Honorable WllllamM. King 

State Securltiea Cbmaaiesioner 

State Securities hoard 

Austin, Texas 

Opinion No. W-564 

Re: Application ‘of the exemption 

contained In Section 5 (I) 

of the Securities Act to 

Dear Mr.. Kingi 

sale of oil and gaa faterests. 

You&letter requesting our op$nion relative to the captlouad 

matter reade lu+rt as follows: 

:. 

“SeC$ion 4.A. of the Securlties.Act states ‘The 

term ~“Beourity” or “securities” shall inclUe . ; 

ceitiflcate or any lnet.rument repreaentlug auy %utk 

est ia or under aa oil, gas or .ml+ag lease, fee or: 

title . ‘. l ,I 

“An opinion of your office is requested ae to (1) 

whether a person selling (as that term 18 deified 

la Section 4. A of the Securftlefi Act) such interest 

may claim the uemption’ of Section 5. 5. or the ‘Sacurltlee Act if after the sale of any oae such Intereet the total number of,perscas holdlug lutereets in the 

particular oil, gaa or mining lease, fee or title, 

does not exceed thirty-five and the sale is .&de without the u8e ‘of advertisements or shy form of publld 

,solicitatioh. 

“If youx answer to this question is ~3.u the af: 

flrmative,~ (2) Is it aeceeaaryfo? the person eeiilng’ 

atch a eecurlty to hold a .llcehee under the Secukitida 

Act aa a dealer in oil aud gas.” 

Article 581-5, V.C.8, dada lh,part a44 i0im8: 

I 

“Except an hereiu#ter in this”Acf apecifioally 

provided,’ the provieioae of thie Act shsll not i@pSy. .~ 

to the sale of auy seourlty when made in auy of the 

following transactlone aud under any of the followbq coaditlons, and the coapauy or pcreoh engaged, 

therein ahall not be deemed a dealer wfthfrr the meaulag of this Act; that ,la to say, the p~ovlelons of 

: 
Honorable William M. Klug, Page 2, (WW-564) 

this Act shall not apply, to any sale, offer for 

sale, solicitation, subscription, dealing 'in or 

delivery of any security under any of the following tramactions or conditions: 

. . . . 

"I. The sale by any corporation of it6 eecuritlea or by any unincorporated association or 

partaerehlp of interest, where the total mambership or stockholders will not thereafter exceed 

thirty-five (35), and where the sale Is made 

without the use of advertisements or any form of 

public solicitation;" 

Section I ouly mentions sales by corporations, unincorporated 

associations and partnerships; accordingly this exemption cau ohly spply 

to a traasactlou where au entity of thls,charactex Is the vaudor. 

With respect to unincorporated associations aud partnerehlps, 

the ohly security exempted by Sectlon I is the sale of au.Yihterest". 

Iu other words, the vendee must acquire a proprietaryiatei'e'eef'iu the 

partziershlp or unincorporated association as such. The legielatlve hiatory of Section I iudicates such is the proper comtructlou. The present exemption Is really a merger of three sections found in Section 3 

(exempt tramactions) of the 1955 Securities Act, Acts 54th Legislature, 

KS., 1955, Chapter 67, Article 579.l through 579-42 V.C.S. and Section 

3 of the Iusurauce'Securlties Act, Acts 54 Legislature, R.S. 1955, 

Chapter 384, Article 580-l through 580-39 V.C.S. Thoee rrectlons were Secthns 3(J), (k) .-J (1). Section 3(k),, which $6 the section applicable 

to partnerships, pools or other companies not a corporation, exempted 

ouly "the sale of an intereet ia a partnership, etc." Therefore, with 

respect to sales in which the vendor 1s an unincorporated aseociation 

or partnership, lu order for the sale to qualify as exempt under Sectlou 

I, the sale must be of au Interest in~the vendor-association or partaerahip, as the case may be, and after the sale there must not be @re thau 

thirty-rive mambers In the association or partnership. (Of couree, the 

sale must be msde without the use' of advertisement or advertisements or 

auy rmu of public sollcltatlon.) 

Concerning corporations, Section I only exempts from the Securities Act, salee made by corporations of its securities, which could re6ult ln lucreasing the stockholders of the corporation. The only eecurlties that a corporation could sell that could increase the number of 

stockholders would be shares of its capital stock. 

The exemption contained in Section I is ouly.appllcable to 

the sale of a security that would result in the vendee acquiring a proprietary interest in the corporation, uuincorporated association or partnership. The number of persons holding an Interest in ox under au oil, 
Honorable William M. King, Page 3, (WW-564) 

gas or mining lease, fee or title as a result of the sale is.immaterial 

as far as such exemption is concerned. 

The purchaser of an interest in or under an oil, gas or mining 

lease, fee or title from a corporation does not thereby become a stockholder In the seller corporation. The mere purchase of an Interest in or 

under an oil, gas or mining lease, fee or title from an unincorporated 

association or partnership does not thereby make the purchaser a member 

of the unincorporated association or partnership which sold the security 

and the purchaser does not acquire an "interest" therein. Of course, 

by subsequent contract, either express or implied, or by subsequent 

acts or conduct amounting to an estoppel such purchaser could become a 

member thereof or acquire an interest therein, but the mere purchase of an 

Interest in or under an oil, gas or mining lease, fee or title would not 

make the purchaser a member of the unincorporated association or partnership, or amount to the acquisition of an interest therein, or make him 

a stockholder in a seller corporation. 

Your first question is therefore answered in the negative. We 

are not passing on your second question, in that it was predicated on 

an affirmative answer to your first question. 

SUMMAR,Y 

The seller of any interest in or 

under an oil, gas or mining 

lease, fee or title may not claim 

the exemption contained in 

Section I. of Article 581-5 V.C.S. 

Yours very truly, 

WILL WILSON 

Attorney General of Texas 

WVG/fb 

APPROVED: 

OFlNION CO~ITTEE: 

Geo. P. Blackburn, Chairman 

J. C. Davis, Jr. 

Wallace P. Fiufrock 

RBVIm FOR THE ATTORNEX GENFBAL. 

BY: 

. Morgan Nesbitt 

W. V. Geppert