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[85 STAT.

INCORPORATION

l^^^*^>i^5* D. C. Code 29-

901.

SEC. 6. One or more natural persons may incorporate a professional corporation by delivering articles of incorporation in duplicate originals to the Commissioner. The articles of incorporation shall meet the requirements of the District of Columbia Business Corporation Act i

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nnd. m addition, shall set forth— (a) the designation of the professional services to be rendered through the corporation; (b) the names and addresses, including street and number, if any, of the original shareholders of the corporation; and (c) a statement that each of the original shareholders and directors named in the articles of incorporation is licensed to render a professional service for which the corporation is to be organized. N U M B E R OF DIRECTORS

SEC. 7. A professional corporation shall have one or more directors, without regard to the number of shareholders. Q U A L I F I C A T I O N S OF SHAREHOLDER, DIRECTOR, A N D OFFICER

"Officer.*

SEC. 8. No person shall be a shareholder, director, or officer of a professional corporation or render professional services on its behalf unless he is an individual licensed to render a professional service for which the corporation is organized, except that if a professional corporation has only one shareholder, the secretary of the corporation need not be licensed to perform (and may not perform if not so licensed) such professional services. As used in this section, the term "officer" shall mean chairman of the board, president, vice president, treasurer, and secretary. Nothing in this Act shall require a shareholder or incorporator of a professional corporation to have a present or future employment relationship with the corporation or actively to participate in any capacity in the prodviction of income of, or performance of professional service by, such corporation. CORPORATE NAME

SEC. 9. The corporate name shall contain the words "professional corporation", or the abbreviation "P.C.", or the word "chartered", and shall not contain the word "company", "incorporated", "corporation", or "limited", or an abbreviation of one of such words. A professional corporation shall render professional services and exercise its authorized powers under its corporate name. PROXY

SEC. 10. No shareholder of a professional corporation shall enter into a voting trust, proxy, or any other arrangement vesting another person (other than another shareholder of the same corporation) with the authority to exercise the voting power of any or all of his shares, and any such noting trust, proxy, or other arrangement shall be void. PROFESSIONAL RELATIONSHIP; LIABILITIES

SEC. 11. (a) The provisions of this Act shall not be construed to alter or affect the professional relationship between an individual furnishing professional services and an individual receiving such serv-

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ice, either with respect to liability arising out of such professional service or the confidential relationship, if any, between the individual rendering, and the individual receiving such professional service. An individual shall be personally liable and accountable only for any negligent or wrongful acts or misconduct committed by him, or by any individual under his supervision and control in the rendering of professional service on behalf of a corporation organized under this Act. No individual shall be so personally liable and accountable merely because he is a director, officer, or manager of the professional corporation. (b) The corporation shall be liable up to the full value of its assets for any negligent or wrongful acts or misconduct committed by any of its officers, shareholders, directors, agents, or employees in their rendering of professional services on behalf of the corporation. Except as otherwise provided in this section, the liabilities of a professional corporation and its shareholders shall be governed by the District of Columbia Business Corporation Act. •••

579

^„^t^t* j ^ ^ * D. C. Code 29901.

TUANSFEK OF SITAKKS

SEC. 12. (a) Shares in a professional corporation may be transferred only to an individual who is eligible under this Act to be. a shareholder of such corporation, or to such professional corporation, or may devolve by operation of law upon the personal representative or estate of a deceased or legally incompetent shareholder. The articles of incorporation, bylaws, or an agreement among its shareholders may provide that any such transfer shall be subject to the express approval of all, or of any lesser proportion of the remaining shareholders of the corporation, and may provide for the manner in which such consent shall be given. Any transfer made in violation of this section shall be void. (b) A professional corporation may reacquire its own shares through purchase or redemption, and may cancel such shares if at least one share remains issued and outstanding, except when it is insolvent or the purchase or redemption would render it insolvent. (c) The provisions of the District of Columbia Securities Act (D.C. Code, sec. 2-2401, et seq.), and of the Securities Act of 1933, shall not apply to the issuance or transfer of securities of a professional corporation. Every certificate for shares of a professional corporation shall contain on its face the following legend: "The ownership and transfer of these shares and the rights and obligations of shareholders are subject to the limitations of the District of Columbia Professional Corporation Act.-' (d) I n the event that shares of a professional corporation are attached for the individual debts of a shareholder, or are executed upon under any pledge or hypothecation thereof, the sole right of the creditor with respect to such shares shall be to obtain their redemption by such professional corporation within sixty days after serving written demand for redemption upon such corporation. The redemption price for such shares shall be (1) the amount to which the shareholder is entitled upon voluntary redemption of his shares by the provisions of the articles of incorporations, bylaws, or an agreement among its shareholders, or if there are no such provisions, (2) the book value of such shares at the end of the month immediately preceding the date of such demand, determined under generally accepted accounting methods consistent with the method of accounting used by the corporation for Federal income tax purposes, by an independent certified public accountant selected by the corporation, but paid by such creditor, for the purpose. 75-432 O - 72 - 39

. Nonapplicabii^'^'g Stat. eao. 48 Stat. 74. ^^ ^^^ ^^°'

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[85 STAT.

MERGER OR CONSOLIDATION

SEC. 13. A professional corporation may merge or consolidate only with another domestic professional corporation, and only if both corporations are organized to render the same professional services or professional services which, although not the same, could otherwise be rendered by a single professional corporation. FOREIGN P R OF E S S I O N A L Certificate of authority.

Licensed registered a g e n t.

Annual report.

SEC. 14. Notwithstanding any other provision of this Act, a foreign professional corporation licensed in a jurisdiction other than the District of Columbia to perform a professional service of the type defined in section 2(b) of this Act, may apply for and obtain a certificate of authority to render such professional service in the District of Columbia under the following terms and conditions: (a) The articles of incorporation shall meet the requirements of section 6 of this Act, and shall state the address of its registered office in the District of Columbia and the name of its registered agent in the District of Columbia. (b) I'he name of the foreign professional corporation shall meet the requirements of section 9 of this Act and shall conform to any ethical standards applicable to the rendering of professional service in the District of Columbia. (c) The powers of any foreign professional corporation admitted under this section shall not exceed the powers permitted to domestic professional corporations under section 5 of this Act. (d) Any foreign professional corporation seeking admission to the District under the provisions of this section shall have at least one director or officer as resident agent for its registered office in the District. Additionally, such resident agent and any other shareholder, director, officer, employee, or agent who renders professional services within the District on behalf of the foreign professional corporation shall be licensed to render professional service in the District of Columbia. (e) An annual report shall be filed in accordance with the requirements of section 19 of this Act. (f) No certificate of authority shall be granted to a professional corporation incorporated in a jurisdiction which does not permit reciprocal admission of professional corporations incorporated under the laws of the District of Columbia. DISQUALIFIED

"Disqualified shareholder."

CORPORATIONS

PROFESSIONAL

SEC. 15. If any individual rendering professional services on behalf of a professional corporation assumes a public office which prohibits his rendering of the professional services, or for any other reason is disqualified by law to render the professional services, he immediately shall sever all employment relationship in which he shares in the corporation's profits attributable to professional services rendered after such assumption of office or other disqualification. For the purposes of section 16 of this Act, he shall be referred to as a "disqualified shareholder". STOCK o r D I S Q U A L I F I E D, DECEASED, LEGALLY I N C O M P E T E N T SHAREHOLDER

SEC. 16. (a) Subject to the limitations of this section, a disqualified shareholder and personal representatives, legatees, or heirs of a

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deceased or legally incompetent shareholder may continue to own shares of a professional corporation but shall not be permitted to participate in any decisions concerning the rendering of professional services by the corporation. The articles of incorporation, bylaws, or an agreement among the shareholders of a professional corporation may provide, consistent with the provisions of this section, for the disposition of shares of a disqualified, deceased, or legally incompetent shareholder. (b) The articles of incorporation, bylaws, or an agreement among shareholders may provide that, within ninety days (or any earlier date) after the date a shareholder becomes a disqualified shareholder, the disqualified shareholder shall sell and surrender, and the corporation or any individuals qualified to be shareholders shall purchase and receive, his shares of stock of the corporation. In the absence of any such provision, the disqualified shareholder shall sell and surrender, and the corporation shall purchase and receive, his shares of stock of the corporation within thirty days after the date he becomes a disqualified shareholder. Unless otherwise provided by the articles of incorporation, bylaws, or an agreement among the shareholders, payment for the shares of stock purchased pursuant to the provisiojis of this subsection shall be made in full no later than six months after the expiration of the period by which the purchase must be made. (c) The articles of incorporation, bylaws, or an agreement among shareholders may provide that, within one year (or any earlier date) after the date of death of a shareholder, his personal representative, legatees, or heirs shall sell and surrender, and the corj^oration or any individuals qualified to be shareholders shall purchase and receive, the shares of stock of the corporation owned by the deceased shareholder. In the absence of any such provision, the personal representatives, legatees, or heirs shall sell and surrender, and the corporation shall purchase and receive, the shares of stock of the corporation within one hundred and eighty days after the date of death of the shareholder. Ililess otherAvise provided by the articles of incorporation, bylaws, or an agreement among the shareholders, payment for the shares of stock purchased pursuant to the provision of this subsection shall be made in full no later than one year after the date of death of the shareholder. K?:DEMPIIOX PRICK

SKC, 17. I n the event the articles of incorporation, bylaws or an agreement among the shareholders, do not fix the price at which the corporation or its shareholders may purchase the shares of a disqualified, deceased, legally incompetent, retired, or expelled shareholder, or does not provide a method of determining such price, then the price for such shares shall be the book value of such shares on the last day of the month innnediately preceding the disqualification, death, adjudication of incompetence, retirement or expulsion of the shareholder, determined under generally accepted accounting methods, consistent with the method of accounting used by the corporation for Federal income tax pur]ix)ses, by an independent certified public accountant employed by the corporation for the purpose.

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PUBLIC LAW 92-180-DEC. 10, 1971

[85 STAT.

PERPETUAL EXISTENCE: D l S S O L m O X

68 Stat. 179. D.C. Code 29-

90 u " '

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SEC. 18. A professional corporation shall have perpetual existence, except that whenever all shareholders of a professional corporation cease at any time for any reason to be licensed to perform the professional services for which the corporation was organized, the professional corporation shall be treated as converted into a corporation organized under the District of Colinnbia Business Corporation Act. Unless the holders of all of the outstanding shares of the corporation unanimously amend the articles of incorporation to adopt purposes consistent with the District of Columbia Business Corporation Act within sixty days after the date on which the last shareholder of the corporation ceased to be licensed to perform those professional services, the dissolution of the corporation shall be deemed to have been authorized by the act of the corporation and any shareholder may at any time thereafter file with the Commissioner, on behalf of the corporation, a statement of intent to dissolve. ANNUAL R E P O R T

SEC. 19. The annual reports of a professional corporation shall meet the requirements of the District of Columbia Business Corporation Act and, in addition, shall set forth— (a) the names and addresses, including street and number, if any, of all shareholders of the corporation; and (b) a statement that each shareholder, director, and officer of the corporation is currently licensed to render a professional service for which the corporation is organized. NONCOMPLIANCE; PENALTIES

SEC. 20. The failure of a professional corporation to comply, or to require compliance with any provision of this Act, shall be a ground for the involuntary dissolution of such corporation. Any person, including a corporation, who violates any provision of this Act or who fails to comply with any provision thereof, for which violation or failure no penalty is provided therein or elsewhere in the laws of the District of Columbia, shall be deemed guilty of a misdemeanor and upon conviction thereof by a court of competent jurisdiction shall be fined not more than $500 for each violation or failure. AMENDMENT TQ THE DISTRICT OF COLUMBIA INCOME AND FRANCHISE TAX ACT OF 1947

SEC. 21. The second sentence of section 1 of title VIII of the District of Columbia Income and Franchise Tax Act of 1947 (D.C. Code, 61 Stat. 345. gg(._ 47-1547) is amended to read as follows: "The words 'unincorpo157*4?' ^"^^ ^ " rated business' do not include any trade or business which by law, "Unincorporated customs, OT ethics cauuot be incorporated, any trade, business, or probusiness." fessiou which can be incorporated only under the District of Columbia Ante, p. 576. Professioual Corporation Act, or any trade or business in which more than 80 per centum of the gross income is derived from the personal services actually rendered by the individual or members of the partnership) or other entity in the conducting or carrying on of any trade or business and in which capital is not a material income-producing factor.". Approved December 10, 1971.

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PUBLIC LAW 92-181-DEC. 10, 1971

583

Public Law 92-181 AN ACT

December 10,197 1

To further provide for the farmer-owned cooperative system of making credit available to farmers and ranchers and their cooperatives, for rural residences, and to associations and other entities upon which farming operations are dependent, to provide for an adequate and flexible flow of money into rural areas, and to modernize and consolidate existing farm credit law to meet current and future rural credit needs, and for other purposes.

[S. 1483]

Be it enacted by the Senate and House of RepresentatloeH of the United States of America in Congress assembled, That this Act may be cited as the "Farm Credit Act of 1971'',

Farm Credit Act of 1971.

POLICY A N D OBJECTIVI-:jS

SEC. 1.1 (a) It is declared to be the policy of the Congress, recognizing that a prosperous, productive agriculture is essential to a free nation and recognizing the growing need for credit in rural areas, that the farmer-owned cooperative Farm Credit System be designed to accomplish the objective of improving the income and well-being of American farmers and ranchers by furnishing sound, adequate, and constructive credit and closely related services to them, their cooperatives, and to selected farm-related businesses necessary for efficient farm operations. (b) I t is the objective of this Act to continue to encourage farmerand rancher-borrowers participation in the management, control, and ownership of a permanent system of credit for agriculture which w411 be responsive to the credit needs of all types of agricultural producers having a basis for credit, and to modernize and improve the authorizations and means for furnishing such credit and credit for housing in rural areas made available through the institutions constituting the Farm O e d i t System as herein provided. SEC. 1.2. THE FARM CREDIT SYSTEM.—The Farm O e d i t System shall include the Federal land banks, the Federal land bank associations, the Federal intermediate credit banks, the production credit associations, the banks for cooperatives, and such other institutions as may be made a part of the System, all of which shall be chartered by and subject to the supervision of the Farm Credit Administration. TITLE I — FEDERAL LAND B A N K S A N D ASSOCIATIONS PART A—FEDERAL LAND BANKS SEC, 1.3, ESTABLISHMENT; TITLE; BRANCHES.—The Federal land

banks established pursuant to section 4 of the Federal F a r m Loan Act, as amended, shall continue as federally chartered instrumentalities of the Ignited States. Their chaiters or organization certificates may be modified from time to time by the Farm Ci'edit Administration, not inconsistent with the provisions of this title, as may be necessary or expedient to implement this Act. Unless an existing Federal land bank is merged with one or more other such banks under section 4.10 of this Act, there shall be a Federal land bank in each farm credit district. It may include in its title the name of the city in which it is located or other geographical designation. When authorized by the Farm Credit Administration, it may establish such branches or other offices as may be appropriate for the effective operation of its business.

Post,

p. 624.

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PUBLIC LAW 92-181-DEC. 10, 1971 SEC.

Prohibition.

1.4.

[85 STAT.

CoKPOKATE E X I S T E N C E; GENERAL COKPOKATE P O W E R S. —

Each Federal land bank shall be a body corporate and, subject to supervision by the Farai Credit Administration, shall have power to— (1) Adopt and use a corporate seal. (2) Have succession until dissolved under the provisions of this Act or other Act of Congress. (3) Make contracts. (4) Sue and be sued. (5) Acquire, hold, dispose, and otherwise exercise all the usual incidents of ownership of real and personal property necessary or con\ enient to its business. (6) Make loans and commitments for credit, accept advance payments, and provide services and other assistance as authorized in this Act, and charge fees therefor. (7) Operate under the direction of its board of directors. (8) Elect by its board of directors a president, any vice president, a secretary, a treasurer, and provide for such other officers, employees, and agents as may be necessary, including joint employees as proN'ided in this Act, define their duties, and require surety bonds or make other provision against losses occasioned by employees. (9) Prescribe by its board of directors its bylaws not inconsistent with law providing for the classes of its stock and the manner in which its stock shall be issued, transferred, and retired; its officers, employees, and agents are elected or provided for; its property acquired, held, and transferred; its loans and appraisals made; its general business conducted; and the privileges granted it by law exercised and enjoyed. (10) Borrow money and issue notes, bonds, debentures, or other obligations individually, or in concert with one or more other banks of the System, of such characte: terms, conditions, and rates of interest as may be determined. (11) Accept deposits of securities or of current funds from its Federal land bank associations and pay interest on such funds. (12) Participate with one or more other Federal land banks in loans under this title on such terms as may be agreed upon among such banks. (13) Approve the salary scale of the officers and employees of the Federal land bank associations and the appointment and compensation of the chief executive officer thereof and supervise the exercise by such associations of the functions vested in or delegated to them. (14) Deposit its securities and its current funds with any member bank of the Federal Reserve System and pay fees therefor and receive interest thereon as may be agreed. When designated for that purpose by the Secretary of the Treasury, it shall be a depository of public money, except receipts from customs, under such regulations as may be prescribed by the Secretary; may be employed as a fiscal agent of the Government, and shall perform all such reasonable duties as a depository of public money or financial agent of the Government as jj^a^y ]jQ required of it. No Government funds deposited under the provisions of this subsection shall be invested in loans or bonds or other obligations of the bank. (15) Buy and sell obligations of or insured by the United States or of any agency thereof, or securities backed by the full faith and credit of any such agency, and make such other investments as may be authorized by the Farm Credit Administration. (16) Conduct studies and make and adopt standards for lending. (17) Delegate to Federal land bank associations such functions vested in or delegated to the bank as it may determine. (18) Amend and modify loan contracts, documents, and payment schedules, and release, subordinate, or substitute security for any of them.

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PUBLIC LAW 92-181-DEC. 10, 1971

(19) Perform any function delegated to it by the F a r m Credit Administration. (20) Require Federal land bank associations to endorse notes and other obligations of its members to the bank. (21) Exercise by its board of directors or authorized officers, employees, or agents all such incidental powers as may be necessary or expedient to carry on the business of the bank. SEC. 1.5. LAND B A N K STOCK; VALUE; SHARES; VOTING; DIVIDEND.—

(a) The capital stock of each Federal land bank shall be divided into shares of par value of $5 each, and may be of such classes as its board of directors may determine with the approval of the F a r m Credit xVdministration. (b) Voting stock of each bank shall be held only by the Federal land bank associations and direct borrowers and borrowers through agents who are farmers or ranchers, which stock shall not be transferred, pledged, or hypotheticated except as authorized pursuant to this Act. (c) The board of each bank shall from time to time authorize the issue or increase of its capital stock necessary to permit the issuance of additional shares to the Federal land bank associations so that members of such associations purchasing stock or participation certificates therein may be eligible for loans from the banK. (d) Nonvoting stock may be issued to the Governor of the Farm Credit Administration, and may also be issued to Federal land bank associations in amounts which will permit the bank to extend financial assistance to eligible persons other than farmers or ranchers. Participation certificates with a face value of $5 each may be issued in lieu of nonvoting stock when the bylaws of the bank so provide. (e) Dividends shall not be payable on any stock held by the Governor of the F a r m Credit Administration. Non-cumulative dividends may be payable on other stock and participation certificates of the bank. The rate of dividends may be different between different classes and issues of stock and participation certificates on the basis of the comparative contributions of the holders thereof to the capital or earnmgs of the bank by such classes and issues, but otherwise dividends shall be without preference. SEC. 1.6. REAL ESTATE MORTGAGE LOANS.—The Federal land banks are authorized to make long-term real estate mortgage loans in rural areas, as defined by the F a r m Credit Administration, and continuing commitments to make such loans under specified circumstances, or extend other financial assistance of a similar nature to eligible borrowers, for a term of not less than five nor more than forty years. SEC. 1.7. INTEREST RATES AND OTHER CHARGES.—Loans made by a Federal land bank shall bear interest at a rate or rates, and on such terms and conditions, as may be determined by the board of directors of the bank from time to time, with the approval of the F a r m Credit Administration. I n setting rates and charges, it shall be the objective to provide the types of credit needed by eligible borrowers at the lowest reasonable costs on a sound business basis taking into account the cost of money to the bank, necessary reserve and expenses of the banks and Federal land bank associations, and providing services to stockholders and members. The loan documents may provide for the interest rate or rates to vary from time to time during the repayment period of the loan, in accordance with the rate or rates currently being charged by the bank.

585

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PUBLIC LAW 92-181-DEC. 10, 1971

[85 STAT.

SEC. 1.8. ELIGIBILITY.^—The services authorized in this title may be made available to persons who are or become stockholders or members in the Federal land bank associations and are (1) bona fide farmers and ranchers, (2) persons furnishing to farmers and ranchers farmrelated services directly related to their on-farm operating needs, or (3) owners of rural homes. SEC. 1.9. SECURITY.—Loans shall not exceed 85 per centum of the appraised value of the real estate security, and shall be secured by first liens on interest in real estate of such classes as may be approved by the F a r m Credit Administration. The value of security shall be determined by appraisal under appraisal standards prescribed by the bank and approved by the F a r m Credit Administration, to adequately secure the loan. However, additional security may be required to supplement real estate security, and credit factors other than the ratio between the amount of the loan and the security value shall be given due consideration. SEC. 1.10. PURPOSES.—Loans made by the Federal land banks to farmers and ranchers may be for any agricultural purpose and other credit needs of the applicant. Loans may also be made to rural residents for rural housing financing under regulations of the F a r m Credit Administration. Rural housing financed under this title shall be for single-family, moderate-priced dwellings and their appurtenances not inconsistent with the general quality and standards of housing existing in, planned or recommended for the rural area where it is located: Provided, however, That a Federal land bank may not at any one time have a total of loans outstanding for such rural housing to persons other tlian farmers or ranchers in amounts exceeding 15 per centum of the total of all loans outstanding in such bank: Provided further, "Rural areas." x h a t for ruTal housing purposes under this section the term "rural areas" shall not be defined to include any city or village having a population in excess of 2,500 inhabitants. Loans to persons furnishing farm-related services to farmers and ranchers directly related to their on-farm operating needs may be made for the necessary capital structures and equipment and initial working capital for such services. The banks may own and lease, or lease with option to purchase, to persons eligible for assistance under this title, facilities needed in the operations of such persons. SEC. 1.11. SERVICES RELATED TO BORROWERS' OPERATIONS.—The Federal land banks may provide technical assistance to borrowers, members, and applicants and may make available to them at their option such financial related services appropriate to their on-farm operations as determined to be feasible by the board of directors of each district bank, under regulations of the F a r m Credit Administration. SEC. 1.12. LOANS THROUGH ASSOCIATIONS OR AGENTS.—(a) The Federal land banks shall, except as otherwise herein provided, make loans through a Federal land bank association serving the territory in which the real estate offered by the applicant is located. I f there is no active association chartered for the territory where the real estate is located, or if the association has been declared insolvent, the bank may make the loan through another such association, directly, or through such bank or trust company or savings or other financial institution as it may designate. When the loan is not made through a Federal land bank association, the applicant shall purchase stock in the bank in an amount not less than $5 nor more than $10 for each $100 of the loan and the loan shall be made on such terms and conditions as the bank shall prescribe.

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587

PART B—FEDERAL LAXD B A X K ASSOCIATIONS SEC.

1.13. ORGAXIZATTOXS; ARTICLES; CHARTERS; POWERS OF THE

GOVERNOR.—Each Federal land bank association chartered under section 7 of the Federal F a r m Loan Act, as amended, shall continue as a Post, p. 624. federally chartered instrumentality of the United States. A Federal land bank association may be organized by any group of ten or more persons desiring to borrow money from a Federal land bank, including persons to whom the Federal land bank has made a loan directly or through an agent and has taken as security real estate located in the territory proposed to be served by the association. The articles of association shall describe the territory within which the association proposes to carry on its operations. Proposed articles shall be forwarded to the Federal land bank for the district, accompanied by an agreement to subscribe on behalf of the association for stock of the land bank equal to not less than $5 nor more than $10 per $100 of the amount of the aggregate loans desired or held by the association members. Such stock may be paid for by surrendering for cancellation stock in the bank held by a borrower and the issuance of an equivalent amount of stock to such borrower in the association. The articles shall be accompanied by a statement signed by each of the members of the proposed association establishing his eligibility for, and that he has or desires a Federal land bank loan; that the real estate with respect to which he desires a loan is not being served by another Federal land bank association; and that he is or will become a stockholder in the proposed association. x. copy of the articles of association shall be forA warded to the Governor of the F a r m Credit Administration with the recommendations of the bank concerning the need for the proposed association in order to adequately ser\'e the credit needs of eligible persons in the proj^osed territory and a statement as to whether or not the territory includes any territory described in the charter of another Federal land bank association. The Governor for good cause shown may deny the charter applied for. Upon the approval of the proposed articles by the Governor and the issuance of such charter, the association shall become as of such date a federally chartered body corporate and an instrumentality of the United States. The Governor shall have power, in the terms of the charter, under rules and regulations prescribed by him or by approving bylaws of the association, to provide for the organization of the association, the initial amount of stock of such association, the territory within which its operations may be carried on and to direct at any time changes in the charter of such association as he finds necessary in accomplishing the purposes of this Act. 1.14. BOARD OF DIRECTORS.—Each Federal land bank association shall elect from its voting shareholders a board of directors of such number, for such terms, in such manner, and with such qualifications as may be required by its bylaws. SEC. 1.15. GENERAL CORPORATE POWERS.—Each Federal land bank association shall be a body corporate and, subject to supervision of the Federal land bank for the district and of the Farm Credit Administration, shall have the power to— (1) Adopt and use a corporate seal. (2) Have succession until dissolved under the provisions of this Act or other Act of Congress. (3) Make contracts. (4) Sue and be sued. (5) Acquire, hold, dispose, and otherwise exercise all of the usual incidents of ownership of real estate and personal property necessary or convenient to its business. SEC.

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PUBLIC LAW 92-181-DEC. 10, 1971

[85 STAT.

(6) Operate under the direction of its board of directors in accordance with this Act. (7) Elect by its board of directors a manager or other chief executive officer, and provide for such other officers or employees as may be necessary, including joint employees as provided in this Act; define their duties; and require surety bonds or make other provision against losses occasioned by employees. No director shall, within one year after the date when he ceases to be a member of the board, be elected or designated a salaried employee of the association on the board of which he served. (8) Prescribe by its board of directors, its bylaws, not inconsistent with law, providing for the classes of its stock and the manner in which its stock shall be issued, transferred, and retired; its officers and employees elected or provided for; its property acquired, held, and transferred; its general business conducted; and privileges granted it by law exercised and enj oyed. (9) Accept applications for Federal land bank loans and receive from such bank and disburse to the borrowers the proceeds of such loans. (10) Subscribe to stock of the Federal land bank of the district. (11) Elect by its board of directors a loan committee with power to elect applicants for membership in the association and recommend loans to the Federal land bank, or with the approval of the Federal land bank, delegate the election of applicants for membership and the approval of loans within specified limits to other committees or to authorized employees of the association. (12) Upon agreement with the bank, take such additional actions with respect to applications and loans and perform such functions as are vested by law in or delegated to the Federal land banks as may be agreed to or delegated to the association. (13) Endorse and shall become liable to the bank on loans it makes to association members. (14) Receive such compensation and deduct such sums from loan proceeds with respect to each loan as may be agreed between the association and the bank and may make such other.charges for services as may be approved by the bank. (15) Provide technical assistance to members, borrowers, applicants, and other eligible persons and make available to them, at their option, such financial related services appropriate to their operations as it determines, with Federal land bank approval, are feasible, under regulations of the F a r m Credit Administration. (16) Borrow money from the bank and, with the approval of such bank, borrow from and issue its notes or other obligations to any commercial bank or other financial institutions. (17) Buy and sell obligations of or insured by the United States or any agency thereof or of any banks of the F a r m Credit System. (18) Invest its funds in such obligations as may be authorized in regulations of the F a r m Credit Administration and approved by the bank and deposit its securities and current funds with any member bank of the Federal Reserve System, with the Federal land bank, or with any bank insured by the Federal Deposit Insurance Corporation, and pay fees therefor and receive interest thereon as may be agreed. (19) Perform such other function delegated it by the Federal land bank of the district. (20) Exercise by its board of directors or authorized officers or agents all such incidental powers as may be necessary or expedient in the conduct of its business.

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1.16. ASSOCIATION STOCK; VALUE or SHAKES; VariNG.—(a) The shares of stock in each Federal land bank association shall have a par value of $5 each. No person but borrowers from the bank shall become members and stockholders of the association. If an application for membership is approved and if the applied-for loan is granted, the member of the association shall subscribe to stock in the association in an amount not less than 5 per centum nor more than 10 per centum of the face amount of the loan as determined by the bank. Stock shall be paid for in cash by the time the loan is closed. The association shall then purchase a similar amount of stock in the land bank. Stock shall be retired and paid at fair book value not to exceed par, as determined by the association, upon the full repayment of the loan and if the loan is in default may be canceled for application on the loan, or under other circumstances, for other disposition, when approved by the bank. The aggregate capital stock of each association shall be increased from time to time as necessary to permit the securing of requested loans from the bank for the association's members. (b) The stock issued by an association may be voting stock or nonvoting stock of such classes as the association determines with the approval of the bank under regulations prescribed by the F a r m Credit Administration. Each holder of voting stock shall be entitled to only one vote, and no more, in the election of directors and in deciding questions at meetings of stockholders. Participation certificates may be issued in lieu of noiiA'oting stock when the bylaws of the association so provide. SEC.

PART C—PROVISIONS Arri.iCABLE TO FEDERAL LAND BANKS AND FEDERAL LAND B A N K ASSOCLVTIONS

1.17. LAND BANK RESERVES; DIVIDENDS.—(a) Each Federal land bank shall, at the end of each fiscal year, carry to reserve account a sum of not less than 50 i^er centum of its net earnings for the year until said reserve account shall be equal at the end of such year, after restoring any impairment thereof, to the outstanding capital stock and participation certificates of the bank. Thereafter, a sum equal to 10 per centum of the year's net earnings shall be added to the reserve account until the account shall be equal to 150 per centum of the outstanding capital stock and participation certificates of the bank. Any amounts added to the reserve account in exess of 150 per centum of the outstanding capital stock and j^articipation certificates may be withdrawn from such reserves with the approval of the Farm Credit Administration. (b) Any bank may declare a dividend or dividends out of the whole or any part of net earnings which remain after (1) the maintenance of the reserve as required in subsection (a) hereof, (2) the payment of the franchise tax as required by section 4.0 for any year in which any stock in the bank is held by the Governor of the F a r m Credit Administration, and (3) with approval of the Farm Credit Administration. SEC. 1.18. ASSOCIATION RESERVES; DIVIDENDS.—(a) Each Federal land bank association shall, out of its net earnings at the end of each fiscal year, carry to reserve account a sum not less than 10 per centum of such e a r n i n g until the reserve account shall equal 25 per centum of the outstanding capital stock and participation certificates of such association after restoring any impairment thereof. Thereafter, 5 per centum of the net earnings for the year shall be added to such reserve account until it shall equal 50 per centum of the outstanding capital stock and participation certificates of the association. Any amounts in the. reserve account in excess of 50 per centum of the outstanding capital stock and participation certificates may be withdrawn with the approval of the Federal land bank. SEC

589

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[85 STAT.

(b) Any association may declare a dividend or dividends out of the whole or any part of its net earnings which remain after (1) maintenance of the reserve required in subsection (a) hereof and (2) bank approval. (c) Whenever any association is liquidated, a sum equal to its reserve account as required in this Act shall be paid and become the property of the bank in which such association is a shareholder. SEC.

56 Stat. 190.

1.19.

AGREEMENTS FOR SHARING GAINS OR LOSSES.—Each

Federal land bank may enter into agreements with Federal land bank associations in its district for sharing the gain or losses on loans or on security held therefor or acquired in liquidation thereof, and associations are authorized to enter into any such agreements and also, subject to bank approval, agreements with other associations in the district for sharing the risk of loss on loans endorsed by each such association. SEX-. 1.20. LIENS ON STOCK.—Each Federal land bank and each Federal land bank association shall have a first lien on the stock and participation certificates it isiues, except on stock held by the Governor of the Farm Credit Administration, for the payment of any liability of the stockholder to the association or to the bank, or to both of them. SEC. 1.21. TAXATION.—Every Federal land bank and every Federal land bank association and the capital, reserves, and surplus thereof, and the income derived therefrom shall be exempt from Federal, State, municipal, and local taxation, except taxes on real estate held by a Federal land bank or a Federal land bank association to the same extent, according to its value, as other similar property held by other persons is taxed. The mortgages held by the Federal land banks and the notes, bonds, debentures, and other obligations issued by the banks or associations shall be deemed and held to be instrumentalities of the (xovernment of the United States and, as such, they and the income therefrom shall be exempt from all Federal, State, municipal, and local taxation, other than Federal income tax liability of the holder thereof under the Public Debt Act of 1941 (31 U.S.C. 742(a)).

31 USC 742a.

^

^ ''

TITLE II—FEDERAL INTERMEDIATE CREDIT BANKS AND PRODUCTION CREDIT ASSOCIATIONS PART A—FEDERAL INTERMEDIATE CREDIT' BANKS

2.0. ESTABLISHMENT; BRANCHES.—The Federal intermediate credit banks established pursuant to section 201(a) of the Federal Farm Loan Act, as amended, shall continue as federally chartered instrumentalities of the United States. Their charters or organization certificates may be modified from time to time by the Farm Credit Administration not inconsistent with the provisions of this title as may be necessary or expedient to implement this Act. Unless an existing Federal intermediate credit bank is merged with one or more other such banks under section 4.10 of this Act, there shall be a Federal intermediate credit bank in each farm credit district. I t may include in its title the name of the city in which it is located or other geographical designation. When authorized by the Farm Credit Administration, it may establish such branches or other offices as may be appropriate for the effective operation of its business. SEC.

Post, p. 624.

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SEC. 2.1. CORPORATE EXISTENCE; GENERAL CORPORATE POWERS.—

Each Federal intermediate credit bank shall be a body corporate and, subject to supervision of the F a r m Credit Administration, shall have power to— (1) Adopt and use a corporate seal. (2) Have succession until dissolved under the provisions of this Act or other Act of Congress. (3) Make contracts. (4) Sue and be sued. (5) Acquire, hold, dispose, and otherwise exercise all of the incidents of ownership of real and personal property necessary or convenient to its business. (6) Make and discount loans and commitments for credit, and provide services and other assistance as authorized in this Act, and charge fees therefor. (7) Operate under the direction of its board of directors. (8) Elect by its board of directors a president, any vice president, a secretary, and a treasurer, and provide for such other officers, employees, and agents as may be necessary, including joint employees as provided in this Act; define their duties and require surety bonds or make other provision against losses occasioned by employees. (9) Prescribe by its board of directors its bylaws not inconsistent with law providing for the classes of its stock and the manner in which its stock shall be issued, transferred, and retired; its officers, employees, and agents elected or provided for; its property acquired, held, and transferred; its loans and discounts made; its general business conducted; and the privileges granted it by law exercised and enjoyed. (10) Borrow money and issue notes, bonds, debentures, or other obligations individually, or in concert with one or more other banks of the System, of such character, and such terms, conditions, and rates of interest as may be determined. (11) Purchase nonvoting stock in or pay in surplus to, and accept deposits of securities or of current funds from production credit associations holding its shares and pay interest upon such funds. (12) Deposit its securities and its current funds with any member bank of the Federal Keserve System, and pay fees therefor and receive interest thereon as may be agreed. When designated for that purpose by the Secretary of the Treasury, it shall be a depository of public money, except receipts from customs, under such regulations as may be prescribed by the Secretary; may be employed as a fiscal agent of the Government, and shall perform all such reasonable duties as a depository of public money or financial agent of the Government as may be required of it. No Government funds deposited under the provisions of this subsection shall be invested in loans or bonds or other obligations of the bank. (13) Buy and sell obligations of or insured by the United States or any agency thereof, or securities backed by the full faith and credit of any such agency and make such other investments as may be authorized by the F a r m Credit Administration. (14) Delegate to the production credit associations such functions vested in or delegated to the intermediate credit bank as it may determine. (15) Approve the salary scale of the officers and employees of the association and the appointment and compensation of the chief executive officer thereof and supervise the exercise by the production credit associations of the functions vested in or delegated to them.

Prohibition.

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(16) Amend and modify loan contracts, documents, payment schedules, and release, subordinate, or substitute security for any of them. (IT) Conduct studies and make and adopt standards for lending. (18) Enter into loss sharing agreements with other Federal intermediate credit banks and production credit associations. (19) Exercise by its board of directors or authorized officers, employees, or agents all such incidental powers as may be necessary or expedient to carry on the business of the bank. (20) Participate with one or more other Federal intermediate credit banks or production credit associations in the district, in loans under this title on such terms as may be agreed upon among such banks and associations. (21) Perform any function delegated to it by the F a r m Credit Administration. SEC. 2.2. FEDERAL, INTERMEDIATE CREDIT B A N K STOCK; VALUE; DIVIDEND; ADDITIONAL STOCK; RETIREMENT.— (a) The capital stock of

each Federal intermediate credit bank shall be divided into shares of par value of $5 each and may be of such classes as its board of directors may determine with the approval of the F a r m Credit Administration. (b) Voting stock of each bank shall be held only by the production credit associations which stock shall not be transferred, pledged, or hypothecated except as provided in this title or as authorized under regulations of the F a r m Credit Administration. (c) The board of each bank shall from time to time increase its capital stock to permit the issuance of additional shares to production credit associations in such amounts as shall be determined by the board. (d) Nonvoting stock may be issued to the Governor of the Farm Credit Administration. Nonvoting stock may also be issued to production credit associations in such amounts as will permit the association to extend financial assistance to eligible persons other than farmers, ranchers, and producers or harvesters of aquatic products. Participation certificates, with a face value of $5, may be issued in lieu of such nonvoting stock when the bylaws of the bank so provide. (e) Participation certificates also may be issued by a bank to financing institutions other than production credit associations which are eligible to borrow from or discount eligible paper with the bank. (f) Dividends shall not be payable on any stock held by the Governor of the F a r m Credit Administration other than the tax imposed by section 4.0(c) but noncumulative dividends may be payable on other capital and participation certificates in an amount not to exceed a per centum permitted under regulations of the F a r m Credit Administration, in any year as determined by the board of directors. Such dividends may be in the form of stock and participation certificates or, when the Governor of the F a r m Credit Administration holds no stock in the bank, in cash. The rate of dividends may be different between different classes and issues of stock and;participation certificates on the basis of the comparative contributions of the holders thereof to the capital or earnings of the bank by such classes and issues, but otherwise dividends shall be without preference. (g) Each Federal intermediate credit bank, with the approval of the F a r m Credit Administration, may determine the amount of the initial or additional stock in the bank to be subscribed for by the production credit associations in the farm credit district served by the bank in order to provide capital to meet the credit needs of the bank. The amount so determined shall be allotted among the associations in the district upon such basis that, as nearly as may be practicable, the sum of the stock already owned and the additional amount to be sub-

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scribed for by each association will be in the same proportion to the total amount of stock already owned and to be subscribed for by all of the associations in the district that the average indebtedness (loans and discounts) of each association to the bank during the immediately preceding three fiscal years is of the average of such indebtedness of all associations to the bank during such three-year period. Each association shall subscribe for stock in the bank in the amount so allotted to it. Such subscriptions shall be subject to call and payment therefor shall be made a t such times and in such amounts as may be determined by the bank. Whenever the relative amounts of stock in a bank owned by the associations differ substantially from the proportion indicated in the preceding paragraph, and additional subscriptions to stock through which such proportion could be reestablished are not contemplated, the bank, with approval of the F a r m Credit Administration, may direct either separately or in combination such transfers, retirements, and reissuance of outstanding stock among the associations as will reestablish the aforesaid proportion as nearly as may be practicable. Outstanding stock which is retired for this purpose, except as otherwise approved by the F a r m Credit Administration, shall be the oldest stock held by the association and the bank shall pay the association therefor at the fair book value thereof not exceeding par. The banks may issue further amounts of participation certificates with the same rights, privileges, and conditions, for purchase by institutions other than production credit associations which are entitled to receive participation certificates from the bank as patronage refunds. Participation certificates held by other financing institutions may be transferred to other such institutions upon request of, or with the approval of the bank. After all stock held by the Governor of the Farm Credit Administration has been retired, the bank may retire other stock a t p a r and participation certificates at face amount under regulations of the F a r m Credit Administration. Such other stock and participation certificates shall be retired without preference and in such manner that, unless otherwise approved by F a r m Credit Administration, the oldest outstanding stock or certificates at any given time will be retired first. I n case of liquidation or dissolution of any production credit association or other financing institution, the stock or participation certificates of the bank owned by such association or institution may be retired by the bank at the fair book value thereof, not exceeding par or face amount, as the case may be. (h) Except with regard to stock held by the Governor, each Federal intermediate credit bank shall have a first lien on all stock and participation certificates it issues and on all allocated reserves and other equities for any indebtedness of the holder of such capital investments to the bank. (i) I n any case where the debt of a production credit association or other financing institution is in default, the bank may retire all or part of the capital investments in the bank held bj' such debtor at the fair book value thereof, not exceeding par or face amount as the case may be, in total or partial liquidation of the debt. SEC. 2.3. LOANS; DISCOUNTS; PARTIGIPATIOX; LEASING.—(a)

The

Federal intermediate credit banks are authorized to make loans and extend other similar financial assistance to and discount for, or purchase from, any production credit association with its endorsement or guaranty, any note, draft, or other obligation presented by such association, and to participate with such association and one or more

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Limitations.

PUBLIC LAW 92-181-DEC. 10, 1971

[85 STAT.

intermediate credit banks in the making of loans to eligible borrowers, all the foregoing to be secured by such collateral, if any, as may be required in regulations of the Farm Credit Administration. The banks may own and lease or lease with option to purchase, to persons eligible for assistance under this title, equipment needed in the operations of such persons. (b) The Federal intermediate credit banks are authorized to discount for, or purchase from any national bank, State bank, trust company, agricultural credit corporation, incorporated livestock loan company, savings institution, credit union, and any association of agricultural producers engaged in the making of loans to farmers and ranchers, with its endorsement or guaranty, any note, draft, or other obligation the proceeds of which have been advanced or used in the first instance for any agricultural purpose, including the breeding, raising, fattening, or marketing of livestock; and to make loans and advances to any such financing institution secured by such collateral as may be approved by the F a r m Credit Administration: Provided, That no such loan or advance shall be made upon the security of collateral other than notes or other such obligations of farmers and ranchers eligible for discount or purchase under the provisions of this section, unless such loan or advance is made to enable the financing institution to make or carry loans for any agricultural purpose. (Q) ]^O paper shall be purchased from or discounted for any national bank. State bank, trust company or savings institution under subsection (b) if the amount of such paper added to the aggregate liabilities of such natioilal bank, State bank, trust company or savings institution, whether direct or contingent (other than bona fide deposit liabilities), exceeds the lower of the amount of such liabilities permitted under the laws of the jurisdiction creating the same, or twice the paid-in and unimpaired capital and surplus of such national bank, State bank, trust company, or savings institution. No paper shall under this section be purchased from or discounted for any other corporation engaged in making loans for agricultural purposes including the raising, breeding, fattening, or marketing of livestock, if the amount of such paper added to the aggregate liabilities of such corporation exceeds the lower of the amount of such liabilities permitted under the laws of the jurisdiction creating the same, or ten times the paid-in and unimpaired capital and surplus of such corporation. I t shall be unlawful for any national bank which is indebted to any Federal intermediate credit bank, upon paper discounted or purchased under subsection (b), to incur any additional indebtedness, if by virtue of such additional indebtedness its aggregate liabilities direct or contingent, will exceed the limitations herein contained. SEC. 2.4. TERMS.—Loans, advances, or discounts made under section 2.3 shall be repayable in not more than seven years from the time they are made or discounted by the Federal intermediate credit bank, and shall bear such rate or rates of interest or discount as the board of directors of the bank shall from time to time determine with the approval of the Farm Credit Administration, but the rates charged financing institutions other than production credit associations shall be the same as those charged production credit associations. I n setting the rates and charges, it shall be the objective to provide the types of credit needed by eligible borrowers, at the lowest reasonable costs on a sound business basis taking into account the cost of money to the bank, necessary reserves and expenses of the bank and production credit associations, and providing services to borrowers from the bank and associations. The loan documents may provide for the interest rate or rates to vary from time to time during the repayment

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period of the loan, in accordance with the rate or rates currently being charged by the bank. No obligation tendered for discount by a financing institution, without the approval of the F a r m Credit Administration, shall be eligible for discount upon which the original borrower has been charged a rate of interest exceeding by more than l i ^ per centum per annum the discount rate of the bank. SEC. 2.5. SERVICES BELATED TO BORROWERS' OPERATIONS.—The Federal intermediate credit banks may provide technical assistance to borrowers, members, and applicants from the banks and production credit associations, including persons obligated on paper discounted by the bank, and may make available to them at their option such financial related services appropriate to their on-farm operations as determined to be feasible by the board of directors of each district bank, under regulations of the F a r m Credit Administration. SEC. 2.6. N E T EARNINGS—DETERMINATION; ANNUAL APPLICATION; SURPLUS ACCOUNT; ABSORPTION OF N E T LOSS.— (a) If, at the end of a

fiscal year a Federal intermediate credit bank shall have stock outstanding held by the Governor of the Farm Credit Administration, such bank shall determine the amount of its net earnings after paying or providing for all operating expenses (including reasonable valuation reserves and losses in excess of any such applicable reserves) and shall apply such net earnings as follows: (1) to the restoration of the impairment, if any, of capital stock and participation certificates, as determined by its board of directors; (2) to the restoration of the amount of the impairment, if any, of the surplus account or allocated reserve account established by this subsection, as determined by its board of directors; (3) 25 per centum of any remaining net earnings shall be used to create and maintain an allocated reserve account; (4) a franchise tax shall be paid to the United States, as provided in section 4.0 of this Act; (5) reasonable unallocated contingency reserve account may be established and maintained; (6) dividends on stock held by production credit associations and on participation certificates may be declared as provided in section 2.2(f) of this title; and (7) any remaining net earnings shall be distributed as patronage refunds as provided in subsection (b) of this section. Amounts applied to reserve account as provided in (3) above, either heretofore or hereafter, shall be allocated on the same patronage basis and have the same tax treatment as is provided in subsection (b) of this section for patronage refunds. A t the end of any fiscal year that the allocated reserve account of any bank exceeds 25 per centum of its outstanding stock and participation certificates, such excess may be distributed, oldest allocations first, in stock to production credit associations and participation certificates issued as of the date of the allocations. If and when the relative amounts of stock in a Federal intermediate ^ credit bank owned by the production credit associations are adjusted to reestablish the proportion of such stock owned by each association, as provided in the first or second paragraphs of section 2.2 (g) of this title, amounts in the reserve account that are allocated to production credit associations may be adjusted in the same manner, so far as practicable, to reestablish the holdings of the production credit associations in the allocated legal reserve accounts into substantially the same proportion as are their holdings of stock. No part of the surplus account established by a Federal intermediate credit bank on January 1, 1957, consisting of its earned surplus account, its reserve for contingencies, and the surplus of the production credit corporation transferred to the bank, shall be distributed as patronage refunds or as dividends. I n the event of a net loss in any fis75-432 O - 72 - 40

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cal year after providing for all operating expenses (including reasonable valuation reserves and losses in excess of any such applicable reserves), such loss shall be absorbed by: first, charges to the unallocated reserve account; second, impairment of the allocated reserve account; third, impairment of the surplus other than that transferred from the production credit corporation of the district; fourth, impairment of surplus transferred from the production credit corporation of the district; fifth, impairment of stock and participation certificates held by production credit associations and participation certificates held by other financing institutions; and sixth, impairment of nonvoting stock, (b) If at the end of a fiscal year a Federal intermediate credit bank shall have outstanding capital stock held by the Governor of the Farm Credit Administration, patronage refunds declared for that year shall be paid in stock to production credit associations and in participation certificates to other financing institutions borrowing from or discounting with the bank during the fiscal year for which such refunds are declared. The recipients of such patronage refunds shall not be subject to Federal income taxes thereon. All patronage refunds shall be paid in the proportion that the amount of interest earned by the bank on its loans to and discounts for each production credit association or other financing institution bears to the total interest earned by the bank on all such loans and discounts outstanding during the fiscal year. Each participation certificate issued in payment of patronage refunds shall be in multiples of $5 and shall state on its face the rights, privileges, and conditions applicable thereto. Patronage refunds shall not be paid to any other Federal intermediate credit bank, or to any Federal land bank or bank for cooperatives. (c) If, at the end of a fiscal year a Federal intermediate credit bank shall have no outstanding capital stock held by the Governor of the Farm Credit Administration, the net earnings of such bank shall, under regulations prescribed by the F a r m Credit Administration, continue to be distributed on a cooperative basis with an obligation to distribute patronage dividends and with provision for sound, adequate capitalization to meet changing financing needs of production credit associations, other financial institutions eligible to discount paper with the bank, and other eligible borrowers, and prudent corporate fiscal management, to the end that the current year's patrons carry their fair share of the capitalization, ultimate expenses, and reserves. Such regulations may provide for the application of less than 25 per centum of net earnings after payment of operating expenses to the restoration or maintenance of the allocated reserve account, additions to unallocated contingency reserve account of not to exceed such per centum of net earnings as may be approved by the Farm Credit Administration, and provide for allocations to patrons not qualified under the Internal Revenue Code, and the payment of patronage in stock, participation certificates, or in cash, as the board may determine. If during the fiscal year but not at the end thereof a bank shall have had outstanding capital stock held by the Governor of the Farm Credit Administration, provision will be made for the payment of the franchise tax required in section 4.0. (d) Such allocations of reserve account shall be subject to a first lien as additional collateral for any indebtedness of the holders thereof to the bank and in any case where such indebtedness is in default may, but shall not be required to, be retired and canceled for application on such indebtedness, and, in case of liquidation or dissolution of a holder thereof, such reserve account allocations may be retired, all as is provided for stock and participation certificates in section 2.2(g) of this title.

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2.7. DISTRIBUTION OF ASSETS ON LIQUIDATION.—In the case of liquidation or dissolution of any Federal intermediate credit bank, after payment or retirement, as the case may be, first, of all liabilities; second, of all stock held by the Governor of the F a r m Credit Administration at p a r; third, of all stock owned by production credit associations at p a r and all participation certificates at face amount; any remaining assets of the bank shall be distributed as provided in this subsection. Any of the surplus established pursuant to section 2.6 (excluding that transferred from the production credit corporation of the district) which the Farm Credit Administration determines was contributed by financing institutions other than the production credit associations discounting with or borrowing from the bank on January 1, 1957, shall be paid to such institutions, o r their successors in interest as determined by Farm Credit Administration, and the remaining portion of such surplus (including that transferred from the production credit corporation of the district) shall be paid to the holders of voting and nonvoting stock pro rata. The contribution of each such financing institution under the preceding sentence shall be computed on the basis of the ratio of its patronage to the total patronage of the bank from the date of organization of the bank to January 1, 1957. The allocated reserve established pursuant to section 2.6 shall be paid to the production credit associations and other financing institutions to which such reserve is allocated on the books of the bank. Any assets of the bank then remaining shall be distributed to the production credit associations and the holders of participation certificates pro rata. SEC. 2.8. TAXATION.—Every Federal intermediate credit bank and the capital, reserves, and surplus thereof and the income derived therefrom shall be exempt from Federal, State, municipal, and local taxation except taxes on real estate held by a Federal intermediate credit bank to the same extent, according to its value, as other similar property held by other persons is taxed. The obligations held by the Federal intermediate credit banks and the notes, bonds, debentures, and other obligations issued by the banks shall be deemed to be instrumentalities of the Government of the United States, and, as such, they and the income therefrom shall be exempt from all Federal, State, municipal, and local taxation, other than Federal income tax liability of the holder thereof under the Public Debt Act of 1941 (31 U.S.C. 742 (a)). ^e Stat. i9o. SEC. 2.9. [Vacant.] 3i use 742a. SEC.

PART B—PRODUCTION CREDIT ASSOCIATIONS

2.10. ORGANIZATION AND CHARTERS.—Each production credit association chartered under section 20 of the F a r m Credit Act of 1933, as amended, shall continue as a federally chartered instrumen- ^°®'' P* ^2'*' tality of the United States, Production credit associations may be organized by ten or more farmers or ranchers or producers or harvesters of aquatic products desiring to borrow money under the provisions of this title. The proposed articles of association shall be forwarded to the Federal intermediate credit bank for the district accompanied by an agreement to subscribe on behalf of the association for stock in the bank in such amounts as may be required by the bank. The articles shall specify in general terms the objects for which the association is formed, the powers to be exercised by it in carrying out the functions authorized by this part, and the territory it proposes to serve. The articles shall be signed by persons desiring to form such an association and shall be accompanied by a statement signed by each such person establishing eligibility to borrow from the association in which he will SEC.

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[85 STAT.

become a stockholder. A copy of the articles of association shall be forwarded to the Governor of the F a r m Credit Administration with the recommendations of the bank concerning the need for such an association in order to adequately serve the credit needs of eligible persons in the proposed territory and whether that territory includes any area described in the charter of another production credit association. The Governor for good cause shown may deny the charter. Upon approval of the proposed articles by the Governor and the issuance of a charter, the association shall become as of such date a federally chartered body corporate and an instrumentality of the United States. The Governor shall have the power, under rules and regulations prescribed by him or by prescribing in the terms of the charter or by approval of bylaws of the association, to provide for the organization of the association, the initial amount of stock of the association, the territory within which its operations may be carried on, and to direct at any time such changes in the charter as he finds necessary for the accomplishment of the purposes of this Act. SEC. 2.11. BOARD OF DIRECTORS.—Each production credit associa-

tion shall elect from its voting members a board of directors of such number, for such terms, with such qualifications, and in such manner as may be required by its bylaws. SEC. 2.12. GENERAL CORPORATE POWERS.—Each producticm credit association shall be a body corporate and, subject to supervision by the Federal intermediate credit bank for the district and the F a r m Credit Administration, shall have power to— (1) Have succession until terminated in accordance with this Act or nny other Act of Congress. (2) Adopt and use a corporate seal. (3) Make contracts. (4) Sue and be sued. (5) Acquire, hold, dispose, and otherwise exercise all of the usual incidents of ownership of real and personal property necessary or convenient to its business. (6) Operate under the direction of its boaid of directors in accordance with this Act. (7) Subscribe to stock of the bank. (8) Purchase stock of the bank held by other production credit associations and stock of other production credit associations. (9) Contribute to the capital of the bank or other production credit associations. (10) Invest its funds as may be approved by the Federal intermediate credit bank under regulations of the Farm Credit Administration and deposit its current funds and securities with the Federal intermediate credit bank, a member bank of the Federal Reserve System, or any bank insured under the Federal Deposit Insurance Corporation, and may pay fees therefor and receive interest thereon as may be agreed. (11) Buy and sell obligations of or insured by the United States or of any agency thereof or of any banks of the Farm Credit System. (12) Borrow money from the Federal intermediate credit bank, and with the approval of such bank, borrow from and issue its notes or other obligations to any commercial bank or other financial institution. (13) Make and participate in loans, accept advance payments, and charge fees therefor. (14) Endorse and become liable on loans discounted or pledged to the Federal intermediate credit bank. (15) Enter into loss sharing agreements with the Federal intermediate credit bank and other production credit associations.
 * )rovide services and other assistance as authorized in this title and

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(16) Prescribe by its board of directors its bylaws not inconsistent with law providing for the classes of its stock and the manner in which it^ stock shall be issued, transferred, iuid retired, its officers and employees elected or provided for, its property acquired, held, and transferred, its general business conducted, and the privileges granted it by law exercised and enjoyed. (17) Elect by its board of directors a manager or other chief executive officer, and provide for such other officers or employees as may be necessary, including joint employees as provided in this Act, define their duties, and require surety bonds or make other provisions against losses occasioned by employees. No director shall, within one year after the date when he ceases to be a member of the board, be elected t)r designated a salaried employee of the association on the board of which he served. (18) Elect by its board of directors a loan committee with power to approve applications for membership in the association and loans or participations or, with the approval of the bank, delegate the approval of applications for membership and loans or participations within specified limits to other committees or to authorized officers and employees of the association. (19) Perform any functions delegated to it by the bank or the F a r m Credit Administration. (20) Exercise b;^ its board of directorS or authorized officers or employees, all such incidental powers as may be necessary or expedient to carry on the business of the association. SEC. 2.13. CAPITAL STOCK; EXCHANGE; AND DIVIDENDS.— (a)

CLASSES

OF

STOCK;

TRANSFERS;

A production credit association may issue voting stock, nonvoting stock, preferred stock, participation certificates, and provide for an equity leserve. Holders of stock, participation certificates, and equity reserve shall have such rights, not inconsistent with the provisions of this section, as are set forth in the bylaws of the association. Stock shall be divided into shares of $5 par value each, and participation certificates shall have a face value of $5 each. (b) Voting stock may be purchased only by fanners and ranchers, or producers or harvesters of aquatic products, who are eligible to borrow from the association. Each holder of voting stock shall be entitled to no more than one vote except as otherwise provided in subsection (d) hereof. No voting stock or any interest therein or right to receive dividends thereon shall be transferred by act of the parties or by operation of law, except to another person eligible to hold voting stock, and then only as provided in the bylaws. (c) Nonvoting stock may be issued to the Governor of the F a r m Credit Administration and to other investors. (d) Preferred stock, which shall be nonvoting, may be issued to the Governor and to other investors when a u t h o r i z ^ by a majority vote of the outstanding shares of voting stock, by a majority vote of the outstanding shares of the nonvoting stock, and by a majority vote of the outstanding shares of preferred stock, except that all stock held by the Governor shall be excluded from voting hereunder. For the purpose of this subsection only, the holders of such stock shall be entitled to one vote, in person or by written proxy, for each share of stock held. The authorization to issue p^referred stock shall state the privileges, restrictions, limitations, dividend rights (either cumulative or noncumulative) redemption rights, preferences, and other qualifications affecting said stock, and the total amount of the authorized issue to which it belongs.

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PUBLIC LAW 92-181-DEC. 10, 1971

[85 STAT.

(g^ Participation certificates may be issued to persons eligible to borrow from the association to whom voting stock is not to be issued. (f) Each borrower from the association shall be required to own at the time the loan is made voting stock or participation certificates as provided in the bylaws of the association, m an amount equal in fair book value (not exceeding par or face amount, as the case may be), as determined by the association, to $5 per $100 or fraction thereof of the amount of the loan. Such stock and participation certificates shall not be canceled or retired upon payment of the loan or otherwise except as may be provided in the bylaws. Notwithstanding any other provision of this section, for a loan in which an association participates with a commercial bank or other financial institution other than a Federal intermediate credit bank or another production credit association, the requirement that the borrower own stock or participation certificates shall apply only to the portion of the loan which is retained by the association. (g) Voting stock shall, within two years after the holder ceases to be a borrower, be converted into nonvoting stock at the fair book value thereof, not exceeding par. Consistent with the provisions of this part, and as provided in the bylaws of the association, each class of stock and participation certificates shall be convertible into any other class of stock (except preferred stock) and into participation certificates. (h) As a further means of providing capital, an association may, as provided in its bylaws, and with the approval of the bank, require borrowers to purchase stock or participation certificates in addition to that required in subsection (f) hereof, or invest in the equity reserve, in an aggregate amount not exceeding $5 per $100 or fraction thereof of the amount of the loan. Any portion of the amounts invested under this subsection which is no longer required for the purposes of the association may be returned to the owners thereof by revolving or retirement in accordance with its bylaws. (i) Dividends shall be paid on preferred stock in accordance with the authorization of the stockholders to issue each stock. Dividends on stock, other than preferred stock, and on participation certificates may be paid by an association as provided in its bylaws at such rate or rates as are approved by the Federal intermediate credit bank in accordance with regulations of the Farm Credit Administration, and may be paid, upon such approval, even though the amount in the surplus accounts is less than the minimum aggregate amount prescribed by the bank as provided in section 2.14. (j) Except with regard to stock held by the Governor, each production credit association shall have a first lien on stock and participation certificates it issues, allocated surplus, and on investments in equity reserve, for any indebtedness of the holder of such capital investments and, in the case of equity reserve, for charges for association losses in excess of reserves and surplus. (k) In any case where the debt of a borrower is in default, the association may retire all or part of the capital investments in the association held by such debtor at the fair book value thereof, not exceeding par or face amount, as the case may be, in total or partial liquidation of the debt. SEC. 2.14. APPLICATION" or EARNINGS; RESTORATION OF CAPITAL IMPAIRMENT; AND SURPLUS ACCOUNT.— (a) Each production credit

association at the end of each fiscal year shall apply the amount of its earnings for such year in excess of its operating expenses (including provision for valuation reserves against loan assets in an amount equal to one-half of 1 per centum of the loans outstanding at the end of the fiscal year to the extent that earnings in such year in excess of

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other operating expenses permit, until such reserves equal or exceed 31/^ per centum of the loans outstanding at the end of the fiscal year, beyond which 3i/^ per centum further additions to such reserves are not required but may be made) first to the restoration of the impairment, if any, of capital; and second, to the establishment and maintenance of the surplus accounts, the minimum aggregate amount of which shall be prescribed by the Federal intermediate credit bank. (b) When the bylaws of an association so provide, available net earnings at the end of any fiscal year may be distributed on a patronage basis in stock, participation certificates, or in cash, except that when the Governor holds any stock in an association the cash distribution shall be such percentage of the patronage refund as shall be determined under regulations of the F a r m Credit Administration. Any part of the earnings of the fiscal year in excess of the operating expenses for such year held in the surplus account may be allocated to patrons on a patronage basis. SEC. 2.15. SHORT- AND INTERMEDIATE-TERM LOANS; PARTICIPATION; OTHER FINANCIX^.L ASSISTANCE; TERMS; CONDITIONS; INTEREST, SECU-

RITY.— (a) Each production credit association, under rules and regulations prescribed by the board of directors of the Federal intermediate credit bank of the district and approved by the F a r m Credit Administration, may make, guarantee, or participate with other lenders in short- and intermediate-term loans and other similar financial assistance to (1) bona fide farmers and ranchers and the producers or harvesters of aquatic products, for agricultural purposes and other requirements of such borrowers, (2) rural residents for housing financing in rural areas, under regulations of F a r m Credit Administration, and (3) persons furnishing to farmers and ranchers farm-related services directly related to their on-farm operating needs. Rural housing financed under this title shall be for single-family, moderate-priced dwellings and their appurtenances not inconsistent with the general quality and standards of housing existing in, planned or recommended for the rural area Avhere it is located. The aggregate of such housing loans in an association to persons other than farmers or ranchers shall not exceed 15 per centum of the outstanding loans at the end of its preceding fiscal year exce)>t upon prior approval by the Federal intermediate credit bank of the district. The aggregate of such housing loans in any farm credit district shall not exceed 15 per centum of the outstanding loans of all associations in the district at the end of the preceding fiscal year. For rural housing purposes under this section the term "rural areas" shall not be defined to include any city or village having a population in excess of 2,500 inhabitants. Each association may own and lease, or lease with option to purchase, to stockholders of the association equipment needed in the operations of the stockholder. (b) Loans authorized in subsection (a) hereof shall bear such rate or rates of interest as are determined under regulations prescribed by the board of the bank with the approval of the Farm Credit Administration, and shall be made upon such terms, conditions, and upon such security, if any, as shall be authorized in such regulations. In settingrates and charges, it shall be the objective to provide the types of credit needed by eligible borrowers, at the lowest reasonable cost on a sound business basis, taking into account the cost of money to the association, necessary reserves and expenses of the association, and services provided to boiTOwers and members. The loan documents may provide for the interest rate or rates to vary from time to time during the repayment period of the loan in accordance with the rate or rates currently being charged by the association. Such regulations may require prior approval of the bank or of Farm Credit Administration on certain classes of loans; and may authorize a continuing commitment to a borrower of a line of credit.

"Rural areas."

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PUBLIC LAW 92-181-DEC. 10, 1971 SEC. 2.16. OTHER SERVICES.—Each production credit

Ti use 742a.

[85 STAT. association

may provide technical assistance to borrowers, applicants, and members and may make available to them at their option such financial related services appropriate to their on-f arm operations as is determined feasible by the board of directors of each district bank, under regulations prescribed by the F a r m Credit Administration. SEC. 2.17. TAXATION.—Each production credit association and its obligations are instrumentalities of the United States and as such any and all notes, debentures, and other obligations issued by such associations shall be exempt, both as to principal and interest from all taxation (except surtaxes, estate, inheritance, and gift taxes) now or hereafter imposed by the United States or any State, territorial, or local taxing authority. Such associations, their property, their franchises, capital, reserves, surplus, and other funds, and their income shall h& exempt from all taxation now or hereafter imposed by the United States or by any State, territorial, or local taxing authority; except that interest on the obligations of such associations shall be subject only to Federal income taxation in the hands of the holder thereof pursuant to the Public Debt Act of 1941 (31 U.S.C. 742 (a)) and except that any real and tangible personal property of such associations shall be subject to Federal, State, territorial, and local taxation to the same extent as similar property is taxed. The exemption provided in the preceding sentence shall apply only for any year or part thereof in which stock in the production credit associations is held by the Governor of the F a r m Credit Administration. TITLE III—BANKS FOR COOPERATIVES 3.0. ESTABLISHMENT; TITLES; BRANCHES.—The banks for cooperatives established pursuant to sections 2 and 30 of the Farm Credit Act of 1933, as amended, shall continue as federally chartered instrumentalities of the United States. Their charters or organization certificates may be modified from time to time by the F a r m Credit Administration, not inconsistent with the provisions of this title, as may be necessary or expedient to implement this Act. Unless an existing bank for cooperatives is merged with one or more other such banks under section 4.10 of this Act, there shall be a bank for cooperatives in each farm credit district and a Central Bank for Cooperatives. A bank for cooperatives may include in its title the name of the city in which it is located or other geographical designation. The Central Bank for Cooperatives may be located in such place as its board of directors may determine with the approval of the Farm Credit Administration. When authorized by the Farm Credit Administration each bank for cooperatives may establish such branches or other offices as may be appropriate for the effective operation of its business. SEC.

Post,

p. 624,

SEC. 3.1. CORPORATE EXISTENCE; GENERAL CORPORATE POWERS.—Each

bank for cooperatives shall be a body corporate and, subject to supervision by the Farm Credit Administration, shall have power to— (1) Adopt and use a corporate seal. (2) Have succession until dissolved under the provisions of this Act or other Act of Congress. (3) Make contracts. (4) Sue and be sued. (5) Acquire, hold, dispose, and otherwise exercise all of the usual incidents of ownership of real and personal property necessary or convenient to its business. (6) Make loans and commitments for credit, provide services and other assistance as authorized in this Act, and charge fees therefor. (7) Operate under the direction of its board of directors.

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PUBLIC LAW 92-181-DEC. 10, 1971

(8) Elect by its board of directors a president, any vice presidents, a secretary, a treasurer, and provide for such other officers, employees, and agents as may be necessary, including joint employees as provided in this Act, define their duties and require surety bonds or make other provisions against losses occasioned by employees. (9) Prescribe by its board of directors its bylaws not inconsistent with law providing for the classes of its stock and the manner in which its stock shall be issued, transferred, and retired; its officers, employees, or agents elected or provided for; its property acquired, held, and transferred; its loans made; its general business conducted; and the privileges granted it by law exercised and enjoyed. (10) Borrow money and issue notes, bonds, debentures, or other obligations individually or in concert with one or more other banks of the System, of such character, and such terms, conditions, and rates of interest as may be determined. (11) Participate in loans under this title with one or more other banks for cooperatives and with commercial banks and other financial institutions upon such terms as may be agreed among them. (12) Deposit its securities and its current funds with any member bank of the Federal Eeserve System, and pay fees therefor and receive interest thereon as may be agreed. When designated for that purpose by the Secretary of the Treasury, it shall be a depository of public money, except receipts from customs, under such regulations as may be prescribed by the Secretary; may be employed as a fiscal agent of the Government, and shall perform all such reasonable duties as a depository of public money or financial agent of the Government as may be required of it. No Government funds deposited under the provisions of this subsection shall be invested in loans or bonds or other obligations of the bank. (13) Buy and sell obligations of or insured by the United States or of any agency thereof, or securities backed by the full faith and credit of any such agency and make such other investments as may be authorized by the Farm Credit Administration. (14) Conduct studies and adopt standards for lending. (15) Amend and modify loan contracts, documents, and payment schedules, and release, subordinate, or substitute security for any of them. (16) Perform any function delegated to it by the Farm Credit Administration. (17) Exercise by its board of directors or authorized officers, employees, or agents all such incidental powers as may be necessary or expedient to carry on the business of the bank. SEC. 3.2. BOARD OF DIRECTORS.—(a) In the case of a district bank for cooperatives, the board of directors shall be the farm credit district board and in the case of the Central Bank for Cooperatives shall be a separate board of not more than thirteen members, one from each farm credit district and one at large. One district director of the Central Bank Board shall be elected by each district farm credit board and the member at large shall be appointed by the Governor with the advice and consent of the Federal F a r m Credit Board. (b) For the purposes of this section the provisions of sections 5.1 (b) and (c), 5.4, 5.5, and 5.6 shall apply to and shall be the authority of the Central Bank for Cooperatives the same as though it were a district bank. SEC. 3.3. B A N K FOR COOPERATIVES STOCK; VALUE; CLASSES OF STOCK; VOTING; EXCHANGE.—(a) The capital stock of each bank for

cooperatives shall be in such amount as its board determines, with the approval of Farm Credit Administration, is required for the purpose

603

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PUBLIC LAW 92-181-DEC. 10, 1971

[85 STAT.

of providing adequate capital to permit the bank to meet the credit needs of borrowers from the bank and such amounts may be increased or decreased from time to time in accordance with such needs. (b) The capital stock of each bank shall be divided into shares of par value of $100 each and may be of such classes as the board may determine with the approval of the F a r m Credit Administration. Such stock may be issued in fractional shares. (c) Voting stock may be issued or transferred to and held only by (i) cooperative associations eligible to borrow from the banks and (ii) other banks for cooperatives, and shall not be otherwise transferred, pledged, or hypothecated except as consented to by the issuing bank under regulations of the F a r m Credit Administration. (d) Each holder of one or more shares of voting stock which is eligible to borrow from a bank for cooperatives shall be entitled only to one vote and only in the affairs of the bank in the district in which its principal office is located unless otherwise authorized by the Farm Credit Administration, except that if such holder has not been a borrower from the bank in which it holds such stock within a period of two years next preceding the date fixed by the F a r m Credit Administration prior to the commencement of voting, it shall not be entitled to vote. (e) Nonvoting investment stock may be issued in such series and in such amounts as may be determined by the board and approved by the Farm Credit Administration and, except for stock held by the Governor, may be exchanged for voting stock or sold or transferred to any person subject to the approval of the issuing bank. SEC. 3.4. DIVIDENDS.—Dividends may be payable only on nonvoting investment stock, other than stock held by the Governor of the Farm Credit Administration, if declared by the board of directors of the bank. SEC. 3.5. RETIREMENT OF STOCK.—Any nonvoting stock held by the Governor of the F a r m Credit Administration shall be retired to the extent required by section 4.0(b) before any other outstanding voting or nonvoting stock shall be retired except as may be otherwise authorized by F a r m Credit Administration. When those requirements have been satisfied, nonvoting investment stock may be called for retirement at par. With the approval of the issuing bank, the holder may elect not to have the called stock retired in response to a call, reserving the right to have such stock included in the next call for retirement. When the requirements of section 4.0(b) have been met, voting stock may also be retired at fair book value not exceeding par, on call or on such revolving basis as the board may determine with approval of the F a r m Credit Administration with due regard for its total capital needs: Provided, however, That all equities in the district banks issued or allocated with respect to the year of the enactment of this Act and prior years shall be retired on a revolving basis according to the year of issue with the oldest outstanding equities being first retired. Equities issued for subsequent years shall not be called or retired until equities described in the preceding sentence of this proviso have been retired. SEC. 3.6. GUARANTY F U N D SUBSCRIPTIONS IN L I E U OF STOCK.—If

any cooperative association is not authorized under the laws of the State in which it is organized to take and hold stock in a bank for cooperatives, the bank shall, in lieu of any requirement for stock pur-. chase, require the association to pay into or have on deposit in a guaranty fund, or the bank may retain out of the amount of the loan and credit to the guaranty fund account of the borrower, a sum equal to the amount of stock which the association would otherwise be required to own. Each reference to stock of the banks for cooperatives in this

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