RELATING TO COOPERATIVE ASSOCIATIONS.

HB2404

HOUSE OF REPRESENTATIVES

H.B. NO.

2404

THIRTY-THIRD LEGISLATURE, 2026

STATE OF HAWAII

A BILL FOR AN ACT

RELATING
TO COOPERATIVE ASSOCIATIONS
.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

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SECTION
1.
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The legislature finds that
cooperative enterprises are vital to Hawaii's economic, cultural, and
agricultural resilience; however, existing cooperative statutes are outdated,
fragmented, and do not adequately serve emerging cooperative models.
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Hawaii currently relies on four
sector-specific statutes � chapter 421 (agricultural cooperative
associations), chapter 421C (consumer cooperative associations), chapter 421H
(limited-equity housing cooperatives), and chapter 421I (cooperative housing
corporations), Hawaii Revised Statutes � in addition to the general
corporation law codified in chapter 414, Hawaii Revised Statutes.
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This patchwork framework increases legal
complexity and formation costs, creates uncertainty regarding tax and
regulatory treatment, and limits access to cooperative-specific financing and
technical assistance.
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It also prevents
worker-owned, multi-stakeholder, service, and platform cooperatives from
organizing as cooperatives under Hawaii law, forcing them into corporate forms
that do not recognize cooperative principles or democratic governance and
profit-sharing based on member patronage.

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The
legislature further finds that Hawaii has numerous successful cooperatives.
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As of 2023, Hawaii is home to forty-seven
federally insured credit unions serving approximately 869,628 members, with
total assets of $15,239,670,466.
�
Kaua
ʻ
i Island Utility
Cooperative achieved 57.9 per cent renewable energy generation in 2023 while
maintaining the lowest residential electricity rates in the State.
�
Agricultural cooperatives such as the Hawai
ʻ
i
ʻ
Ulu Cooperative,
Molokai Livestock Cooperative, and Kamuela Vacuum Cooling Cooperative
strengthen food security and sovereignty, restore degraded lands, and expand
access to local products.
�
Each year, new
cooperatives form to support water and energy projects, housing, and
diversified agriculture, helping to reduce reliance on imports and keep wealth
circulating within the islands.

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The
legislature additionally finds that modern cooperative forms � such
as worker-owned and multi-stakeholder cooperatives � are being used
across the United States and internationally to improve economic resilience,
job quality, and community wealth.
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In
these models, workers, producers, consumers, and community stakeholders may all
be members of a single cooperative, aligning interests across the value chain
in sectors including food systems, renewable energy, childcare, health care,
and social services.
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Worker-owned
cooperatives have been shown to provide more equitable wages, retain profits
locally, and prioritize job retention during economic downturns.
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Flexible general cooperative statutes in other
states, such as Colorado's Uniform Limited Cooperative Association Act and
California's cooperative law, allow cooperatives to form for any lawful
purpose, accommodate both patron and worker ownership, and give cooperatives
authority to design membership and governance structures consistent with
cooperative principles while maintaining democratic member control.

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A general
cooperative statute will reduce legal complexity, lower barriers to formation,
and support business succession, innovation, local and employee ownership,
high-quality jobs, cooperative food systems, flexible housing models, and
community-rooted resilience.

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Accordingly,
the purpose of this Act is to establish the General Cooperative Associations
Act to create a unified, flexible legal framework for all cooperative
enterprises in Hawaii.
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The Act will:

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(1)
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Enable cooperatives to form for any lawful
purpose;

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(2)
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Permit multiple classes of members, including
producers, consumers, workers, patrons, and other stakeholders as defined in
their bylaws;

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(3)
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Support worker-owned and multi-stakeholder
structures;

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(4)
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Preserve democratic member control and governance
on a one-member, one-vote basis;

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(5)
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Enable member economic participation through
patronage-based distributions; and

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(6)
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Allow existing agricultural and consumer
cooperative associations to elect governance under this new chapter.

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SECTION
2.
�
The Hawaii Revised Statutes is
amended by adding a new chapter to be appropriately designated and to read as
follows:

"
Chapter

GENERAL COOPERATIVE ASSOCIATIONS

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� -1
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Short title.
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This chapter may be cited as the General
Cooperative Associations Act.

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� -2

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Definitions.
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As used in this chapter:

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"Cooperative"
means an entity organized under this chapter.

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"Cooperative
principles" means the internationally recognized principles of:

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(1)
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Voluntary and open membership;

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(2)
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Democratic member control;

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(3)
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Member economic participation;

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(4)
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Autonomy and independence;

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(5)
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Education, training, and information;

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(6)
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Cooperation among cooperatives; and

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(7)
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Concern for community.

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"Member"
means a person admitted to membership in a cooperative as provided in its
bylaws, with limited liability for the obligations of the cooperative.

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"Net
margins" means the revenues of the cooperative remaining after deducting
operating costs and other expenses.

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"Patron"
means a member or other person who conducts business with the cooperative or
uses the cooperative's services as specified in the bylaws.

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"Patronage"
means the business, services, or transactions conducted with or through the
cooperative by a patron, including but not limited to:

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(1)
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For worker members, labor contributed to the
cooperative, measured by hours worked, wages earned, or other measures as
specified in the bylaws;

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(2)
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For producer members, products or services
supplied to the cooperative;

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(3)
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For consumer members, products or services
purchased from the cooperative; and

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(4)
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For community members, other contributions as
defined in the bylaws.

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"Person"
means an individual, partnership, corporation, limited liability company,
association, or any other legal entity recognized under the laws of the State.

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� -3
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Purposes; characteristics.

�
(a)
�
A
cooperative may be organized under this chapter for any lawful purpose, except
for purposes requiring organization under a specialized statute, including but
not limited to banking or insurance.

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(b)
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A cooperative organized under this chapter
shall:

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(1)
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Operate for the mutual benefit of its members
as patrons;

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(2)
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Be democratically controlled by its members;
and

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(3)
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Distribute its net margins on the basis of
member patronage.

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(c)
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A cooperative shall be organized and shall
conduct its business primarily for the mutual benefit of its members as
patrons, and not primarily to make a profit for itself or for its members as
such.

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� -4
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Formation; articles of incorporation;
applicability of other chapters; registration.
�

(a)
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Three or more persons may
form a cooperative by executing and filing articles of incorporation in
accordance with chapter 414D, unless otherwise provided in this chapter.

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(b)
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The articles of incorporation shall include:

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(1)
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The name of the cooperative, which shall include
the word "cooperative", "co-op", "coop", or an
abbreviation thereof;

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(2)
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The principal office location of the
cooperative;

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(3)
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The name and address of the initial registered
agent of the cooperative;

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(4)
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The cooperative's statement of purpose;

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(5)
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Whether the cooperative will issue membership
certificates, membership shares, or no-par membership interests;

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(6)
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The names and addresses of the initial
directors;

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(7)
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Whether the voting power or proprietary
interests of the members are equal or unequal; and

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(8)
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If voting power or proprietary interests are
unequal, either the general rules for determining voting power and proprietary
interests or a statement that the rules shall be prescribed in the bylaws.

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(c)
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Except as otherwise provided in this chapter,
chapter 414D shall govern the formation and filing requirements of
cooperatives, including fees and procedures.

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(d)
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Upon formation, the cooperative shall
register with the department of commerce and consumer affairs and provide any
information the department may reasonably require.

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� -5
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Amendments of articles of incorporation; member
voting requirements.
�
(a)
�
A cooperative may amend its articles of
incorporation as provided in chapter 414D and this section.

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(b)
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An amendment shall be approved by the board of
directors and, except as otherwise provided in this section or the bylaws, by
the affirmative vote of a majority of the votes cast by members present and
voting at a duly held meeting.

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(c)
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If an amendment affects the rights,
privileges, preferences, or restrictions of a particular class of members, that
class shall vote separately to approve the amendment.

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(d)
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Any amendment to dissolution or asset distribution
provisions shall require the affirmative vote of two-thirds of members present
and voting.

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� -6

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Bylaws; adoption and amendment;
contents; consistency.
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(a)
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Bylaws shall be adopted at the time of
organization or shortly thereafter and may be amended by the members as
provided in the bylaws.
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Initial bylaws may
be adopted by the board of directors; thereafter, bylaws shall be amended as
provided in the bylaws.

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(b)
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The bylaws may include provisions relating
to:

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(1)
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Membership qualifications and classes;

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(2)
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Member voting rights and procedures;

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(3)
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Director election, appointment, removal, and
succession;

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(4)
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Director and officer duties and compensation;

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(5)
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Board meeting procedures and authority;

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(6)
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Member meeting procedures and notice
requirements;

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(7)
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Capital accounts and capital contributions;

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(8)
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Patronage allocation and distribution methods;

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(9)
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Reserved member rights;

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(10)
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Dispute resolution procedures;

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(11)
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Indivisible reserves;

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(12)
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Member withdrawal and expulsion;

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(13)
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Merger, consolidation, or dissolution
procedures; and

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(14)
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Any other matter authorized by this chapter or
deemed necessary for cooperative governance.

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(c)
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The bylaws shall be consistent with the
cooperative principles and this chapter.

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� -7

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Membership; admission; classes; rights
and responsibilities; voting; limited liability.
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(a)
�
A
cooperative shall admit members as provided in its bylaws.

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(b)
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A cooperative may establish one or more
classes of members, which may include but are not limited to:

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(1)
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Worker members;

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(2)
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Producer members;

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(3)
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Consumer members;

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(4)
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Patron members; and

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(5)
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Other stakeholder classes as defined in the
bylaws.

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(c)
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The rights, voting power, obligations, and
limitations of liability of each class of members shall be set forth in the
bylaws.

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(d)
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Unless otherwise provided in the bylaws, each
member shall have one vote in matters submitted to a vote of the members.

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(e)
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Members shall not be personally liable for
the debts, obligations, or liabilities of the cooperative beyond the amount of
their capital contribution, except as otherwise provided by law.

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� -8

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Meetings of members; procedures; voting.
�
(a)
�

The cooperative shall hold an annual meeting of members to elect
directors, receive reports, discuss cooperative business, and address other
matters as provided in the bylaws.

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(b)
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Special meetings of members may be called as
provided in the bylaws, including upon written request of the board of directors,
upon written request of members holding no less than one-tenth of the voting
power, or by any other procedures specified in the bylaws.

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(c)
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Notice, quorum, and voting procedures shall
be as provided in the bylaws and shall comply with the applicable requirements
of chapter 414D unless modified by this chapter or the bylaws.

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(d)
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Except as otherwise provided in this chapter
or the bylaws, each member shall have one vote per matter submitted to the
members.
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Members may vote in person or
by proxy as provided in the bylaws.

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� -9

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Governance and board of directors;
structure; composition; elections; fiduciary duties; meetings.
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(a)
�
The
business and affairs of the cooperative shall be managed by a board of
directors consisting of no fewer than three and no more than nine members,
unless the bylaws provide otherwise.

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(b)
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The bylaws may allocate director positions
among member classes.
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In the absence of an
allocation, directors shall be elected at large by all voting members.

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(c)
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Directors shall be elected by the members on
a one-member, one-vote basis, in accordance with the procedures set forth in
the bylaws and applicable law.

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(d)
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Directors shall have the fiduciary duties of
care and loyalty applicable to directors under chapter 414D, unless otherwise
provided in this chapter.

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(e)
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The board of directors shall meet as provided
in the bylaws, with notice and procedures consistent with chapter 414D.

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(f)
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Notwithstanding the board structure
requirements of this section, a cooperative may operate under a collective
governance model in which all members participate directly in decision-making;
provided that the model is specified in the articles of incorporation and
bylaws and is approved by vote of the members.

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� -10

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Distribution of net margins; patronage;
returns; reserves.
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(a)
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The bylaws shall provide the method for
distributing net margins.
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Distributions
shall be made to members and patrons and shall be based upon their patronage as
defined in the bylaws.

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(b)
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Patronage distributions may be paid in cash,
capital credits, allocated equity, patronage dividends, property, evidences of
indebtedness, services, or in any other form consistent with cooperative
principles and as determined by the cooperative.

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(c)
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The cooperative may pay a reasonable return
on capital contributions as specified in the bylaws; provided that
distributions on capital contributions shall not exceed the rate specified in
the bylaws and shall not exceed what is reasonably necessary to retain capital
for business operations.

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(d)
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The cooperative may retain portions of net
margins in unallocated reserves for business operations, capital needs, or
other purposes as determined by the members.

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(e)
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The cooperative may establish indivisible
reserves as authorized in the bylaws.
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The reserves, or a percentage of net margins, shall not be distributed
to members or patrons but shall be retained by the cooperative or, upon
dissolution, distributed to a designated cooperative development organization,
federation, or other cooperative entity as specified in the bylaws.

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� -11

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Conversions; existing cooperatives
electing to be governed by this chapter; filing and fees; effective date.
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(a)
�

Any domestic cooperative association formed under chapter 421 or 421C
may elect to be governed by this chapter upon approval of its members by a vote
of two-thirds of the members present and voting at a duly held membership meeting
or by written ballot.

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(b)
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The election shall become effective upon the
filing of amended articles of incorporation, which shall:

����
(1)
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State that the cooperative shall be governed
by this chapter;

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(2)
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Be signed and verified in accordance with
chapter 414D; and

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(3)
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Include any other provision required or
permitted by this chapter.

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(c)
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A certified copy of the amended articles of
incorporation shall be filed with the director of commerce and consumer affairs
and accompanied by the filing fee provided by chapter 414D.

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(d)
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Upon filing the amended articles of
incorporation, the cooperative shall be subject to this chapter and may rely on
the provisions of this chapter; provided that if any provision of this chapter
is inconsistent with chapter 421 or 421C, the provisions of this chapter shall
control.

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� -12

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Applicability of general cooperative law;
tax-exempt status.
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(a)
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General cooperatives formed under, or elected
to be governed by, this chapter shall be governed by the provisions of chapter
421C unless those provisions are inconsistent with this chapter, in which case
the provisions of this chapter shall control.

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(b)
�
To the extent chapter 414D applies to
cooperatives organized under this chapter, it shall apply except where
specifically modified by this chapter.

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(c)
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Nothing in this chapter shall prevent a
cooperative from maintaining tax-exempt status under federal or state law, if
otherwise qualified.

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� -13

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Dissolution and liquidation;
distributions.
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(a)
�
A cooperative may dissolve voluntarily as
provided in this section or involuntarily as provided by applicable law.

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(b)
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A cooperative shall dissolve upon the
affirmative vote of members holding a majority of voting power, or as otherwise
provided in the bylaws.

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(c)
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Upon dissolution, the cooperative's assets
shall be distributed as provided in the bylaws and articles of
incorporation.
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The bylaws may provide
that assets shall be distributed:

����
(1)
�
First, to satisfy creditors;

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(2)
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Then, to refund member capital contributions
to the extent available;

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(3)
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Then, to distribute remaining assets to
members based on patronage or as otherwise provided in the bylaws; and

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(4)
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Alternatively, the remaining assets may be
distributed to a cooperative development organization, federation, or other
cooperative entity as specified in the bylaws or as provided by law.

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(d)
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A cooperative shall not distribute assets to
members in a manner that would violate cooperative principles or would operate
to convert the cooperative into a non-cooperative business form."

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SECTION 3.
�
Chapter 421, Hawaii Revised Statutes, is
amended by adding a new section to be appropriately designated and to read as
follows:

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"
�421-
�
Election to be governed by the General
Cooperative Associations Act.
�
An association formed under this chapter
may elect to be governed by chapter pursuant to section
-11.
"

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SECTION 4.
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Chapter 421C, Hawaii Revised Statutes, is
amended by adding a new section to be appropriately designated and to read as
follows:

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"
�421C-
�
Election to be governed by the General
Cooperative Associations Act.
�
An association formed under this chapter
may elect to be governed by chapter pursuant to section
-11.
"

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SECTION
5.
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New statutory material is
underscored.

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SECTION 6.
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This Act shall take effect on July 1, 2026.

INTRODUCED BY:

_____________________________

Report Title:

General
Cooperative Associations Act; Cooperatives; Agricultural Cooperatives; Consumer
Cooperative Associations

Description:

Establishes
a General Cooperative Associations Act to provide a unified, flexible legal
framework for cooperatives to form for any lawful purpose.
�
Allows agricultural cooperative associations
and consumer cooperative associations to elect governance under the General
Cooperative Associations Act.

The summary description
of legislation appearing on this page is for informational purposes only and is
not legislation or evidence of legislative intent.