C.R.S. Title 7, Article 58), IRC § 704(b) and Treas. Reg. § 1.704-1(b), and cooperative governance principles. Tax treatment confirmed as Subchapter K (partnership). Proposed language is a starting point for Jeff's redraft — not final legal advice.
| # | Issue | Priority | Blocking board authorization? |
|---|---|---|---|
| 1 | Net Profit Allocation — equal share contradicts ULCAA and undermines IRC 704(b) | High | Yes — blocking |
| 2 | Suspension — no prior notice before stripping owner-member rights | High | Depends on bylaws dispute resolution |
| 3 | Quorum — "in person" requirement conflicts with hybrid membership and electronic meetings | High | Advisable |
| 4 | Schedule A — share price and dues are unfilled placeholders | High | Yes — blocking (bylaws cannot be effective) |
| 5 | Compensation — guaranteed payments not carved out from employee compensation prohibition | Medium | Yes if members will be compensated |
| 6 | Redemption window — five-year outer limit conflicts with Membership Agreement v.2 (90 days) | Medium | Yes — needs reconciliation |
| 7 | Confidentiality — no standard exceptions; sweeps too broad for a cooperative of practice | Medium | Advisable |
| 8 | Conflict hierarchy — implies ULCAA yields to bylaws; PBCA citation questionable | Medium | Advisable |
The Patronage Plan link ensures the allocation methodology is adopted through a member-consent process rather than unilateral board revision. Both should use the same proportionality basis — patronage for profits, capital account balance for losses is the permissible combination under the regulations, but only if the same member who has a larger capital account also contributed more patronage. If patronage and capital account balance diverge, the allocation methodology should state explicitly which controls for which type of income/loss.
If you bill 20 hours of client work through the co-op and another member bills 2 hours, you receive a larger share of the profits. Equal splits reward lower contributors disproportionately and penalize higher contributors. The specific way contributions are measured will be set in a Patronage Plan that the board adopts and members vote on — it can't be changed without majority member approval.
Layer 1 — ULCAA default allocation (C.R.S. § 7-58-1004). The statute provides that net margins shall be allocated to patron members "in proportion to the members' patronage of the association during the period." "Allocated equally" means each member receives the same dollar amount regardless of their actual contribution to the cooperative's revenue-generating activity. Equal allocation is not the same as proportional-to-patronage allocation. For a cooperative of practitioners where some members bill twenty hours of client work per month and others bill two, equal allocation rewards the lower contributor disproportionately and penalizes the higher contributor. This directly contradicts the cooperative principle of members' economic participation and the statute's default.
Layer 2 — IRC § 704(b) substantial economic effect. For Subchapter K, allocations must either (a) have substantial economic effect per Treas. Reg. § 1.704-1(b)(2), or (b) be consistent with the members' interests in the partnership per § 1.704-1(b)(3). The asymmetry between equal profit allocation and loss allocation proportional to capital accounts creates a capital account maintenance problem: if two members have different capital account balances (because one contributed more or received larger prior allocations), equal profit allocation means the member with the smaller account receives a disproportionately large share relative to their economic stake. This may fail the substantial economic effect test because it doesn't track actual economic arrangement.
Additionally, unconstrained Board discretion to "develop, review, and revise the methodology" without member consent violates C.R.S. § 7-58-1004's proportionality baseline and undermines the Patronage Plan the Membership Agreement requires the Board to adopt.
The Patronage Plan link ensures the allocation methodology is adopted through a member-consent process rather than unilateral board revision. Both should use the same proportionality basis — patronage for profits, capital account balance for losses is the permissible combination under the regulations, but only if the same member who has a larger capital account also contributed more patronage. If patronage and capital account balance diverge, the allocation methodology should state explicitly which controls for which type of income/loss.
The exception for ground (b) (criminal/fraud conduct) preserves the board's emergency power. The 30-day post-suspension hearing and 10-business-day written determination requirements ensure the suspension remains a temporary measure subject to procedural review, not a de facto expulsion.
Except for criminal conduct, you get 5 business days' written notice and can submit a response before any suspension takes effect. If you are suspended, you're entitled to a hearing within 30 days. As an owner-member with equity in the co-op, you deserve at minimum the chance to tell your side before your membership rights are cut off.
Patron members are owner-members of the Cooperative, not at-will participants. Suspension strips a member of all participation rights — access to cooperative services, voting, governance involvement — for up to 180 days, effective immediately, with no notice and no opportunity to respond. This is a more sudden deprivation than termination (which at least requires 14-day notice and a hearing).
For categories (a) "violated any resolution, rule or policy" and (c) "disruptive to orderly operation or frustrated the Cooperative's purpose or efforts" — these are broad, subjective standards. A cooperative of practitioners will regularly have members who disagree with board decisions. Immediate suspension for "frustrating the Cooperative's purpose or efforts" creates a chilling effect on legitimate member dissent.
C.R.S. § 7-58-1101 preserves the member's right to dissociate; C.R.S. § 7-58-1101(2) allows the operating agreement (including bylaws) to specify when dissociation is wrongful, but the statute does not authorize unlimited summary deprivation of member rights. Good cooperative governance practice requires at minimum: written notice of the specific conduct alleged, and some opportunity to respond before the deprivation takes effect (except for emergency circumstances such as actual criminal conduct).
The exception for ground (b) (criminal/fraud conduct) preserves the board's emergency power. The 30-day post-suspension hearing and 10-business-day written determination requirements ensure the suspension remains a temporary measure subject to procedural review, not a de facto expulsion.
Jeff should confirm that the companion voting provisions (§ 2.6, § 2.8) consistently treat electronic participation as valid, since a quorum fix that is not matched by voting-provision fixes would create a new inconsistency.
This is a straightforward fix: people attending electronically count toward quorum, the same as those in the room. It aligns the quorum rule with the meeting format the bylaws already permit.
The quorum provision requires members to be "present and in person." Under a plain reading, members attending by video or telephone conference would not count toward quorum, because they are not "in person." This means a meeting of 10 members with 6 attending electronically and 3 attending in person would not have a quorum — even though 9 of 10 members are effectively present.
The Cooperative's governing documents explicitly contemplate hybrid and fully electronic meetings (§ 2.1). The quorum provision should match. The phrase "present and in person" appears to be standard boilerplate for an in-person entity — it was not updated for an LCA that expressly permits electronic attendance.
Jeff should confirm that the companion voting provisions (§ 2.6, § 2.8) consistently treat electronic participation as valid, since a quorum fix that is not matched by voting-provision fixes would create a new inconsistency.
The $100 share price must match the Membership Agreement; if they differ, the governing document for redemption mechanics must be identified. Any founding member dues waiver should be documented separately rather than left to implication in Schedule A.
These are administrative items for the board to confirm. The share price must match the Membership Agreement. Any founding member dues waiver should be documented separately.
The bylaws cannot be effective with material financial terms left blank. The Membership Agreement v.2 references $100 per share of Patron Stock. Schedule A must be completed before the bylaws are authorized.
The Board retains discretion to revise these amounts, so the specific values in Schedule A will be the initial values subject to future Board adjustment.
Three other blanks must be filled before execution:
- Effective date in title block and Certificate: "[MARCH XX], 2026"
- Initial Board composition (§ 3.2.2): "[…]"
- Secretary signature on Certificate: "[…], Secretary"
The $100 share price must match the Membership Agreement; if they differ, the governing document for redemption mechanics must be identified. Any founding member dues waiver should be documented separately rather than left to implication in Schedule A.
Guaranteed payments are deductible by the entity, ordinary income to the member, and reported on Schedule K-1 — the standard compensation mechanism for working partners. Without this carve-out, the bylaws arguably prohibit compensating working members at all while the partnership election is in effect. Before the first fiscal year, the board should adopt a resolution clarifying the form and process for member compensation under § 707(c).
This change clarifies: the co-op can pay members for services through a "guaranteed payment" — the tax-law-approved way to compensate working partners. You'd receive it as ordinary income and it shows up on your Schedule K-1 each year. Without this clarification, the bylaws could be read to prohibit paying members for any services while the partnership tax election is in effect.
This provision correctly recognizes that member-partners cannot be W-2 employees while the entity is taxed as a partnership. Under Treas. Reg. § 31.3121(d)-1(b) and IRS Rev. Rul. 69-184, partners cannot be employees of their own partnership. However, IRC § 707(c) provides the correct mechanism for compensating members for services: guaranteed payments. Guaranteed payments are deductible by the Cooperative (as business expenses), included in the member's ordinary income, and reported on Schedule K-1.
The current provision says "no salary or other compensation as an employee." This is accurate as to employment compensation, but if read broadly, it could be interpreted to prohibit guaranteed payments — which are not employee compensation but are the correct and legally required substitute. For a cooperative of practitioners whose members may be performing services for the Cooperative, this ambiguity creates real operational risk: members may believe they cannot be compensated at all while the partnership election is in effect.
IRC § 707(a), and disclosed to and approved by the Board."
Guaranteed payments are deductible by the entity, ordinary income to the member, and reported on Schedule K-1 — the standard compensation mechanism for working partners. Without this carve-out, the bylaws arguably prohibit compensating working members at all while the partnership election is in effect. Before the first fiscal year, the board should adopt a resolution clarifying the form and process for member compensation under § 707(c).
Three years preserves Board flexibility as an outer backstop while reducing the mismatch with the entity's actual capital profile and the solvency protection under C.R.S. § 7-58-1007. The bylaws and Membership Agreement must be explicit about which document controls redemption mechanics — Jeff should identify the controlling document before either is authorized.
This change reduces the outer limit to 3 years. The target is still to pay within 90 days (as stated in the Membership Agreement), but 3 years is the backstop if circumstances delay it. The two documents — bylaws and Membership Agreement — need to agree on the timeline.
The bylaws provide a five-year outer limit with full Board discretion on timing. The Membership Agreement v.2 proposes a 90-day obligation at par value. These provisions directly conflict. A member reading the Membership Agreement would expect redemption within 90 days; the bylaws give the Board up to five years.
For a $100 share, a five-year redemption delay is disproportionate to the Cooperative's likely exposure. The five-year outer limit is appropriate for organizations with large, illiquid capital accounts (e.g., agricultural cooperatives with hundreds of thousands in retained patronage). For an LCA with a $100 initial membership share, 120 days or 90 days is more appropriate.
The two documents should be reconciled. Recommended approach: retain the 120-day "shall consider distributing" language from § 1.11.1 as the target, but set a three-year (rather than five-year) outer limit, subject to C.R.S. § 7-58-1007. The Membership Agreement's 90-day language can reference the bylaws for the controlling mechanics.
Three years preserves Board flexibility as an outer backstop while reducing the mismatch with the entity's actual capital profile and the solvency protection under C.R.S. § 7-58-1007. The bylaws and Membership Agreement must be explicit about which document controls redemption mechanics — Jeff should identify the controlling document before either is authorized.
The replacement is standard commercial confidentiality language — it protects genuine trade secrets and member information while allowing members to describe their cooperative involvement publicly, consult legal counsel, and comply with legal obligations. The "reasonable person" scope standard replaces the undefined "any and all information received by or through the Cooperative."
This change is standard: it protects genuinely private information — trade secrets, client details, member financial information — while allowing you to describe your membership publicly, talk to your lawyer or accountant, and share information that's already publicly available. It also adds a clear path for situations where you're legally required to disclose (a subpoena, for example).
The confidentiality obligation has no carve-outs. For a cooperative of practitioners operating in public professional communities, the following omissions create operational and legal risk:
(a) No public domain exception — information that becomes publicly known through no fault of the member is still covered by the obligation.
(b) No prior knowledge exception — information the member knew before joining the Cooperative is still covered.
(c) No independent development exception.
(d) No required disclosure exception — if a member receives a subpoena or is required by law to disclose.
(e) No general membership description exception — members cannot describe their cooperative membership or involvement in public professional contexts without risking breach.
(f) No legal counsel exception — members presumably can consult attorneys, but the current language requires their counsel to maintain confidence "to the same degree and extent" as the member, which is an unusual expansion of the restriction.
For a Public Benefit LCA that publishes an annual benefit report (Article XV), sweeping confidentiality over "all information received by or through the Cooperative pertaining to... operations, activities or transactions" creates tension with the transparency obligations the Cooperative has voluntarily undertaken.
The replacement is standard commercial confidentiality language — it protects genuine trade secrets and member information while allowing members to describe their cooperative involvement publicly, consult legal counsel, and comply with legal obligations. The "reasonable person" scope standard replaces the undefined "any and all information received by or through the Cooperative."
The PBCA reference is replaced with C.R.S. § 7-58-104 because the PBCA governs public benefit corporations; RegenHub's public benefit LCA status is governed by § 7-58-104 within the ULCAA itself, not the corporate act. Jeff should confirm whether the PBCA reference was intentional (if so, the rationale should be stated explicitly) or a template artifact from a public benefit corporation form.
This change puts mandatory state law above the bylaws in the conflict hierarchy. It also corrects a citation error: the bylaws referred to the Colorado Public Benefit Corporation Act, which governs corporations. Techne is a cooperative, not a corporation. The correct law is the LCA (Limited Cooperative Association) section of Colorado statute.
First — non-waivable ULCAA provisions. The priority hierarchy places the ULCAA below the Articles and Bylaws. Under Colorado law, certain provisions of the ULCAA are non-waivable even by Articles or Bylaws — see C.R.S. § 7-58-110 (specifying which ULCAA provisions can and cannot be varied). For example, the member's right to dissociate (C.R.S. § 7-58-1101(1)) cannot be eliminated by the bylaws. The current hierarchy implies that Articles and Bylaws always prevail over the ULCAA, which would be incorrect for mandatory statutory provisions.
Second — PBCA citation appears inapplicable. The PBCA (C.R.S. Title 7, Article 101, Part 5) is the Colorado Public Benefit Corporation Act, which governs corporations. RegenHub is an LCA, not a corporation. The public benefit provisions applicable to a Colorado Public Benefit LCA are found in C.R.S. § 7-58-104 (public benefit LCA provisions within the ULCAA itself), not in the Public Benefit Corporation Act. The PBCA citation appears to be boilerplate from a public benefit corporation template and may be inapplicable. If Jeff intended to incorporate public benefit corporation principles by analogy, that intent should be stated explicitly; if the citation is simply incorrect, it should be replaced with C.R.S. § 7-58-104 and related ULCAA public benefit provisions.
The PBCA reference is replaced with C.R.S. § 7-58-104 because the PBCA governs public benefit corporations; RegenHub's public benefit LCA status is governed by § 7-58-104 within the ULCAA itself, not the corporate act. Jeff should confirm whether the PBCA reference was intentional (if so, the rationale should be stated explicitly) or a template artifact from a public benefit corporation form.
The existing analysis flags equal allocation as contrary to the ULCAA default and IRC § 704(b). This read adds a specific mechanism problem: § 5.3.2 uses may be allocated equally as a fallback for the period before a Patronage Plan exists. For an allocation to carry substantial economic effect under IRC § 704(b), the method must be fixed in advance, not left optional. A permissive default leaves the opening fiscal period without a determinate allocation rule.
MA § 2.4 defers the Patronage Plan until ninety days after the first patron member is admitted. For the opening fiscal period there will likely be no Plan, and the fallback in § 5.3.2 reads that profit may be allocated equally. For the alternative test for economic effect, the allocation method must be specified before any income or loss is allocated. A "may" leaves a gap between when members are admitted and when the Plan is adopted.
The fix is one word: replace "may be allocated equally" with "shall be allocated equally per capita among patron members in good standing until the Board ratifies a Patronage Plan." This closes the opening-period gap and removes the daylight between the patronage rule and its fallback.
The existing analysis flags § 4.8 for needing a § 707(c) guaranteed-payments carve-out. This read identifies a second problem within the same section: the two paragraphs directly contradict each other, meaning the fix is not just an addition but a conforming revision.
The first paragraph correctly bars a member from drawing a W-2 salary while the entity is a partnership — the long-settled rule of Rev. Rul. 69-184 — and routes pay through guaranteed payments under IRC § 707(c). The second paragraph then says no officer is prevented from receiving a salary by reason of being a member. This re-opens precisely the exception the first paragraph just foreclosed. As currently drafted, the two paragraphs cannot both be followed.
§ 5.1.5 correctly says liquidating distributions follow positive capital-account balances, consistent with what IRC § 704(b) requires for the alternate test for economic effect. Article XIV § 14.3 then sends any residual equally to current and three-year former members.
If capital accounts have already absorbed the final gain or loss allocation — as they should under § 5.1.5 — there should be nothing left to distribute equally. A separate equal-distribution tier that does not track capital accounts can break substantial economic effect because it produces an outcome not consistent with the members' actual economic arrangement.
ULCAA recognizes two member classes: patron members (who patronize the cooperative) and investor members (who provide capital). A Community Participant described as "a member with access to programming" who neither patronizes as a patron member nor invests as an investor member does not fit cleanly into either statutory category.
§ 1.1(c) leaves governance rights for this class to Board discretion, which creates ambiguity across voting rights, capital account treatment, and Schedule A (where Community Participant share price and dues are placeholders alongside the other classes).
Waiving the right to a jury trial is routine and the Membership Agreement's own § 9.9 jury waiver is clean. Bylaws § 11.5 goes further and waives all rights to seek remedies in any court. This is a qualitatively different waiver — it forecloses judicial access entirely, not just the jury.
Paired with a Board hearing in which the Board may itself be a party to the dispute (disputes between members and the Board over governance decisions), the breadth of § 11.5 invites a fairness challenge to enforceability. A member who cannot get a neutral adjudicator when the cooperative is the adverse party has no meaningful dispute resolution path.
Bylaws can govern their own amendment. Article XII, however, also sets a voting threshold for amending the Articles of Organization. Article amendments are a state-law matter: they follow the ULCAA's statutory procedure and require a filing with the Colorado Secretary of State. A bylaw-set threshold for article amendments could be misread as the controlling rule, potentially creating confusion about whether a bylaw amendment is also needed whenever the Articles are amended.
The research read affirms the following provisions as well-constructed and not requiring revision: the capital-account rules in § 5.1, the qualified income offset in § 5.3.4, and the no-deficit-restoration posture in § 5.6. Together these form the standard alternate test for economic effect used by a partnership that does not impose a deficit restoration obligation — an appropriate posture for an early-stage cooperative.
The guaranteed-payment handling under § 707(c) is correct in principle (the internal contradiction in the second paragraph of § 4.8, addressed above, is a drafting problem, not a structural error). The consent-to-tax provisions in §§ 1.10 and 6.1 are clear and consistent with the Subchapter K election.