Montana Attorney General Opinion 17-4

Opinion No.4. Corporations - Co-Operative Asocia- tions-By-Laws, Limitation on-Reserve Fund. HELD: The reserve fund of a co- operative association, organized under the provisions of Sections 6375-6396, R. C. M. 1935, may not exceed an amount equal to 30% of the paid up capital stock of the association; nor may the by-laws make provision for a larger reserve fund. December 8, 1936. Hon. Sam W. Mitchell Secretary of State Helena, Montana Dear Mr. Mitchell: You have presented the following matter and have requested my opinion OPINIONS OF THE ATTORNEY GENERAL 5 thereon. The Farmers Union Oil Company of Nashua, :'lontana, is a cooperative association created under the provisions of Sections 6375-6396, R. C. M. 1935. The association has pre- sented proposed amended by-laws to your office for filing. Paragraph 2 of Section 27 of Article VI of said pro- posed amended by-laws provides, in part: "A reserve fund of at least ten per cent (10%) of the net income shall be set aside until an amount has ac- cumulated in said reserve fund amount- ing to fifty per cent (50%) of the paid up capital stock. * * *., You in- quire whether the quoted portion of the proposed amended by-laws com- plies with Section 6387, R. C. M. 1935, which provides: "The directors of a co-operative association, subject to revision by the stockholder's at a general or special meeting may apportion the earnings of the association by first paying dividends on the paid up capital stock, not exceeding six per cent (6%) per annum on the par value thereof, from the' remaining funds, if any, acces- sible for dividend purposes, not less than five per cent (5%) of the net profits for a reserve fund until an amount has accumulated in said re- serve fund amounting to thirty per cent (30%) of the paid up capital stock, and from the balance. if any, five per cent (5%) for educational fund to be used for teaching co- operation, and the remaining of said profits, if any, by unform dividends upon the amount of purchases of patrons and upon the wages and for salaries of employees, the amount of such uniform dividends on the amount of their purchases, which may be credited to the account of such pa- trons on account of capital stock of the association; but in production association such as creameries, can- neries, elevators. factories and the like. dividends shall be on raw ma- terial delivered instead of on goods purchased. In case the association is both a seIling and a productive con- cern, the dividends may be on both raw material delivered and on goods purchased by patrons." The rule, so elementary as to re- 'luire no citation of authorities, is that a corporation being a creature of stat- ute has only those powers granted by statute and those powers necessarily implied from the powers expressly granted. Co-operative associations, formed under the provisions of Sec- tions 6375-6396, R. C. M. 1935, are corporal ions. (Section 6375, R. C. M. 1935; Anderson v. Equity Co-operative Assn .. 67 :'Ilont. 291. 293.) In simplified outline form the above- quoted section provides that the di- rectors of a co-operati ve association may (subject to revision by the stock- holders in meeting): I. pay dividends not exceeding 6% per annum on the par value of paid up capital stock; 2. Set aside, out of the balance of net profit remaining after payment of dividends. not less than 5% of net profits for a reserve fund until the reserve fund equals 30% of the paid up capital stock; 3. Set aside out of the balance then remaining 5% of the net profit for an educational fund to be used for teaching co-operation; and 4. Distribute the remainder of the net profits to patrons and employees in the manner provided. The statute expressly grants co- operative associations power to es- tablish a reserve fund but it expressly limits the amount which may be de- posited in said fund by granting the power to build up such a fund "until an amount has accumulated in said reserve fund amounting to thirty per cent. (30%) of the paid up capital stock." There is nowhere an implied power to exceed that limitation. By- laws of a corporation which are con- trary to or inconsistent with govern- ing statute are ultra vires and void. (14 C. J. 362, par. 460; 14 C. J. 364. par. 463.) It is therefore my opinion that the reserve fund of a co-operative asso- ciation, organized under the provisions of Sections 6375-6396, R. C. M. 1935, may not exceed an amount equal to 30% of the paid up capital stock of the association; nor may the by-laws make provision for a larger reserve fund.