Illinois Not-for-Profit Corporations Don't "Share"
In Illinois, cooperative corporations can be formed under one of two statutes: (1) the General Not For Profit Corporation Act of 1986 (805 ILCS 105) (“NFP Act”); or (2) the Business Corporation Act of 1983 (805 ILCS 5). In selecting which statute to form under, each and every cooperative makes an individual choice based upon its own characteristics, goals and purpose.
To become a member of a cooperative corporation, an individual pays a sum of money in exchange for an ownership interest in the corporation. The owner essentially buys a share or portion of the corporation. This is often done through a document known as a share purchase agreement. The process and qualifications for becoming an owner are set forth in the bylaws written to govern the cooperative corporation.
Pursuant to Section 106.05, the NFP Act prohibits all corporations formed under the NFP Act from issuing shares. Further, any evidence of contribution shall be delivered to a member but the document cannot be named “share of stock or by any word or term implying that the instrument is a share” (805 ILCS 105/106.10).
This presents a problem for housing cooperatives organized under the NFP. The housing cooperative’s bylaws, purchase agreements, membership certificates, occupancy agreements and other governing documents cannot refer to an owner’s interest as a “share.” However, there is an easy solution! The statute does not prevent the use of “contribution” or “member contribution” and thus those terms might be an option to use in place of “share.” Those organizing the cooperative corporation can get creative - with the help of qualified legal counsel, of course as there are legal consequences for these choices.