PROJ02195 - Laserfiche WebLink

Home Browse Search

. . . ARTICLES OF INCORPORATION By Jack F. Ross, Esq., Joanne Herlihy. Esc., and John R. Heronimus, Esq., Dufford & Brown PC. Origin and purpose Mutual ditch companies are specialized, not -for-profit business organizations authorized by the Colorado Legisla- ture to enable water users under a common ditch or reservoir system to pool their financial resources for the development of that system and to provide a mechanism for the orderly, equitable distribution of water and to share the costs to oper- ate and maintain it. Mutual ditch company Historically, individual farmers cambined their resources to organize mutual ditch companies for the express purpose af diverting and delivering water to irrigate their lands. The farnlers received stack in the campany in return for their contributions of water rights, real property ditch assets, wa- ter-related equipment, and capital. The stock represents an actual ownership interest in the water rights. water and real property assets, and a right to delivery af a pro rata share of the water in the ditch. A mutual ditch campanys purpose is to' distribute water to its shareholders, not to make a profit. This unique or special purpose sets a mutual ditch company apart from other types of corparations. Calarado law specifically provides for the farmatian of a mutual ditch company pursuant to C.RS. S 7-42-101 et seq., as well as the provisions, as applicable, of the Colorado Business Corporation Act, C. RS. S 7-101 through 117 and the Colorado Revised Nonprofit Corporation Act, C.RS. S 7-121 through 137. Because of its special nature, there are two important dif- ferences between a mutual ditch company and other cor- poratians. Typically, for profit corporations can raise capital through the sale of stock or corporate property, earnings or obtaining loans. Once they are in operation, mutual ditch companies are usually unable to raise more capital through the sale of stock. Unlike other corporations, a mutual ditch company has the power to levy assessments on its stock to raise money to meet eA--penses. See C.RS. S 7-42-104. Unlike carrier ditch company contract rates, discussed be- low, assessments made by a mutual ditch company are not subject to regulation by anyone other than its awn sharehold- ers. Secand, even though it is a nonprofit corporation, a mu- tual ditch company has shareholders and issues stock. Regular nanprofit carporations do not issue stock and its participants are knovvn as members, not shareholders or stockholders. Carrier ditch company In cantrast to a mutual ditch campany, a carrier ditch company is a for profit company that carries ~water for sale to consumers who have contracted \vith the company. ~ See Nelson v. Lake Canal Campany, 644 P.2d 55, 58 (Colo. App. 1981). A carrier ditch company owns a special interest in the water lights, the real property ditch assets and the water re- lated equipment necessary for water diversion and delivery. Consumers under a carticr ditch company contract for delivery of water upan payment of an annual contract rate. By statute, they have the right to continue to' purchase water annually and perpetually upon payment af the contract rate. See C.RS. S 37-85-102. Because a carrier ditch is a for profit campany, it is entitled to a reasonable return on its invest- ment ovcr and above costs. The opportunity for a canier ditch company to makc a profit creates a need for regulation of rates. In Colorados early history, it was feared that the carrier ditch campanies would take advantage of the small independent consumer farmers who relied on them by charging unreasonably high rates. The Colorado Constitution's drafters eliminated the danger by giv- ing the counties' boards of commissioners the power to set carrier ditch companies' maximum rates. See Colorado Con- stitution Article XVI, S 8. See C..RS. S 7-42 -1 07. Articles of incorporation The articles of incorporation is a formal document used to' create the ditch company. It also governs, in broad terms, the purpose of the company, its authOrity to conduct business and its relationship "\lith its shareholders. The dac- ument is filed with the Colorado secretal)' of state and the company pays a filing fee. The articles of incarporation of a mutual ditch company must contain certain mandatory information as provided by statute. See C.RS. S 7-102-102. Such information includes the: . Name of the entity; · lnformatian regarding shares; · Name and address of the registered agent; . Corporation's principal office address; and the · Name and address of each incorporator. Unlike other corporatians, a ditch company requires that there be a minimum of three incorporators. Ditch Company Handbook I June 2005