What this publication answers
Missouri cooperatives may organize under different state statutes. Chapter 274, known as the Nonprofit Cooperative Marketing Law, is one of Missouri’s older cooperative statutes and is especially important for agricultural producer cooperatives.
This publication answers four basic questions:
- What type of cooperative is Chapter 274 designed to support?
- Who can be a member?
- What requirements are created for voting, board governance, and member control structures?
- What does Chapter 274 allow—and not allow—when it comes to capital, outside investors, and patronage?
Statutory background
Chapter 274 was originally enacted in 1923, four years after Missouri’s Chapter 357 cooperative statute and just one year after the 1922 Capper-Volstead Act. It is a cooperative marketing law, similar to laws adopted in many states during the early 20th century to help agricultural producers organize for collective marketing, bargaining, processing, and related purposes.
Chapter 274 has been amended over time, reflecting an going desire to address producers’ needs. Several current provisions are especially important for readers to understand:
- The current formation section reflects a 1996 amendment that allows five or more qualifying owners or operators of a family farm or family farm corporation, all Missouri residents, to form a Chapter 274 association to engage in livestock production.
- The current powers section reflects a 2001 amendment and gives Chapter 274 associations authority to market, process, handle, finance, borrow money, make advances to members, own property, act as agent for members, and exercise powers necessary or proper to accomplish the association’s purposes.
- The provisions allowing a Chapter 274 association to organize, operate, control, or have an interest in another corporation or entity, and to enter into joint arrangements with other entities or associations, reflect 1996 amendments.
- The current annual fee and tax provision reflects a 2010 amendment. Under that provision, each Chapter 274 association pays an annual fee in lieu of certain franchise, license, corporation, sales, and reserve-related taxes.
Statute summary
Chapter 274 is Missouri’s traditional statute for nonprofit agricultural cooperative marketing associations. It is designed for producers who want to act together to market, process, handle, supply, or finance activities related to agricultural products.
The word “nonprofit” in Chapter 274 can be confusing. In this context, it does not mean the cooperative is a charity. Rather, the statute describes an association organized for the benefit of its members as producers, not to generate profit for itself or for members simply because they invested capital. The cooperative may conduct business, earn margins, deduct costs, build financial strength, and return value to members. The key is that the cooperative exists to serve producer-members through their use of the cooperative.
Chapter 274 is narrower than Missouri’s Chapter 357 and Chapter 351 cooperative statutes. It is not a general-purpose cooperative statute for all types of stakeholder groups. It is built around agricultural products and producer collective action.
The types of cooperatives and activities Chapter 274 fits
Chapter 274 is most likely to fit groups of agricultural producers who want to organize collectively to do one or more of the following:
- market or sell agricultural products;
- harvest, preserve, dry, process, can, pack, grade, store, handle, ship, or use agricultural products;
- manufacture or market byproducts;
- manufacture, sell, or supply machinery, equipment, or supplies to members;
- finance activities connected to those purposes.
Agricultural products are defined broadly and include horticultural, viticultural, forestry, dairy, livestock, poultry, bee, and other farm products.
Chapter 274 may fit a producer group exploring a marketing cooperative, bargaining cooperative, processing cooperative, supply cooperative, livestock-production cooperative, or related agricultural venture. It is less likely to fit a cooperative whose members are not producers, or whose purpose is not tied to agricultural products or related producer services.
Formation basics
Chapter 274 generally requires 11 or more agricultural producers to form a nonprofit cooperative association, with a majority of those organizers being Missouri residents.
A provision added to the current formation section in 1996 allows five or more owners or operators of a family farm or family farm corporation, all Missouri residents, to form a Chapter 274 association to engage in livestock production.
The articles of incorporation must identify basic information about the association, including its name, purposes, principal place of business, duration, number of directors, initial directors, and whether members’ property rights and interests are equal or unequal. The statute also requires the cooperative to adopt bylaws within 30 days after incorporation.
The bylaws are central to how a Chapter 274 cooperative operates. They may address meetings, quorum, voting procedures, delegate representation, director and officer qualifications, membership fees, annual member charges, service charges, marketing contracts, membership qualifications, withdrawal, expulsion, and how a member’s interest is valued when membership ends.
Membership: Who can belong?
Membership under Chapter 274 is limited. A Chapter 274 association may admit only persons engaged in the production of the agricultural products to be handled by or through the association. This can include lessees and tenants producing the products, as well as landlords or lessors who receive part of the crop as rent. One Chapter 274 association may also become a member of another Chapter 274 association, permitting a federated cooperative structure.
This producer-membership requirement is one of the most important features of the statute. It means Chapter 274 is not the best fit for a cooperative designed around a broad mix of consumers, workers, community investors, nonproducer businesses, or other stakeholder groups unless those members also meet the statute’s membership requirements.
Member control and voting
Chapter 274 follows a traditional cooperative voting structure, often referred to as “one member, one vote,” or “democratic member control.” In this case, no member is entitled to more than one vote. Unlike other forms of business, voting power (control) is not based on how much business a member does with the cooperative, how much capital the member contributes, or how much economic interest the member has.
Members have voting authority over key governance matters, including adoption of the bylaws. The articles may also provide for more than one class of membership and may specify how many directors are elected by each class, but Chapter 274 does not authorize investor voting based on capital investment.
The bylaws may allow voting by proxy, by mail, or both. They may also provide for delegate representation, which can be useful for larger cooperatives or cooperatives with geographic districts.
Board governance and management
A Chapter 274 cooperative is governed by a board of at least five directors. Generally, directors are elected by the members from among the membership; however, the bylaws may allow one or more appointed public-interest directors who do not have to be members, so long as those appointed directors do not make up more than one-fifth of the full board. This statute also creates an allowance for the cooperative’s territory to be divided into districts and permits district-based directors and elections.
The board manages the affairs of the association. Officers are selected by the directors, although the bylaws may provide for the president and vice president to be elected by members or delegates at annual meetings. The secretary and treasurer do not have to be directors or members.
Ownership, capital, and outside investors
Chapter 274 associations are organized without capital stock; thus, a “non-stock” association. This is a major difference from Chapter 357, which allows common and preferred stock, and from Chapter 351, which allows more flexible membership interests and membership classes. Because Chapter 274 is built around producer membership and does not authorize stock, it is not a natural fit for raising equity capital from outside investors who expect ownership rights, investor voting rights, or preferred equity rights.
Nonmember equity investment and investor voting classes are not core features of Chapter 274, but that does not mean a Chapter 274 cooperative has no capital options. The statute allows the association to borrow money without limitation as to the amount of corporate indebtedness or liability. It also allows the cooperative to make advance payments and advances to members.
Chapter 274 also allows the cooperative to organize, form, operate, control, have an interest in, or be a member of another corporation or entity for activities connected to the agricultural products handled by the association. The current version of that related-entity authority reflects 1996 amendments. This can give Chapter 274 cooperatives some flexibility to use related entities, even though the cooperative itself remains a nonstock, producer-member association.
Patronage, marketing contracts, and member benefits
Chapter 274 allows the cooperative and its members to use marketing contracts. These contracts may require members to sell all or a specified part of their agricultural products or commodities exclusively to or through the cooperative for a defined period.
A marketing contract may allow the cooperative to sell or resell products delivered by members and pay members the resale price after deducting selling costs, overhead, interest, and other proper deductions. This reflects a core cooperative idea: the cooperative acts as a vehicle through which members jointly market, process, or handle their products, with economic results connected to their use of the cooperative.
Chapter 274 does not contain the same detailed patronage allocation provisions found in some cooperative statutes. Many economic details therefore need to be addressed in the cooperative’s articles, bylaws, marketing contracts, board policies, and tax/accounting practices.
Powers and operating authority
Chapter 274 gives cooperatives several important powers. The current powers section reflects a 2001 amendment. A Chapter 274 association may engage in marketing, selling, processing, manufacturing, handling, storing, shipping, financing, and related activities connected to agricultural products produced or delivered by members. It may borrow money, make advances to members, act as agent or representative for members, hold property, develop patents and trademarks, and exercise other powers necessary or proper to accomplish its purposes.
The association must do at least 25 percent of its business with its members. This requirement helps preserve the member-use orientation of the cooperative.
Chapter 274 also allows cooperative associations to work jointly with other associations or entities. The current joint-action provision reflects a 1996 amendment. The board may approve contracts and arrangements with another corporation, person, or entity for the more economical carrying on of the cooperative’s business.
Meetings, reporting, and tax-related treatments
A Chapter 274 cooperative must provide in its bylaws for one or more regular meetings annually. The board may call special meetings, and 10 percent of the members may petition for a special meeting to bring specific business before the association.
The association must also prepare an annual report with information about its business operations, membership, fees, expenses, indebtedness or liabilities, and balance sheets, and file a copy with the Missouri Secretary of State.
Chapter 274 also contains a state fee and tax provision. The current version reflects a 2010 amendment. Each association organized under Chapter 274 pays an annual fee in lieu of certain franchise, license, corporation, sales, and reserve-related taxes.
The fit of Chapter 274 to common cooperative activities
Chapter 274 may be a good fit when:
- the cooperative is organized by agricultural producers;
- the cooperative’s purpose is tied to agricultural products or producer services;
- members want a traditional one-member/one-vote governance structure;
- the cooperative does not need common stock, preferred stock, or investor voting classes;
- the cooperative’s primary capital strategy relies on member financing, retained margins, debt, or related entities rather than outside investor equity.
Chapter 274 may be less suitable when:
- the intended members are not agricultural producers;
- the cooperative is intended to serve consumers, workers, tenants, community investors, or multiple stakeholder classes not tied to agricultural production;
- the cooperative needs flexible voting rights based on patronage, investment, or membership class;
- the cooperative wants to issue preferred equity or create investor ownership rights;
- the cooperative needs a broader modern structure for nonmember capital, complex ownership interests, or multi-stakeholder governance.
Questions for organizers, members, and boards
Before organizing under Chapter 274, or in reviewing an existing cooperative’s alignment with the Chapter 274 statute, consider these questions:
- Are the cooperative’s members agricultural producers of the products handled by or through the association?
- Is the cooperative’s core purpose tied to marketing, processing, supplying, financing, or otherwise supporting agricultural production?
- Does one-member/one-vote fit the cooperative’s governance philosophy and needs?
- Will the cooperative need outside equity investors, or can it meet capital needs through members, retained margins, debt, or related entities?
- Should the cooperative use marketing contracts, delivery commitments, or other member agreements?
- Do the bylaws clearly explain membership eligibility, voting procedures, director elections, member withdrawal, and valuation of member interests?
- Does the board understand which decisions belong to the board, which decisions require member approval, and which decisions may be referred to members?
- Are the organizers in agreement that Chapter 274 is the best statutory fit versus Chapters 357 and 351?
Bottom line
Chapter 274 is a producer-centered cooperative statute. It is well suited to agricultural producers organizing for collective marketing, processing, supply, financing, livestock production, or related purposes. Its key features are its traditional cooperative structure, producer-member focus, one-member/one-vote control, clear connection to agricultural collective action, and specific powers for marketing and related producer activity.
Its limits are equally important to understand. Chapter 274 is not designed as a broad multi-stakeholder cooperative statute, and it is not built to fit outside investor equity or flexible ownership classes. For groups that need broader membership, more flexible capital tools, or more customized governance rights, Missouri’s Chapter 357 or Chapter 351 cooperative statutes may be worth comparing.