December L:,lY70

HonorableMartin Dies, Jr. Opinion No. M- 754 Secretaryof State Capitol Building Re: Should the Secretary of Austin, Texas State administrativelyreinstate, under Article 12.17, Title 122A,Tax-Gen.,,V.C.S., a trust company formed under Article 1302, subsection 49..

**‘ or** **’ Article**  1303(b),V.C.S., without proof that the corporationhas complied with Article 1513a,V.C.S., and especiallywhether the corporation is authorized to have and doeshave a fully paid-in capital of not less Dear Mr. Dies: than $5OO,OOOiOO? Your recent requestpresents the followingquestion for determinationby this office:

"Should the Secretary of State administratively reinstate, underArticle 12.17, TaxationGeneral, Vernon'sAnnotated Texas Statutes, a trust company formed underArticle 1302, subdivision 49, or Article 1303(b),Vernon's Annotated Texas Statutes,without **proof that**  **the** corporationhas complied with Article 1513a, Vernon's Annotated Texas Statutes, and especially whether the corporation is authorized to have and ', does have a fully paid-in oapital of **not** less than $500,000.00.~ This question of whether the Secretary of State should requireproof of compliancewith Article 1513a,lTitle 32, Corporations,before **reinstating the**  **charter** of **a corporation** 

1. All Articles cited **are** as codified in Vernon's Civil Statutes.

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Hon. Martin Dies, Jr., page 2 (M-754)

formed under eitherArticle 1302(49),or Article 1303(b),of this Title 32, (the latter two articles repealedby Acts 1961, 57th Leg., p. 458, ch. 229, Sec. 1, Eff. Aug. 28,.1961), actuallypresents two questions for determination in this opinion. The first question concerns the Secretary of State'swrightor duty to require that a corporation seeking reinstatementunder Article 12.17, Title 122A, Taxation-General, complywith all laws thenpertaining to it before allowing reinstatemant~of its charter. Assuming that such a duty on the part of the Secretary of State exists, the second question is whether the provisions of Article 1513a, apply to corporations chartered under eitherArticle 1302(49) or Article 1303(b), and which corporations seek reinstatementof their charters granted under the authority of either of these Articles. Article 12.17 provides for administrative and judicial reinstatements of charters forfeited either administrativelyby the Secretary of State or judicially by court order. We are concerned here with only the right to administrative reinstatementprovided for corporationswith charters administratively forfeited by the Secretary of State. Article 12.17 provides in part:

"(3)
. . . (b). Any corporation,domestic or foreign,whose charter or certificatehas been forfeitedwithout judicial ascertainment by the Secretary of State may revive said charter.or certificate,by first filing all delinquent franchise tax reports as requiredby law and by filing all franchise taxes; penalties, and interest due by said corporation at the time of the request.
. . . Upon such request, and upon the determination that all delinquenttfranchisetax,reportshave been filed and all franchise taxes, penalties, and interestdue by said corporation at the time of the request for reinstatementhave been paid, the Secretary of State shall administrativelyset aside the forfeiture.

. ." This statutoryprovision does not speak of any requirement that a corporation to be reinstated must complywith any other laws relating to its existence or operation. However, it can easily be seen that if such corporation is not required to comply with all laws pertaining to its existence and operation under its charter before it is reinstated, the Secretary of State would be put in the unreasonable and untenable position of reinstating corporations that cannot exist or operate under their char& as

-3677-Hon. Martin Dies, J., page 3 IM-754)

reinstated. 

### Forexample, this problemwould arisewhenever a corporationdid not have a registered agents as requiredby the Texas Business CorporationAct, or failed to meet some other provision of the corporation laws,but did meet the requirements of Article 12.17 by paying all delinquent franchise taxes, penalties, and interest due. It is implicit in any procedure to create or reinstate a corporate charter that the corporate laws dealingwith suoh a corporationbe complied~withprior to its creation or reinstatementon the records of the Secretary of State. In view of the above holdingwe must now determine the scope of Article 1513a, in so far as its **prOViSiOnS** may apply to corporations having charters originally granted under either Article 1302(49),or Article 1303(b). If the provisions of Article 1513a apply to such corporations seeking reinstatement,then the Secretary of State must require compliancewith them before allowing reinstatement

### of the forfeited charter.
An understanding of the subject matter of these three statutes dealingwith trust companies is necessary to this opinion these statutes read in their 

### relevantparts: i

Article 1302 "Thepurpoaes forwhich private corporations may be formed are: ,I

. . . . "49. For any one or more of the followingpurposes: To accumulate and lendmoney, purchase, sell and deal in notes, b.ondsand securities,but.withoutbanking and discountingprivileges; to act as trustee under any lawful express trust committed to themby contract and as agent for the performance of any lawful act.” Artiole 1303(b)
"A private corporation may be formed for any one or more of the followingpurposes,without banking or insurance privileges: to accumulate and loan money; to sell and deal in notes, bonds and seourities; to act as Trustee under any lawful express trust committed to it by contract or will, or under appointmentof any court having jurisdictionof the subject matter, and as agentHon. Martin Dies, Jr., page 4 **(M- 754)** 

for the performance of any lawful acts;.
. . .' Article 1513a "Section 1,. Trust companiesmay be created, and any corporation,however created,, may amend its,oharter in complianceherewith, or a foreign corporation may obtain a certificate. of authority to do business in Texas for the followingpurpose: to act as trustee, executor, administrator,or guardianwhen designated by any 'person,corporation , **or** court to do so, and as agent for the performance of any lawful act, including the righ:tto receive deposits. made by agencies of the United States of America,for the authorized account of any individual, and to act'as attorney-in-fact for reciprocal or inter-insuranceexchange, and to lend and accumulatemoney without banking privileges,when licensed under the provisions of Subtitle II of Title 79, Revised Civil Statutes of Texas, 1925, as amended. "Section 2. (a)Such corporations shall be subject to supervisionby the Banking Commissioner **of** Texas and shall file

. . .each year a statement of its condition showing under oath its assets and liabilities, ;oge;herwith a **fee** of $25 for filing;..

. . "(b)The Banking Commissioner of Texas shall
. . . cause to be examined each such oorporation annuallyor more often if he deems it necessary. . . . If such corporation has not sold in Texas, and does not offer for sale or sell in Texas, any of its securitieswhich have been registered **or** with respect towhich a permit authorizing their sale has been issued under the Securities Act,
. . . the Banking Commissioner

. . . shall accept the financial statement filedby such corporation pursuant to the firstparagraph of this Section.

. . . "(c) If any such corporation shall fail to comply with the requirementsof the first paragraph of this Section

. . . such failure shall,subject such corporation to a penalty **of** not leas than $200 nor more than $1,000, which shallbe collected at the suit of the Attorney General.
. . . A second failure to file such statement,

. . . shallbe grounds for forfeiture **of** the charterof such corporation at the suit **of** theAttorney General
. . .lion. Martin Dies, Jr., page 5 **(M- 754)** 

”(d) Refusal.
. .of any such corporation to submit to an examinationby the Banking Commissioner

. . . or . . .withholding of information

. . . shall constitutegrounds **for** forfeiture of the charter of such corporation

. . . "Section 3. Any securities issued.or sold by such companies shallbe issued and sold in compliance with

. . . SecuritiesAct,
. . . "Section **4.** Any such company,musthave a fully paid-in capital of not less than $500,000. "Section 5. Any such company shall not accept demand or time deposits, except as hereinaboveprovided. "Section 6. The provisions **of** thisAct shall apply to foreign corporationswhich have heretofore been authorized and which may hereafterbe authorized to transactbusiness in this State under a certificate of authoritywhich authorizes such corporation to, exercise in this State all or any of the purposes, powers or authorities referred to in Section 1 hereof.
. . . "Section 7. The General Laws for incorporation and governing of corporationsand the provisions **of** Article 1513, Revised Civil Statutes of Texas, 1925, and the provisions of the Texas Business Corporation Act shall supplement the provisions of thisAct and shall apply to such trust companies to the extent that they are not inconsistentherewith; provided, the provisions of Article 2.01A permitting a corporation **to** have more than one purpose shall not apply. The power and authorityherein conferred shall in no way affect any of the provisions of the antitrust laws of this State." The above quoted statutes all,authoriae the oreation of corporationshaving trust powers, characterized as "trust companies' by the courts and in Section 7, **of** Article 1513a. Carney\v. Sam Houston Underwriters, 272 S.W.Zd 942 (Civ.App.1954, error ref. n.r.e.); Stewart v. Ramsey, Secretary of State, 148 Tex. 249,' **223** S.W.Zd 782 (1949).Hon. Martin Dies, Jr., page 6 IM-754)
Articles 1302(49), and 1303(b),were enacted in 1919 and 1927, respectively, andwere repealed as **of** August 20, 1961. Article 1513a,was enacted in 1957 and is still in effect. After the repeal **of** Articles 1302(49), and 1303(b), a trust company couldbe created only under the authorityof Article 1513a. Although all three statutes authorized the creationof "trust companies", only Article 1513a sets out a comprehensivestatutory scheme for the regulationof such corporations. Article 1513a,providing for the creation and the regulation of trust companies and requiring the compliancewith specific conditions therein providedby such trust companies,effected a change in the conditions and requirementsnecessary for all trust companies, including those theretofore created under prior statutes authorizing corporationswith trust powers. This statute is not the first enactmentwhereby prior corporationshave been subjected to subsequent requirementsnecessary forits continued existence as a corporationhaving the same powersgranted to it' by the statute underwhich itwas originally created. Jefferson County Title Guaranty Co. v. Tarver, 119 Tex. 410, 29 S.W.?d 316 (Comm.App.adopted 1930). In that case a title guaranty company incorporated in 1927 under Article 13021571,Title 32, Corporations,,wassubjected to a later act requiring an increase in the capital stock subscribed **of** $50,000.00. The court quoted the following statutes and provisions of our State Constitution: Article XII, Section 1, Texas Const.: "No private corporation shallbe created except by general laws." Article XII, Section 2, Texas Const.: "Generallaws shall be enacted providing for the creation 'ofprivate corporations,and~shall thereinprovide fully for the adequateprotection **of** the public and the individual stockholders." Article 1318: "All charters or amendments to charters under the provisions of this chapter, shall be subject to the power of the Legislature to alter, **reform,** or amend the same."

-, 3f,R **J ,.,** Bon. Martin Dies, Jr., page 7 (M-754)

Under the above constitutionaland statutoryprovisions,2 the courtheld that the company,having been incorporatedunder the Constitution and general laws of Texas expressly reserving in the Legislature the right~to alter, reform, or amend the corporation laws and charters, is subject to the Act of 1929 requiring the capital stock **of** $100,000.00 as a conditionprecedent to doing business in this state,and that such statutory requirement does not impair any contract evidencedby the charter granted by the State to the company, The Court furtherheld that a corporation such as the one in question had no vested right in the privilege of doing a title guaranty business as a corporation,and therefore suffered no loss of any vested right to property in a change in the statute law prescribing a larger capital stock as a conditionprecedent to continuingbusiness in this State. This construction'ofArticle 1513a is not inconsistentwith the prior Acts providing that corporations could be created having trust pwers because the subsequent Act, Article 1513a, does not invalidate the charters theretoforegranted but merely provides I certain standards such as the amount of capital necessary, compliancewith the Securities Act and compliancewith the regulations providing for annual reports submitted to the Banking C&anissioner **of** Texas and his examination thereof. Further support is given to the above construction of Article 1513a because of the language of Section 6 **of** that statute. Section 6 provides that all foreign corporations' authorized to transactbusiness in thexate of Texas under a certificate~of ,authoritywhich authorizes such corporations to exercise in this State all or any of the powers or purposes referred to in Section 1 of Article 1513a must complywith the provisions of thatAct. If domestic corporationshaving trust powers set out in Section 1 of Article 1513a,did not have to complywith the provisions of thatAct then a classificationbased on the nature of the corporation as domestic or foreignwould result. It is the settled law of the land that a foreign corporation,once admitted to do business in a state, is untitled to equal treatment under the laws of that

2. Article 1318 has been replacedby Article 9.12, Business Corporation Act, which contains similar provisions.

**-3682-**Bon. Martin Dies, Jr., p.age8 **(H- 754)** 

state. Whyy, Inc. v. Borough 

### of Glaaboro, 393 U.S. 117 (1968), 21 L.Ed. 242, 89 S.Ct. 286. The rule is stated in 17 Fletcher's Cyclopedia

### of The Law of Private Corporations, 58396, on page 292:

”

. . . separate classificationof foreign and domestic corporations,,for'purpose**of** regulation, where the foreign corporationha8 been admitted to the state, is unconstitutionalas an unreasonable and arbitrary ola8sification\jhichconetitutee **a** --

.'. denial of the equal protection **of** the laws;
. . .' (emphaeisadded). Where a corporationhas not been admitted to the state, special condition8 

### or standard8may be imposed that do **not** apply to like domestic corporations. Also where ground8 

### fordistinction between foreign and domestic corporations exist, the'above rule does not apply. Here, in view 

### of the fact that domestic oorporations authorized to have trust power8under Articles 1302(49) and 1303(b) are not subject to any regulations if Article 1513a does not apply to them, the regulatoryprovisions 

### of thatAct,which clearly apply to fore+- corporation8previously admitted to the state under a certifi'eate of'authority authorixing them to have like trustpowers,would constitute a denial of equal protection of the ,lawato such foreign corporatione. Ground8 for a distinction between foreign and domestic corporations are not evident under such oircumstanoes. It is a well-settled rule of law that a rtatutewill be construed in a manner thatwill uphold the constitutionalityof its provisions: 53 Tex.Jur.Zd 225, Statutes, 5158. By holding that Article 1513a applies alike to all domestic and 

### foreigncorporations authori8ed to have the trust powers defined in Section 1 of that Act-, the constitutionality **of** said statute is preserve'd. For the above reasons, it is our view thatArticle 1513a appliesnot only to corporations created under the authorityof that Act, but also to all trust companieswhether foreign or domestic, that may wish to employ the trustpwers defined in Section 1 of Article 1513a. The Secretary of State, therefore, is authorized to require proof of compliancewith the laws governing trust companies, inciud-

**-3683-**Hon. Martin Dies, Jr., page 9 (M-754)

ing the provisions of Article 1513a,before allowing reinstatement **of** such corporations underArticle 12.17 allowing reinstatementof charters forfeited for failure to pay franChiS& taxes.

SUMMARY The Secretary of State is not require,d to reinstate a corporationwhose charter, once reinstated,would not complywith the corporate laws governing said corporation. Article 1513a,V.C.S., applies not only to corporations created under the authority of that Act, but also to all trust companieswhether foreignor domestic, that may wish to employ the trust pavers defined in Section 1 of Article 1513a. The Secretary **of** State, therefore, is authorized to requireproof of compliancewith the laws governing trust companies, including the provisions of Article 1513a~ before allowing reinstatement of such corporations

### underArticle 12.17,V.C.S., allowing reinstatementof charters forfeited 

### for failure to pay franchise taxes.Hon. Martin Dies, Jr., page 10 (M-754)

Preparedby Wardlw Lane Assistant Attorney General APPROVED: OPINION COMMITTEE Kerns Taylor, Chairman W. E. Allen, Co-Chairman S. J. Aronson John Banks John Reeves Rogeq Tyler
MEADE F. GRIFFIN StaffLegal Assistant ALFRED

WALKER ExecutiveAssistant NOLA WRITE ?%rSt &38iStSl¶t

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