to the business entity only being around since January 1, 2020, there is no separate or special Articles of Organization form specifically for Limited Worker Cooperative Associations. As such, as of February 26, 2020, the Secretary of State is asking that those wishing to form an LWCA use the LLC Articles of Organization form, but to fill out the form using the statutory designations in the Limited Worker Cooperative Association Act (found here). 

The initial "cast of characters" required to start a LWCA are:

  1. One or more organizers who "deliver or cause to be delivered" Articles of Organization to the Illinois Secretary of State. These initial organizers need not be workers or worker-members of the LWCA.
  2. Initial Registered Agent for the LWCA. This is the person who receives documents such as service of process or other communications on behalf of the LWCA. 
  3. Directors may either be named in the Articles of Organization or be designated by the initial organizers after the LWCA is formed. The initial directors may be members of the LWCA, but they do not have to be LWCA members.
  4. Before beginning to conduct business, LWCA's must have at least 3 members (unless the sole member is a cooperative). Note here that the LWCA does not need to have 3 members in order for the LWCA to be formed (i.e., organized); however, before it can begin conducting business, the LWCA must have at least 3 members (2 of which must be worker-members, discussed below).
 What Are the Benefits of Limited Worker Cooperative Associations?

LWCA's provide an avenue for individuals and workers to establish a business in a way that keeps them in control of the management and decisions of the business. Since LWCA's are required to have 51% of their workers be worker-members, this allows workers to be integral constituents of the business for which they work. Further, instead of only having a remote union to help them or unknown or out-of-touch shareholders and directors making important decisions, workers can use their hands-on knowledge of the business to shape the business. 

LWCA's may be for-profit or not-for-profit organizations. Most importantly, members and worker-members of LWCA's automatically have voting power, without the need to necessarily buy-in or contribute capital. The amount of voting power of the members is laid out either in the articles or the bylaws of the LWCA, within the statutory guidelines (found here in Section 45). Another important feature is that voting power is not based on "patronage or use" of the LWCA, if the cooperative is a worker cooperative. As discussed above, "patronage or use" is defined as the contribution of labor or other work performed for the LCWA.

Let's go through an example of how Section 45 protects the voting power of worker-members and members. Let's say that a worker-member was on sick or maternity leave during the time period for allocation of voting power. In this case, the worker-member did not contribute labor or perform other work during that time frame. If voting power was allocated on the basis of "patronage or use," then the worker-member would lose his or her voting power, because they did not contribute labor or other work. Section 45(a) protects the voting power of this worker-member by not allowing worker cooperatives (LCWA's) to base voting power on "use or patronage." 

Section 45(b) goes even further. If the cooperative is organized as a limited cooperative association, the following statutory requirement applies that also operates to protect voting power of members:

If voting power is dependent on "patronage or use" of the limited cooperative association and the member would be denied a vote due to non-patronage or non-use, then the articles or bylaws must allow the member to have voting power "equal to at least the minimum voting power allocated to members who used the association or conducted patronage with it during the period." 

In other words, a member of a limited cooperative association cannot lose all of his or her voting power on the basis of use or patronage. Under this structure, members' ability to vote on important decisions (laid out in the articles or bylaws) enjoys an added protection. 

Final Thoughts on the Limited Worker Cooperative Association Act 

The Limited Worker Cooperative Association Act offers new possibilities to workers across Illinois. Limited Worker Cooperative Associations allows individuals in Illinois to start a business or convert an existing business into a business entity that gives control and freedom to those who work for the business. Because worker-members of the LWCA are automatically given voting power, worker-member's ability to purchase shares or make capital contributions are not barriers to organization or participation in the affairs of the LWCA. In effect, LWCAs recognize the immense value of "human capital," rather than equating worth to financial contributions.  

About the Author

Rachael J. Leah

WHAT THE PRACTICE OF LAW MEANS TO ME What motivates and guides me in the client-centered practice of law is my curiosity, compassion, and critical thinking. I thrive in situations where I systematically identify, research, and strive to solve client issues. By keeping the human element in the practice of law, I am mindful of where you - the client - are, and am always aware that what I do impacts your life. My job as a lawyer is not merely academic; it is to assist clients to achieve their individual goals and have a positive impact on their lives.

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