November 03, 2010
Entity and Identity
Posted by Usha Rodrigues

If you know me, you probably know I've been working on a piece on nonprofits for a while. As in, since the first Law & Entrepreneurship Retreat, back in (can it be?) May 2007.  Since then I went back to the drawing board, had a baby, wrote another article, and had another baby.  I'm proud to say that Entity and Identity was accepted by Emory Law Journal, and today it's finally up on SSRN!  Here's the abstract:

The function, indeed the very existence, of nonprofit corporations is under-theorized.  Recent literature suggests that only preferential tax treatment adequately explains the persistence of the nonprofit form.  This answer is incomplete.  Drawing on psychology’s social identity theory, this Article posits that the nonprofit form can create a special “warm-glow” identity that cannot be replicated by the for-profit form.  For example, a local nonprofit food cooperative is selling more than the free-range eggs or organic strawberries that Whole Foods and other for-profits market so effectively.  The co-op offers community participation and an investment in local farms, a distinctive ethos that is incompatible with the profit motive.  Ascribing a special meaning to the nonprofit form allows us to view afresh a variety of issues regarding the appropriate legal treatment of nonprofits.

It's been a long time coming.  Comments are, of course, welcome.  (They may not make it into the draft for another 2 years, but they're welcome.)

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May 17, 2007
Fiduciary Duties of Cooperative Directors
Posted by Gordon Smith

I have been doing some research on cooperatives in preparation for next week's Law & Entrepreneurship Retreat here at the University of Wisconsin Law School, and I found this provision of the Wisconsin Statutes (§185.365):

In discharging his or her duties to the cooperative and in determining what he or she believes to be in the best interests of the cooperative, a director or officer may, in addition to considering the effects of any action on members and stockholders, consider the following:

(1) The effects of the action on employees, suppliers and customers of the cooperative.

(2) The effects of the action on communities in which the cooperative operates.

(3) Any other factors the director or officer considers pertinent.

My paper does not focus on fiduciary duties, but this statute is an "other constituency" statute of the type that preoccupied many corporate law scholars in the late 1980s and early 1990s. Given that most cooperative businesses are small and tied to a particular geographic location, I suspect that litigation regarding this statute or others like it in the cooperative setting would not shed much light on corporate law debates. (I did a quick search of law reviews and cases and didn't find any relevant discussion.) Nevertheless, I am finding that comparisons between cooperatives and corporations are pretty thought-provoking. More on that later ...

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September 30, 2006
Cheese Innovations
Posted by Gordon Smith

California is threatening to overtake Wisconsin in cheese production. According to the NYT:

Wisconsin boasts the nation’s only "Master Cheesemaker" certification, for its most accomplished veteran makers (there were 47 as of April) and one of the earliest cheese-making education programs, at the University of Wisconsin.

But in recent decades, California began expanding its milk and cheese production at an astonishing pace. Signs of the growth began popping up all around: 21 awards to California cheeses in the prestigious American Cheese Society competition in 2002, for example, and a $21-million-a-year national advertising blitz starring talking “Happy Cows” from California, including images of a seemingly miserable cow making a break from a snowy, blustery field for sunnier pastures out West and the slogan, "Great cheese comes from happy cows."

The commercials were even broadcast on television stations in Wisconsin, a fact that some cheese makers here considered an audacious (and not particularly Midwestern) act of aggression, and one that led several of them to question whisperingly just how "happy" the cows in California really could be, considering the heat wave this summer that killed tens of thousands of them.

Yeah, that "happy cows" business was a crock. Anyway, in anticipation of the inevitable, Wisconsin is ceding the quantity crown to California and turning to greener pastures. This is Wisconsin's equivalent of "you can't fire me because I quit":

[C]heese makers say they are turning their focus to high-priced specialty, artisan and organic cheeses that take more time to produce, cheeses like Asiago, feta and blue cheese, and those with names newly dreamed up.

"We’re moving on from this whole quantity thing," said Jeanne Carpenter of the state’s Dairy Business Innovation Center, who said specialty cheeses now accounted for 15 percent of the state’s production, up significantly from five years ago. “Where Wisconsin is going to make its mark now is in the quality of the cheese."

I love that line: "We’re moving on from this whole quantity thing." Take that, California!

For those of us who both love cheese and study business organizations (and I expect that there is a high degree of overlap in those groups), the most interesting development from this competition is the development of the "LLC Cooperative," a new form of business organization embraced by five states to date: Wyoming, Minnesota, Iowa and Tennessee, and Wisconsin. Even the National Conference of Commissioners on Uniform State Laws has gotten into the act. NCCUSL is drafting a uniform cooperative statute, which should be available next summer.

Normally, cooperatives are owned by patrons, but an LLC Cooperative allows for outside investment by providing for two classes of equity investors, "patron members" and "investor members." The entity is treated as a partnership for tax purposes, and as explained by this slightly dated but interesting study, it is already being used by many innovative companies outside of agriculture.

Thanks to Anuj Desai for flagging the NYT article for me.

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