CHAPTER 47-16

COOPERATIVES--MEMBERSHIP, STOCK AND DISTRIBUTIONS

47-16-1    Classes of members--Provisions in bylaws.

47-16-2    Annual member meeting--Time of meeting.

47-16-3    Special meetings.

47-16-4    Member meetings--Location--Virtual participation.

47-16-5    Member meetings--Notice--Virtual meeting.

47-16-6    Notice to delegates or alternates.

47-16-7    Member meetings--Quorum.

47-16-8    Action without meeting.

47-16-9    Consent to action without meeting.

47-16-10    Votes at meeting.

47-16-11    Votes by member cooperatives.

47-16-12    Vote by member owning membership stock.

47-16-13    Proxy votes--Delegate votes.

47-16-14    Member voting.

47-16-15    Voting by representatives.

47-16-16    Voting by organizations.

47-16-17    Voting rights conditioned upon membership payment.

47-16-18    Other votes prohibited.

47-16-19    Bylaws provisions for voting.

47-16-20    Percentage of vote.

47-16-21    Capital stock--Classes of stock.

47-16-22    Membership stock--Transfer of stock.

47-16-23    Cooperative dealing in own stock.

47-16-24    Consideration for stock.

47-16-25    Reacquisition of stock.

47-16-26    Stockholders' preemptive rights.

47-16-27    Stock certificates--Conditions to issuance.

47-16-28    Statements required on stock certificates.

47-16-29    Stock subscriptions--Irrevocability.

47-16-30    Liability of subscribers.

47-16-31    Missing securities--Issuance of duplicate.

47-16-32    Missing securities--Redemption--Procedure.

47-16-33    Liability on securities wrongfully transferred--Notice.

47-16-34    Definition of transfers and transferors.

47-16-35    Actions by stockholders or members--Allegations respecting ownership.

47-16-36    Actions by stockholders or members--Additional allegations.

47-16-37    Approval of court required for termination of action.

47-16-38    Expenses of maintaining action--Disposition of proceeds.

47-16-39    Security for costs--Amount of security.

47-16-40    Distribution of net proceeds.

47-16-41    Deductions from total proceeds.

47-16-42    Procedure for distribution.

47-16-43    47-16-43. Repealed by SL 2009, ch 230, § 1.

47-16-44    Payments to employees.

47-16-45    Dividends on capital stock--Conditions to payment.

47-16-46    Distributions to patrons.

47-16-47    Creation of reserves--Credit to patrons.

47-16-48    Ratio of patronage as determining payment to patron.

47-16-49    Classification of patrons.

47-16-50    Credit to surplus and reserves.

47-16-51    Remaining funds--Distribution to patrons--Distinction between members and nonmembers--Classification of patrons.

47-16-52    Manner of payment.

47-16-53    Application of proceeds to prior losses.

47-16-54    Unclaimed credits--Forfeiture to cooperative.

47-16-55    Procedure for forfeiture--Resolution--Time limit for claim.

47-16-56    Notice to claimant--Contents of notice.

47-16-57    Notice by publication.

47-16-58    Applicability to preexisting claims.

47-16-59    Discretionary payment to claimant after forfeiture.

47-16-60    Filing false document as felony.

47-16-61    Report of forfeited sums to administrator.

47-16-1. Classes of members--Provisions in bylaws.

A cooperative may have one or more classes of members. Provisions for qualifications, requirements, method of acceptance, terms, conditions, termination, and other incidents of membership shall be set forth in the bylaws. Any person, including a partnership, a firm, an unincorporated association, a cooperative, a corporation, or a body politic, may become a member in accordance with the bylaws.

Source: SDC 1939, § 11.1113 as enacted by SL 1965, ch 23, § 1.

47-16-2. Annual member meeting--Time of meeting.

An annual member meeting of a cooperative shall be held at the time fixed in or pursuant to the bylaws. In the absence of a bylaw provision, such meeting shall be held within six months after the close of the fiscal year at the call of the president or board of directors.

Source: SDC 1939, § 11.1115 (2) as enacted by SL 1965, ch 23, § 1.

47-16-3. Special meetings.

Special member meetings of a cooperative may be called by the president, board of directors, or members having one-fifth of the votes entitled to be cast at such meeting.

Source: SDC 1939, § 11.1115 (3) as enacted by SL 1965, ch 23, § 1.

47-16-4. Member meetings--Location--Virtual participation.

Unless the articles of incorporation or bylaws provide otherwise, the board of directors shall provide that member meetings of a cooperative are held at the principal office or such other place or by means of communication as the board of directors may determine.

Unless the articles of incorporation or bylaws provide otherwise, the board of directors may allow a member, a delegate, or an alternate to participate in a member meeting by any means of communication through which the member, delegate, or alternate may communicate and vote at the meeting. Participation by such means of communication constitutes presence or attendance at the meeting.

Source: SDC 1939, § 11.1115 (1) as enacted by SL 1965, ch 23, § 1; SL 2021, ch 194, § 2.

47-16-5. Member meetings--Notice--Virtual meeting.

Written notice of a membership meeting of a cooperative, stating the place, day, and hour, and, in case of a special member meeting the purposes for which the meeting is called, shall be given no fewer than ten nor more than sixty days before the meeting, at the direction of the person calling the meeting.

The place of the meeting or special meeting may be virtual if the written notice specifies a means of communication to conduct the meeting that complies with the provisions of § 47-16-4.

Source: SDC 1939, § 11.1115 (4) as enacted by SL 1965, ch 23, § 1; SL 2021, ch 194, § 3.

47-16-6. Notice to delegates or alternates.

At any meeting of a cooperative at which members are to be represented by delegates, notice to such members may be given by notifying such delegates and their alternates. Notice may consist of a notice to all members or may be in the form of an announcement at the meeting at which such delegates or alternates were elected.

Source: SDC 1939, § 11.1115 (5) as enacted by SL 1965, ch 23, § 1.

47-16-7. Member meetings--Quorum.

A quorum at a member meeting of a cooperative shall be ten percent of the first one hundred members plus five percent of additional members, present or represented by delegate. Unless the bylaws fix a larger number of members to constitute a quorum, a quorum may never be more than fifty members nor fewer than five members, or a majority of all members, whichever is smaller. Members represented by signed vote may be counted in computing a quorum only on those questions as to which the signed vote is taken. The sufficiency or requirement of a quorum for the transaction of business at a district meeting of members shall be established in the bylaws. However, the quorum may not be fewer than five members.

Source: SDC 1939, § 11.1116 as enacted by SL 1965, ch 23, § 1; SL 2000, ch 220, § 1; SL 2021, ch 194, § 4.

47-16-8. Action without meeting.

Action without a membership meeting may be taken by a cooperative pursuant to § 47-16-9.

Source: SDC 1939, § 11.1115 (6) as enacted by SL 1965, ch 23, § 1.

47-16-9. Consent to action without meeting.

Any action which may be taken at a member meeting of a cooperative, may be taken without a meeting if a writing setting forth and approving the action taken shall be signed by a majority of the members entitled to vote on such action. In such cases, such consent shall have the same force and effect as if a meeting had been held.

Source: SDC 1939, § 11.1126 as enacted by SL 1965, ch 23, § 1.

47-16-10. Votes at meeting.

At any member meeting of a cooperative composed of individual members and entity members, each individual member or entity member is entitled to only one vote.

Source: SDC 1939, § 11.1114 (2) as enacted by SL 1965, ch 23, § 1; SL 2018, ch 260, § 4.

47-16-11. Votes by member cooperatives.

In the case of a cooperative composed only of member cooperative corporations, such member cooperatives shall have only one vote, except that the articles may permit either or both:

(1)    A member cooperative to cast additional votes not exceeding a number equal to its membership;

(2)    A cooperative whose member-patrons include other cooperative corporations to base voting in whole or in part on a patronage basis.

Source: SDC 1939, § 11.1114 (2) as enacted by SL 1965, ch 23, § 1.

47-16-12. Vote by member owning membership stock.

A member owning membership stock of a cooperative gains no additional vote thereby.

Source: SDC 1939, § 11.1114 (3) as enacted by SL 1965, ch 23, § 1.

47-16-13. Proxy votes--Delegate votes.

Voting by proxy shall not be allowed in any cooperative, except that the bylaws may provide for representation of members by delegates apportioned territorially. A delegate shall cast the votes to which members represented by him are entitled.

Source: SDC 1939, § 11.1114 (4) as enacted by SL 1965, ch 23, § 1.

47-16-14. Member voting.

A member of a cooperative may submit a signed vote by mail or electronic means if the member has been previously notified in writing of the exact vote, motion or resolution upon which the vote is taken. The bylaws may limit use of signed votes.

Source: SDC 1939, § 11.1114 (5) as enacted by SL 1965, ch 23, § 1; SL 2018, ch 260, § 5; SL 2021, ch 194, § 5.

47-16-15. Voting by representatives.

In the absence of written notice that a person has been designated to represent an entity member of a cooperative, the member may be represented by any of its principal officers. Unless the bylaws provide otherwise, an individual may represent more than one entity member, and may also vote as an individual if the individual is a member.

Source: SDC 1939, § 11.1114 (6) as enacted by SL 1965, ch 23, § 1; SL 2018, ch 260, § 6.

47-16-16. Voting by organizations.

If the cooperative permits two or more persons, or a partnership, or an unincorporated association, or another cooperative, or a corporation, or a body politic to hold one membership, the bylaws may provide how such member vote is to be cast.

Source: SDC 1939, § 11.1114 (1) as enacted by SL 1965, ch 23, § 1.

47-16-17. Voting rights conditioned upon membership payment.

A person who has not fully paid for his membership may not vote except as expressly permitted in the bylaws.

Source: SDC 1939, § 11.1114 (1) as enacted by SL 1965, ch 23, § 1.

47-16-18. Other votes prohibited.

Except as permitted in §§ 47-16-13 to 47-16-17, inclusive, no person other than a member may vote at any member meeting of a cooperative.

Source: SDC 1939, § 11.1114 as enacted by SL 1965, ch 23, § 1.

47-16-19. Bylaws provisions for voting.

The bylaws of a cooperative may set forth provisions, not inconsistent with this chapter, relating to the methods and procedures for voting.

Source: SDC 1939, § 11.1114 (7) as enacted by SL 1965, ch 23, § 1.

47-16-20. Percentage of vote.

Whenever the articles of a cooperative require the vote of a greater proportion of the members than required by this chapter, the articles control.

Source: SDC 1939, § 11.1114 (8) as enacted by SL 1965, ch 23, § 1.

47-16-21. Capital stock--Classes of stock.

A cooperative organized with capital stock may issue the amount of stock stated in its articles. Such stock may be divided into two or more classes with such designations, preferences, limitations, and relative rights as shall be stated in the articles, except that:

(1)    Stock as such has no voting power;

(2)    Stock without par value shall not be authorized or issued;

(3)    The rate of dividends upon stock shall not exceed eight percent of its par value for any year, and dividends may not be cumulative.

Source: SDC 1939, § 11.1118 (1) as enacted by SL 1965, ch 23, § 1.

47-16-22. Membership stock--Transfer of stock.

The articles of a cooperative may require that members own one or more shares of membership stock. Such stock shall be issued or transferred only to a person eligible to become a member, and only when such person satisfies other requisites for membership. Unless restricted by the articles, stock other than membership stock may be issued or transferred to any person.

Source: SDC 1939, § 11.1118 (2) as enacted by SL 1965, ch 23, § 1.

47-16-23. Cooperative dealing in own stock.

Unless the articles provide otherwise, a cooperative may acquire, recall, exchange, redeem, and reissue its own stock. Provisions in the articles and on the stock certificate may reserve to the cooperative a prior right to acquire any stock offered for sale, or a right to recall the stock of any stockholder, or both of said rights.

Source: SDC 1939, § 11.1118 (3) as enacted by SL 1965, ch 23, § 1.

47-16-24. Consideration for stock.

The consideration paid for stock recalled by the cooperative shall be its par value and accrued unpaid dividends, provided that if the book value of such stock is less than the par value, the consideration shall be such book value. The cooperative may set off obligations of the stockholder to it. If the remaining assets would be less than the aggregate amount payable to creditors and persons holding stock with preferential rights upon liquidation, no stock shall be acquired, recalled, exchanged, or redeemed for a consideration other than stock or certificates of equity interest of equal or subordinate rank.

Source: SDC 1939, § 11.1118 (3) as enacted by SL 1965, ch 23, § 1.

47-16-25. Reacquisition of stock.

When stock is acquired, recalled, exchanged, or redeemed by the cooperative, such stock is restored to the status of authorized but unissued stock.

Source: SDC 1939, § 11.1118 (4) as enacted by SL 1965, ch 23, § 1.

47-16-26. Stockholders' preemptive rights.

Stockholders of a cooperative as such have no preemptive right to purchase additional stock.

Source: SDC 1939, § 11.1118 (5) as enacted by SL 1965, ch 23, § 1.

47-16-27. Stock certificates--Conditions to issuance.

No stock certificate may be issued by a cooperative except upon payment of the par value of the stock it represents. No cooperative shall issue stock or bonds except for money, labor done, or money or property actually received; and all fictitious increase of stock or indebtedness shall be void. If payment for stock is not in money, the value of the consideration shall be determined by the board of directors and such determination, if made in good faith, shall be conclusive.

Source: SDC 1939, § 11.1119 as enacted by SL 1965, ch 23, § 1.

47-16-28. Statements required on stock certificates.

Each certificate for stock of a cooperative shall bear the manual or facsimile signature of a principal officer and shall state:

(1)    The name of the cooperative, the number, par value, and class of the shares represented by the certificate, and whether or not it is membership stock.

(2)    Any restrictions on the issuance or transfer of such stock, including those provided by law and the articles.

(3)    If more than one class of stock is authorized, the designation of the several classes, and their respective preferences, limitations, and relative right. In lieu of the full statement, this information may be given in summary form, or the certificate may state that the cooperative will, upon request, furnish the information required by this subdivision.

Source: SDC 1939, § 11.1119 as enacted by SL 1965, ch 23, § 1.

47-16-29. Stock subscriptions--Irrevocability.

A subscription for stock of a cooperative is irrevocable for six months unless otherwise provided by the subscription agreement or unless all subscribers consent to the revocation.

Source: SDC 1939, § 11.1120 as enacted by SL 1965, ch 23, § 1.

47-16-30. Liability of subscribers.

Except for debts lawfully contracted between the member and the cooperative, no member or patron is liable for the debts of the cooperative to an amount exceeding the sum remaining unpaid on his subscription for shares of the cooperative, and the sum unpaid on such members membership fees, if such fee is required by the cooperative.

Source: SDC 1939, § 11.1120 as enacted by SL 1965, ch 23, § 1.

47-16-31. Missing securities--Issuance of duplicate.

When a security issued by a cooperative is missing, the cooperative shall issue a duplicate security if the owner so requests and furnishes an indemnity acceptable to the cooperative.

Source: SDC 1939, § 11.1121 (1) as enacted by SL 1965, ch 23, § 1.

47-16-32. Missing securities--Redemption--Procedure.

If records of a cooperative showing ownership of securities or apportionment of equity interest in the assets are missing and the information contained in such records is necessary to a proposed redemption of the interest, the cooperative may give notice and redeem as follows:

(1)    The cooperative shall set aside an amount equal to the value of the interests to be redeemed;

(2)    The cooperative shall give notice of such redemption to all owners of interests of which the cooperative has knowledge;

(3)    If there are interests, the ownership of which is unknown to the cooperative, it shall publish notice of the redemption at least once in a newspaper of general circulation in the county of this state in which is located the last known address of each person to be named in the notice. If no address is listed or the address is outside this state, the notice shall be published in the county in which the holder of the property has its principal place of business within this state; and

(4)    Any unclaimed outstanding interest represented by the missing records may then be terminated in accordance with §§ 47-16-54 to 47-16-59, inclusive.

Source: SDC 1939, § 11.1121 (2) as enacted by SL 1965, ch 23, § 1; SL 2012, ch 224, § 1.

47-16-33. Liability on securities wrongfully transferred--Notice.

A cooperative is not liable for acting upon wrongful transfers of its securities unless it has notice that the certificate was not transferred by a proper person or has notice that the transfer was wrongful.

Source: SDC 1939, § 11.1122 (1) as enacted by SL 1965, ch 23, § 1.

47-16-34. Definition of transfers and transferors.

As used in § 47-16-33:

(1)    "Proper person" means the registered owner or last prior transferee, whether or not described as fiduciary for another, or his authorized agent, legal representative, or successor to his interest by operation of law;

(2)    "Transfer" includes a redemption or recall of stock;

(3)    "Wrongful transfer" means a transfer which is in excess of the authorization or capacity of the transferor, or which is made in breach of the transferor's fiduciary duty.

Source: SDC 1939, § 11.1122 (2) as enacted by SL 1965, ch 23, § 1.

47-16-35. Actions by stockholders or members--Allegations respecting ownership.

No action may be instituted or maintained in the right of any association by a member or stockholder unless he alleges in his complaint that he was a member or registered stockholder when any part of the transaction of which he complains took place, or that his stock thereafter devolved upon him by operation of law from a stockholder at such time.

Source: SDC 1939, § 11.1153 (1) (a) as enacted by SL 1965, ch 23, § 1.

47-16-36. Actions by stockholders or members--Additional allegations.

No action may be instituted or maintained in the right of any association by any member or stockholder unless he alleges in his complaint with particularity his efforts to secure from the board of directors such action as he desires. He shall allege further that he has either informed the corporation or board in writing of the ultimate facts of each cause of action against each director or that he has delivered to the cooperative or board a copy of the complaint which he proposes to file. He shall state the reasons for his failure to obtain such action or the reasons for not making such effort.

Source: SDC 1939, § 11.1153 (1) (b) as enacted by SL 1965, ch 23, § 1.

47-16-37. Approval of court required for termination of action.

An action instituted or maintained in the right of any association by any member or stockholder shall not be dismissed or compromised without the approval of the court.

Source: SDC 1939, § 11.1153 (2) as enacted by SL 1965, ch 23, § 1.

47-16-38. Expenses of maintaining action--Disposition of proceeds.

If anything is recovered or obtained as the result of an action instituted or maintained in the right of any association by any member or stockholder, whether by means of compromise and settlement or by a judgment, the court may, out of the proceeds of the action, award the plaintiff the reasonable expenses of maintaining the action, including reasonable attorney's fees, and may direct the plaintiff to account to the cooperative for the remainder of such proceeds.

Source: SDC 1939, § 11.1153 (3) as enacted by SL 1965, ch 23, § 1.

47-16-39. Security for costs--Amount of security.

In any action brought in the right of a cooperative by less than three percent of the members or by holders of less than three percent of any class of stock outstanding, the defendants may require the plaintiff to give security for the reasonable expenses of defending such action, including attorney's fees. The amount of such security may thereafter be increased or decreased in the discretion of the court upon showing that the security provided is or may be inadequate or is excessive.

Source: SDC 1939, § 11.1153 (4) as enacted by SL 1965, ch 23, § 1.

47-16-40. Distribution of net proceeds.

At least once annually the directors of a cooperative shall determine and distribute net proceeds as provided by §§ 47-16-41 to 47-16-53, inclusive.

Source: SDC 1939, § 11.1131 as enacted by SL 1965, ch 23, § 1.

47-16-41. Deductions from total proceeds.

In determining net proceeds of a cooperative, there shall be deducted from total proceeds:

(1)    All operating expenses and costs;

(2)    The cost of supplies, commodities, equipment, and other property or services procured or sold for patrons;

(3)    The cost of services performed for patrons;

(4)    All taxes and all other expenses;

(5)    Reasonable and necessary reserves for depreciation, depletion and obsolescence of physical property, doubtful accounts, and other valuation reserves, all of which shall be established in accordance with usual and customary accounting practices.

Source: SDC 1939, § 11.1131 (1) as enacted by SL 1965, ch 23, § 1.

47-16-42. Procedure for distribution.

After the deductions required by § 47-16-41, the remainder of the total proceeds of a cooperative are net proceeds and shall be distributed and paid as provided by §§ 47-16-44 and 47-16-45.

Source: SDC 1939, § 11.1131 (2) as enacted by SL 1965, ch 23, § 1.