Hon. HowardCarney

Secretary of State Austin, Texas April 23, 1953 Opinion No. S-33. Be; Construction of the exemption provisions under Section 3of the Texas Securities Act, Art. 600a, V.C.S. Dear Senator Carney:

Your letter of April 3 following question for determina4 1953, presents ion: Wherethe previous sales of corporate securities were exempt under the Texas Securities Act, is it necessary for the corporation to qualify its securities and register as a dealer whenthe numberof security holders exceeds twenty-five? Pour letter also states that:

“It has been a longstanding Departmental Construction from the passage of the Texas Securities Act in 1935 that the momenta corporation exceedeg twentyfive stockholders, the corporation would be in violation of the Texas Securities Act.

‘This construction seems to have been reached by implying from Subdivision (j) of Section 3, Article 600a, V.C.S., that a corporation would circumvent the Act by selling, in the first inst.&, all of its securities to a group smaller than twenty-five, andthen the stockholders, relying on another exemption, selling a part of their personal holdings to other persons. In addition, it seems that each of the exemptions provided under Section 3were construed together rather than separately.” thec

Hon. HowardCarney, page 2 (S-33)

Section 3(j) of Art. 600a V.C.S. reads as follows:

“(ii) The sale bv anv dmesic co Dra &Q of its stock or other sicurtities ffsOsuea in good faith pd not for the DurDose o avoimrr the urovislons of this AC& so long as the total numberof stockholders’and security holders of said corporation does not andwill not after such sale exceed twentyfive (2.5) andthe securities are issued and disposed of without the use of advertisements, circulars, agents, salesmen, solicitors, or any form of public solicitation.” (Emphasis supplied) (Art. Theprovisions of the Texas Securities Act 600a V.C.S.) applicable to the question presented are as follows:

“Section 5. Nodealer, agent or salesmanshall sell or offer for sale any securities issued after the passage of this Act, except those which comewithin the classes enumerated in Subdivisions (a) to (r), both inclusive I of Section 3 of this Act, or Subdivision a) to (i) both inclusive, of Section 23 of this Act until the issuer of such securities or a deaier registered under the provisions of this Act shall have been granted apermit bythe Secretary of State.

. .”

“Section 12. Except as provided in Section 3 of this Act noperson, firm, corporation or dealer shail, directly or through agents or salesmen, offer for sale, sell or makea sale of, any securities in this State without first being registered as in this Act provided.

. .‘I

“Section 3. Exempttransactions. Except as hereinafter in this Act specifically provided, the provisions of this Act shall not apply to the sale of u security when madein m of the following transactions andunder m of the following conditions, andthe companyor persons engaged therein shall not be deemeda dealer within the meaning of this Act; that is to say the provisions of this Act shall not appIy to uHon. HowardCarney, page 3 (S-33)

sale, offer for sale, solicitation, subscription, dealing in or delivery of any security under any of the following transactions or conditions: It

. . . e

“(~1 Sales of secues madeby or in behalf of a a in the ordina;y course of bona fidz personal Investment of his personal holdings, or change of such investment, if such vendor is not otherwise engaged either permanently or temporariiy in selling securities; provided, that in no event shall such sales or offerings be exempt from the provisions of this Act whenmadeor intended, either directly or indirectly, for the benefit of any company or corporation within the purview of this Act.

“(d) she distribution bv a eoroaof securitie,s direct to its stockas a stock dividend or other distribution paid out of earnings or surplus.

stockholders andwithout payment of any commission or expense to any officer employee, broker or agents, andwithou$incurring anyliability for any expenses whatsoever in connection with such distribution.” (Emphasis supplied) II

. *

. . Section 3(c), supra, provides anexemption allowing anindividual not engaged in the securities business the right to dispose of his personal lnvestmentwithout serious restriction. &blev v. Co193 S.W.2d,239 (Tex.Civ.App., 1946 error ref. n.r.e.j* Shriver v. titou 188 S.W.2d ~9~r(Tex.Clv.App. error ref.) See alLo &QJne
. la & 135 Tex. 4461944, 143 S.W.2d 197 (1940) andacaszs there& cited. Sucha provision is obviously intended to give a certain degree of latitude to the individual investor.Hon. HowardCarney, page 4 (S-33)

to declare Section 3(d), supra, permits the corporation

a stock dividend to be paid out of earnings or surplus, while Sectlon 3(e), supra, permits the sale of anincrease in capital stock to the stockholders of the corporation under certain conditions.

Your letter states that the companyhere involved has met all the requirements of sub-divisions (d) and (e) of Se’ction 3. Having metthe requirements set out in the statute for anexempt transaction, it will not nowbe necessary to look to other exempt transTurning nowto consideration of your second problem, one of the most basic concepts of our jurlsprudence is the refusal of courts andadministrati~s;$~- ties to assumethat the law will be violated. guarding procedure is certainly available here for the language of Section 3(c) limits the right of the individual vendor. Therequest for an opinion indicates that there is no question of this companyattempting in anymannerto evade the provisions of the Act.

Thecourts of this State have long recognized that in the adminlstration of statutes of doubtful construction, a reasonable interpretation adopted by the administering agency will have considerable weight. However, where the statute is not ambiguous, the interpretation by the departmental officials is of novalue. &g &&seOil Comnanyv. Reagan County 217 S.W.2d 171 (Tex. Civ.App. 1948 error ref.); A. B.‘Frank ComnanvV. 190 S.W.2d 734 (Tex.Civ.Agti

, 1946); & 1945, affirmed 145 Tex. t

, 41 S.W.2d urnv. Associated Retail @edit.

i sion of Texas v. RedArrow Freight L language (Tex.Clv.App., 1936, error ref.). ,WWa the of the statute is plain andclear given effect as It is written. Gatelv V. Tex. , 254 S.W.2d 98 (1952).

Since each of the transactions increasing the numberof security holders in the corporation occurred according to the submitted facts, in such a manneras 40 comewithin one of the exemptions under Section 3 OfArt. 6OOa,V.C.S., the Secretary of State maynot nowrequireHon. HowardCarney, page 5 (S-33)

the qualffication of the securities or the reglstratfon of the corporation as a dealer merely because the numberof security holders has nowexceeded 25.

For the reasons stated above, your question is answered in the negatfve.SUMMARY

Wherea transaction is exempt from the Securities Act, Art. 600a V.C.S., under anyprovision of Section 3it Is not necessary or proper for the Secretary of State to consider another exemption that maynot be applicable ., Each exemption mr Sectiog 3 is of equal weight. APPROVED2 C. K, Richards Appellate Division Willis E. Gresham Revfewer Yours very truly, JOBNBEESBEPPERD Attorney General

Robert S. Trotti First Assistant John BenShepperd Attorney General EMM:wb