Hawaii

Cooperatives Generally

Hawaii has statutes pertaining to Agricultural Cooperatives (HRS Chapter 421) and Consumer Cooperatives (HRS 421C), as well as Limited-Equity Housing Cooperatives (HRS Chapter 421H) and Cooperative Housing Corporations (HRS Chapter 421I). Hawaii’s Consumer Cooperative Association’s Act is the broadest of Hawaii’s co-op laws and includes electric utility cooperative associations, defined as “a consumer cooperative association that provides electric utility service as a public utility.” (HRS § 421C-1). Hawaii does not yet have a statute specifically pertaining to worker cooperatives.

At present, the majority of cooperatives involved in agriculture form under the Agricultural Cooperatives Associations Act. A few multi-stakeholder agricultural cooperatives have formed under the Consumer Cooperative Associations Act. Cooperatives other than those involved in agriculture or housing, generally use the Consumer Cooperative Associations Act. Limited-Equity Housing cooperatives are organized as nonprofit corporations under HRS, Chapter 414D (Hawaii Nonprofit Corporations Act). (HRS § 421H-1). Many Cooperative Housing Corporations are organized as domestic profit corporations. Unless inconsistent, the provisions of the Hawaii Business Corporation Act apply to Cooperative Housing Corporations. (HRS § 421I-11).

Hawaii’s Agricultural Cooperative Associations Act enacted in 1949 is based on the Uniform Agricultural Cooperative Associations Act. The same is true for many other states that have agricultural cooperative laws, resulting in less variation among state laws. For an interesting survey of Hawaii agricultural cooperatives in 1959, see “Agricultural Cooperatives in Hawaii – 1959”, C.W. Peters, Agricultural Economics Report No. 42, University of Hawaii, Dec. 1959. At that time, of the 27 agricultural cooperatives surveyed only 4 were stock corporations with all others set up on a membership fee plan. Various amendments have taken place throughout the years, with the most recent ones being in 2004 to: HRS § 421-6(e) on filing and recording of articles of incorporation; HRS § 421-23 on taxation; and HRS § 421-21.6 on mergers (aside from the repeal of an obsolete provision in 2008).

Hawaii’s Consumer Cooperative Associations Act was enacted in 1982. The impetus of the consumer co-op law was the desire to form a food cooperative on Oahu. It was last amended with a minor change to HRS § 421C-36 (exemption of voting stock from registration) in order to reference the updated securities law.  HRS § 421C-41 and § 421C-42 pertaining to electric utility cooperatives were added in 2005.

The legislature enacted the Limited-Equity Housing Cooperatives Act (HRS Chapter 421H) in 1987 and the Cooperative Housing Corporations Act (HRS Chapter 421I) in 1993.

Hawaii statutes have some specific restrictions and guidelines on use of the word “co-operative”. The Agricultural Cooperative Associations Act provides that “no domestic corporation not organized under this chapter shall use the word ‘cooperative’ as part of its name.” (HRS § 421-5). The later enacted Consumer Cooperative Associations Act provides that the name of the organization as set forth in the articles of incorporation “shall contain the word ‘cooperative’ or some abbreviation thereof notwithstanding section 421-5.” The laws pertaining to housing cooperatives do not specifically address use of the word “cooperative.”

Statutes

Agricultural Cooperatives Act (HRS Chapter 421)

Under the Agricultural Cooperatives Act:

An association may be organized for the purpose of engaging in any cooperative activity for producers of agricultural products in connection with:

(1) Producing, assembling, marketing, buying or selling agricultural products or harvesting, preserving, drying, processing, manufacturing, blending, canning, packing, ginning, grading, storing, warehousing, handling, shipping, or utilizing the products, or manufacturing or marketing the byproducts, thereof; provided seventy-five per cent of such agricultural products shall be of Hawaiian origin;

(2) Manufacturing, buying for or supplying to its members machinery, equipment, feed, fertilizer, fuel, seeds, and other agricultural supplies;

(3) Performing or furnishing business or educational services, on a cooperative basis, or to its members;

(4) Financing any of the above enumerated activities for its members.

HRS § 421-2.

Agricultural co-ops are one of the most common types of co-ops in Hawaii.

Examples

• Cacao Farmers of Hawaii
• Kala`ulu Cooperative
• Hawaii Swine Producers Cooperative
• United Kau Farmers Cooperative
• Hawaii Ulu Producers Cooperative
• Hawaii Island Energy Cooperative
• Friends with Farms Cooperative
• Mala Kalu ulu Cooperative
• Hawaii Island Meat Cooperative
• Maui Aquapnoics Workers Cooperative
• Makakuoha Cooperative
• Hikiloa Agriculture Cooperative
• Hamakua Agricultural Cooperative
• Hawaii Cattle Producers Cooperative Association
• Hilo Farm Supply
• Kamuela Vaccum Cooling Cooperative
• Molokia Livestock Cooperative
• Kau Coffee Growers Cooperative
• Kona Pacific Farmers Cooperative
• Whispering Pines Bamboo Cooperative
• Wood Valley Ag Water Cooperative

Consumer Cooperatives Act (HRS 421C)

Under the Consumer Cooperatives Act:

“Consumer cooperative association” means a group enterprise, organized on a cooperative basis and incorporated under this chapter such that:

(1) Each member has one vote and only one vote, except as may be altered in the articles or bylaws of a secondary cooperative by provision for voting by member organizations;

(2) The maximum rate at which any return is paid on share or membership capital is limited; and

(3) The allocation or distribution of net savings after making provision for such separate funds as may be required or specially permitted by statute, articles, or bylaws, is made to member patrons or to all patrons, in proportion to their patronage; or is allocated in a manner which benefits the general welfare of all of the members of the association.

HRS § 421C-1.

The Consumer co-op law is Hawaii’s broadest co-op law. An association may be incorporated under the Consumer co-op law “for the purpose of transacting any lawful business for its membership, the general public, or both.” HRS § 421C-2.

Examples

• Kokua Country Foods Cooperative
• Kauai Island Utility Cooperative
• Hawaii Nonipower Cooperative
• Waimanalo Market Co-op

Limited-Equity Housing Cooperatives (HRS Chapter 421H)

Under the Limited-Equity Housing Cooperatives Act:

“Limited-equity housing cooperative” means a stock cooperative corporation which is organized as a nonprofit corporation under chapter 414D for the purpose of holding title to, either in fee simple or for a term of years, improved real property, if all or substantially all of the shareholders of such corporation receive a right of exclusive occupancy in a portion of the real property, title to which is held by the corporation, which right of occupancy is transferable only concurrently with the transfer of the share or shares of stock in the corporation held by the person having such right of occupancy; provided the corporation also:

(1) Is organized so that the consideration paid for an individual membership share by the first occupant following construction or acquisition by the corporation, including the principal amount of obligation incurred to finance the membership share, does not exceed seven per cent of the respective dwelling unit’s development cost, acquisition cost, or of the fair market value appraisal by the permanent lender, whichever is greater; and

(2) Holds title to real property as the beneficiary of a trust providing for distribution for public or charitable purposes upon termination of the trust; or

(3) Holds title to real property subject to conditions which will result in reversion to a public or charitable entity for affordable housing upon dissolution of the corporation; or

(4) Holds a leasehold interest conditioned on the corporation’s continued qualification under this chapter and providing for reversion to a public entity or charitable corporation for affordable housing.

HRS § 421H-1.

Cooperative Housing Corporations (HRS Chapter 421I)

Under the Cooperative Housing Corporations Act, a cooperative housing corporation is one that:

(1) Has one and only one class of stock outstanding;

(2) Allows each tenant shareholder to occupy a dwelling unit for dwelling purposes solely by reason of the tenant shareholder’s ownership of stock in the corporation;

(3) Does not allow a shareholder to receive, either conditionally or unconditionally, any distributions from the corporation except when there is a complete or partial liquidation of the corporation; provided that this paragraph does not apply to earnings and profits of the corporation; and

(4) Has eighty per cent or more of the gross income for the taxable year in which taxes are paid or incurred pursuant to 26 United States Code section 216(A) derived from tenant shareholders.

HRS § 421I-1.

Examples

There a number of cooperative condominiums on Oahu’s Gold Coast:

• Diamond Head Ambassador Hotel, Ltd.
• Tahitienne Inc. Condos
• Sans Souci, Inc.

Other Statutes

Hawaii does not currently have a Limited Cooperative Associations Act.

In 2011 Hawaii enacted a Sustainable Business Corporations Act. The law provides that “a domestic corporation incorporated under chapter 414 [the Hawaii Business Corporation Act] may elect to become a sustainable business corporation under this chapter by including in its articles or amending its articles to include a statement that the corporation is a sustainable business corporation.” HRS § 420D-3.  This wording limits the options for cooperatives to be sustainable business corporations since most are incorporated under statutes pertaining to the specific type of cooperative. Hawaii’s co-op laws may, however, in the future be amended to incorporate the Sustainable Business Corporations Act.

Major Cases

Hawaii has very little in terms of case law on cooperatives and practitioners often look to case law from other states.

Hawaiian Properties, Ltd. v. Tauala, 125 Haw. 176, 184, 254 P.3d 487, 495 (Ct. App. 2011)- “Ownership of a cooperative membership, combined with the right to occupy a unit in the cooperative project, is a form of property ownership, even though cooperative owners do not directly hold the title to their properties. This form of home ownership is unlikely to have the economic value of fee simple ownership or a conventional long-term leasehold interest, but it has value and constitutes a right of property beyond mere possession.”

Issues of Note

There is an active effort to advance a general cooperative statute in Hawaii based on many provisions of Colorado’s cooperative statute (Article 56) and California’s Cooperative Corporation Law, in particular its worker cooperative provisions. The purpose of the general cooperative statute is to embrace a broad and flexible approach, adhering to accepted cooperative principles while encouraging cooperatives to be organized for most lawful purposes. Adopting a general cooperative statute would encourage use of the cooperative model by allowing many different types of business activities to form as cooperatives and by allowing diverse stakeholders to join together in a single cooperative.

State Specific Secondary Sources

Numerous general and state specific resources organized by topic are available on The Kohala Center’s website at https://kohalacenter.org/business/resources

Cooperative Support Organizations

The Kohala Center, Rural and Cooperative Business Development Services (https://kohalacenter.org/business)

University of Hawaii, College of Tropical Agriculture and Human Resources, Cooperative Extension Office (https://www.ctahr.hawaii.edu/Site/ExtOffice.aspx)

Hawaii Based Cooperative Professionals and Business Resources

Elizabeth Dunne, Esq.
Dunne Law, LLLC
edunnelaw@gmail.com
(808) 554-1409

Teresa Young
Rural Cooperative Business Development Specialist
The Kohala Center
808-887-6411 office
808-885-6707 fax
P.O. Box 437462
Kamuela, HI 96743
www.kohalacenter.org

Teresa Castanias, CPA
7401 Pedrick Road
Dixon, California  95620
(916) 761-8686
(866) 365-3772 fax
tcastanias@aol.com
www.castaniascpa.com

Authors

Elizabeth Dunne, Esq.
Dunne Law, LLLC
edunnelaw@gmail.com
(808) 554-1409

Teresa Young
Rural Cooperative Business Development Specialist
The Kohala Center
808-887-6411 office
808-885-6707 fax
P.O. Box 437462
Kamuela, HI 96743
www.kohalacenter.org