,- 

THEAYTORNEYGENERAL 

OFTEXAS 

Honorable M. 0. Flowers 

~seamtl3l-y of state 

Austin, Texas 

Dear Sire 

Attention: l&r, John Vickers 

Opinion Iioo O-2327 

Rex Agreement between Investors 

Syndicate and Investors Ebutual, 

lncorpbrated* 

Your request fop an opinion of this department has been received 

and considered. we quote the pertinent portion of your letter as fOllom$ 

"The Irrvestors Mutual, Incorporated, a Nevada corporation, is orgsnized for 

the purpose of operating an investaent compsnyc Said company will operate 

in this State in the following manner8 

"The stock of such company will be sold in Texas by the parent company, 

Investors Syndicate, a Minnesota corporation, as an independent oontractor 

rather than agent. The sales contractwill be accepted and stock oertifiarrtes issued in Minnesota. 

"This departarent desires to kuon if in your opinion it is nsosssary for 

the Investors Mutual, Incorporated, to obtain a permit to de business in 

this State. 

"A copy of the charter and sales contract is hereto attaahed andre request that same be returned to us. We also attaah a brief prepared by 

Messrs. Blaok, Graves 8~ Stayton of this oity~ 

"In addition to the question propounded to you in the writer's letter of 

May 6, 1940, the writer'will appreciate your answering this additional 

question: 

sDoes the Investors &@d&oate have the authority under 

its charter and the laws'of Texas to enter into such an 

agreement as outlined in my letter of kay 67 

"III this oonneotion you are advised that the Investors 

Syndicate secured a permit to en&age in selling investment oertifioates." 

The Investsmut Syndioats is a foreign oorporation domioiled in 

k&nesota with a permit to do business in Texas* The Investors Mutual, Inoorporat&, is a IWfade corporation desiring totransaot or soliolt business 
Honorable M. 0. Flowers, page 2 (O-2327) 

in this State. The tm oonoerns shall hereinafter be referred to as the 

Company and the 8ypdioat.e. 

The Syndioate occupied the leading role in the formation and 

organization of the Companye Aocordingly, as could be. expected, the 

offioers end direotors of the Syndicate are those of the Company~ Incidental thereto, t31e Smdiorte own8 or cc&rol~ some 94% plus of the 04pital 

stock of the Company. 

The primary purpose and parers of the Company, as set out in 

Section (a) of &tiole III of ita Certifiaate of Incorporation, are as follows, 

s(a) To subsoribe for, reoeive, purohrse, or otherwise aoquire, underwrite, 

obtain an interest in, 011111, hold, pledge, hypothecate, mortgage, assign, 

deposit, oreate trusts with reepeot to, de41 in, exohange, 8811, and Otherwiase dispose of, alone or in syndio4te8, or otherwise in conjunction with 

others, and generally deal in and with fully or partly paid securities of 

every desoription of, or oreated or issued by, any foreign or domestio 

governmenta, statee, gOVemnUUYt41 or muniolp41 'bodies or politio4l subdivieions, companies, trusts, assooiations, 8yUdicrte8, psrtndrships, and/or 

persons. The term tseourltiee~ 4s used in this Certifioate of InoOPpOratiOn 

shall be constied to inolude, without being limited to, shares, stocks, 

treasury stooks, inoluding any atooks of this Compmy, notes, bonds, debenture8, evidences of indebtedness, oertificates of intersst or participation 

in any profit sharing ngreemente, oollateral trust aertifioates, reorganieation oertifioates or sub8oription8, tmn8fePable shares, irmestient oontracts, voting trust oertificate8, oertifioates of deposit for a seourity, 

fractional or undivided interests in oil, gas, or other mineral rights, or 

any ceptifioates of interest or partioipation in, temporary or interim csrtifioates for, reOeipt8 for, guarantees of, or warrants or rights to subscribe to or pureham any of the foregoing, 4oceptances and other obligations, and my eoidenoe of any right or intereat in or to any cash, property or assets; . . l 

ì. . . 

" ( d) To issue its own securities and to sell and exchange sUoh securities 

and any certificates, receipts, warrants or other instrument8 representing 

rights to receive, purohase or subscribe for such securities, op pepresenb 

iug any interest thereunder in such amounts and on such terms and couditiOnS and for such purposes aa the Doard of Directors may, from time to time 

determine, subject, however, to the provisions of the Certificats of Incor' 

poration, or amendments thereto, and @ EJL&TS of the Company;* 

operate as, 

C~iOuSly the above asidenoes that the Company is designed to 

and perform the function8 of, an im%?&snt trust concern. The 

proposed business of the Company is described as follows, in its registration statement to the Federal Securities abd Exchange Comissionr 
- - 

..- 

honorable M. 0. Plowers, page 3 (O-2327) 

c 

'The business intended to be done by ths issuer is that of an investment 

company of the general management hype with powers under its charter to 

oarry on the general busine88 of owning, holding and managing investments 

and doing a general investient business. Its acquisition and disposition 

of the securities other than obligation8 in'the United States of Amerioa 

are restricted to those securities whioh shall receive the recommendation 

or approval of th6 issuer's inves%aent manager, suoh recommendation or 

approval to include the amount, time and terms of such acquisition and/or 

disposition. In accordance with the+provisions of the Articles of Incorporation of the issuer and pursuant to the terms of an agreement dated January 

19, 1940, the Inrestors Syndicate, a Minnesota corporation, is the investment manager for the issuer. 

"The issuer presently intend8 to buy and sell securities and to invest and 

reinvest its resouroes in accordance with the recommendations and approvals 

made to it by Investors Syndicate* . . ." 

Ikiefly, the Company sells oertifioates of interest and partioipation to the investing public. The funds so derived are reinvested in a 

msnner theoretically beneficial to all conoerned. The certil'ioate holder 

eontemplates a pro rata shnre in the profits, if any, arising from the Company's reinresixsent of their investment. 

Pursuant to the Cempany*s desire to offer these certificates to 

the investors of this Sta-Le, and, as a matter of ocnxenience, to do so Without 

first sulmitiing to the necessary formalities attending the acquisition of 

a permit, the Company has conceived and executed an agreement designed to 

attain their aspiration. 

This agreement between Investors Mutual, Incorporated, and 

Investors SynJice1.e is rather lengthy and complex. Hem-wer, from the following excerpts, the gist of the agreement may be obtained along with the 

sanctioning, paragraph taken from Seotion (c) of Article III, Certificate 

of Incorporationc 

"To enter into a contract or oontracts wherein and whereby a responsible 

person, entity, syndicate, partnership, association or corporation is 

constituted and appointed the,exclusive representative or agent of +&is 

Companywith the exclusive right to 6011,~ offer for sale, purchase, repurchase or redeem any of the securities issued by this Company and/or 

granting toraid representative an exclusive right of management, investment and re-investment of the funds and assets of tiis Company; . . ." 

Section (1) of Part One of tie Agreement deals with the distribution of securities. It provides: 

s(1) The Company hereby covenants and agrees that during the term of this 

contract and any renewal or extension thereof or until any prior termination thereof (hereinafter referred to as 'the periodof this contact'), 
-, 

Hon. M. 0. Flowers, page 4 (C-2327) 

the Syndicate shall have the emlusive right to offer for sale and to dirtribute any and all seourities issued or to be issued by the Company, and 

more specifioally, but without limikting '$10 generality of tie foregoing, 

all Special Stook Class 'A* shares of ihe Company authorised to~be issued 

during the period of this oontraote 

"(2) The Syndicate Syndicate hereby covenant8 covenant8 and agree8s to act as the sole distrib distrib 

utor of the securities securities issued and tobe issued by the Company Company during the 

period of this oontraat oontraat and agrees during auoh period to offer offer for sale and 

to sell such securities, securities, including including the Special Special Stook Class ‘A* shares of the 

Company, Company, and to continue continue the offering offering and sale of said securities, securities, including including 

said Special Special Stook ClaS8ss *A* shares, shares, as long as said aecuritiea aecuritiea remain 

available available for sale a& distribution, distribution, InIle uless the Syndicate Syndicate is unable to make 

such sales or solicitations solicitations legal* 'b8oauae 'b8oauae of any federal, federal, state, provirw provirw 

oial or governmental governmental law, rule or agen0y.s agen0y.s 

Part (a) of Section (4) provides* 

“All sales of Speoial Stook Class *A* Shares of the Company shallbe'smde by 

means of a written application in form approved by the Company and the Syndicate at the time of the signing of such application. %ery such application 

shall be subject to acoeptanoe or rejeotion Iy the Company at its principal 

place of busine8s. Such shares of stook are to be mofd for cash, payable at 

time the application for such shares i8 received at the principal place of 

business of the Company, . . .a 

Part One, Sections: 

"(8) The Syndicate agrees to submit to the Company for its prior written 

approval all oiroulara, sales literature, radio Iuoadaast material, publicity 

data and other advertising material which is contemplated to be used by the 

Syndicate in the sale of securities issued by the Company. 

"(9) The Syndioate agree8 that all payments made for the purchase of seourdties issued or to bs issued by the Company shall in all oa.888, exoept where 

aotual cash is received, bs made payable to the Company. 

"(10) The Syndicate agrees to oause to bedelivered to each person signing an 

application, a prospectus or circular to be furnished by the Company in the 

form which, at the time of the siping of such application, shall be required 

by any applicable Federal Securities Aot or by the acts or statutes of any 

state, provinoe or country in which such application is signed by the applicant. 

"(11) The Syndicate covenants and agrees~that during the period of this contract, It will not buy securities issued by the Company for its own account, 

except from the Company, and that it till not~aell securities issued by the 

Company which have been purchased by the Syndicate for its own account, exoept to the Company." 
. - 

Hon. M. 0. Flowers, page 5 (C-2527) 

Part Tea of the Agreement concerns investment advice, statiatioal data, and recommendations as follewst 

"(1) The Company hereby retains the Syndicate and the Syndicate hereby 

covenants and agrees, for the period of this contract and under t&e terms 

and conditions herein eet forth, to furnish the Company with advioe, st+ 

tistioal data and reooumendation8 with respect to the Company*s investments 

and to reoonrmend and approve aeouritiea for aoquiaition and disposition by 

the Company. 

"(2) The Company covenants andagrees that, during the period of this eontract, itwill purchase or otherwise aoquire only such securities as may be 

recommended or approved by the Syndicate at the time of such purohase or 

other acquisition; . . . 

"(5) The Company further covenants and agree8 that, except as to obligations. of the United States of Amerioa, itwill sell, exchange or othereLse 

dispose of any part or all of it8 seouritiea in such emounts at such time 

and upon such terms a8 may be reoonraended or approved ly the Syndicate. . . . 

"(4) The Company further covenant8 and agree8 that, except a8 to obligations 

of the United State8 of Amerioa, it will sell, axohange or otherwise dispose 

of, only such securities a8 may be reoommended or approved by the Syndicate 

for 8uoh sale, exchange or diSpO8itiOn. 

'(5) The Syndicate agrees that all of its reoommendations or approvals relating to the acquieition and disposition of seaurities by the Company shall 

be transmitted to the Company in Writing, and the Company agrees to advise 

the Syndioate in writing (a) of all action taken by the Company with respect 

to any such recommendation or approval; (b) of all distribution reoeived 

upon the oash, seourities or otherproperty of the Company; (0) @f m2.l liabilities charged or chargeable l galnet the Company .and (d) of sny other 

matters in oonneotion with the asset8 and liabilities of the Ccrmpany whioh 

may bs requested %y the Syndioate from time to ti~8e" 

Part Four of 8aid agreement deal8 with the compensation of the 

Syndicate: ,, 

v(1) The Compwiy oovenants and agree8 to payto the Syndicate, and the 

Syndicate covenants and agrees to aooept from, the Company, in full payment 

for the Syndioate'8 services heretQder,tha foIloW%ng fees: 

"(a) A fee equal to five and one-half per cent (5$.$) of the 

aggregate amount received by the Company for the sale of all Spaoial Stock 

Class gA* shares of the Comprqy tobe issued during the period ofthis oontract (excepting, however; shares issued pursuant to the provisions of Part 

one, subparagraph 12 hereof). The amountof such fee shall be paid the 

Syndicate five (6) @uaineas d&y6 sftar the reoeipt atid ~ooap~ce bythe 

Company of the application for suoh share& 
,-. 

Hon. M. 0. Flowers, page 6 (O-2328) 

s(b) A fee equal to one-eight of one per cent (l/8 of 1%) of 

the Value of the gross assets (as hereinafter defined) of the Company, as 

of the close of business on the fifteenth day of &cy, June, September, 

and December of eaah year shallbe paid in cash, rfthin five (5) business 

days after eaoh such fifteenth day of &arch, June, September and December, 

respectively, of said year. . . . 

"(0) A f ee equal to 1% of the liquidation value . . . of all 

shares of the Compeny~s oapital stock outstanding for a period of less then 

four years which are redeemed by the Company in eaoh month during the periof 

of tiis aontraot . . .n 

Part 81x of the agreement prwides for the termination of the 

Agreement: 

s(1) This agreement shall continue in effeot until the end of the calendar 

year 1969 and shalf oontinue from year to year thereafter, unless and until 

terminated by either par@ as hereinafter provided." 

Investors Syndioate is a loan and brokerage oompany within the 

purview of Arti 1524a, V.A.C.B., as amended. Section.1 of that +tiole 

prwidess 

"This Aot shall embraoe corporations h&etx&re created and hereafter created 

having for their purpose pr purpeses q or all of~the pewera now authorized 

qn Subdivisions 48, 49, or SO of Article 1302, Raoised Civil Statutes of 

Texas, 1926, and heretofore or~hermfter oreated having in whole or in part 

any purpose or purpeeee now auboriaed in ChQter 276, Benate Bill llhunber 

232 of the Generd and Special Laws of the Regular Session of the 40th Legislature. IJo such corporation shall act a8 agent or trustee in the oonsolidation of or for the purpese of combining the assets. 'business or means of 

other persons, firm.?. asrooiations. or corporations, nor shall suoh aorporatione as agents or trustees oarry on the hsine8s of another . . ." 

In enaoting the above statutory provisions, the Legislature must 

have used tie tens *business s in its ordinary significance. True, the word 

is comprehensive; but, in our opinion, when applied to oorporations, the 

word necessarily implies those corporate activities and funotion- which are 

authorized by and engaged in pursuant to the provisions of their oharter. 

It means the transaction of those affairs and the fulfillment of those purposes for which the corporate entity was designed and organized. 

with this in mind, we perceive the sale of securitiesand oertifioates along with investment of the proceeds therefrorm as primarily and 

essentially the business of the Investors Mutual, Incorporated. This is 

its admitted corporate purpose. This being true, it cannot bo denied that 

contact with the investing public is of the greatest importanoe and highly 

necessary for the trausaotion of the corporate business. Investors Syndicate has contracted to perform this indispensable corporate function. 
Hon. Id. 0. Flawcare, page 7 (O-2327) 

Not only has the syndioate agreed to sell q and all securities issued or to be issued by the Company, but it has gons further and 

bound itself to tend the proper investment of any proceeds or funds derived 

from those sales. 

MLPter oarefu$ oon6ideration of the agreement and the attending 

facts of the situation presented te us,we reach our conclusion, and you 

are advised that Invertora Syndioate is not authorized under the laws of 

this State to &+er into the ageementrhish, in effect, m&es the Syndoate 

the agent of the Compw and to such a degree that the Syndicate, as a 

praotioal matter, carries on the lnmineos of the Company within the meaning 

of rtiole 1524a, supra. In other words, any wert act underakenby the 

8ynd i oate whioh oonstituterr, or tends to constitute, either direatly or 

indireotly, an effort to effect the intent, purpeses, or aims of the sontraoting partie@, aa enBresssd in this agreement, willbe aahieved only 

by a violation of the law and an overetepping of its announced aorporate 

parse thus, subjecting itself to the penalty announoed in section 10 of 

lrtiole 1624a0 

Furthermore, me find, that there is no more than a mere tempotery or 6paarnodio relationship between the corporations. There is an 

element of oomBarative permanenoe dlsosrnible here. 

This conolusion precludes our consideration of any question as 

to vðer rnvsstore Mutual, Inoorporated, must first aomply with Artiole 

1529, Revis& Civil Statutes of Texas, 1926, and obtain a pennit before 

operating in Texas under the contemplated arrangement. 

Tzu6ting that this fully an8wers your inquiry, we remain 

Yours verytruly 

ABBEOVED JUNE 8,194O 

/*/ Gerald C. Mann 

ATTOBBEYGEBEBALOF~ 

ATTORNEY GEBEBAL OFTApprwedc Opinion Committee 

&BIBChairman 

%/s/m. J. Fanning 

Hln. J* Fanning 

Assistant 

&- /s/G&y Rilliams