Hon. Howard Carney 

Secretary of State 

Austin, Texas 

April 23, 1953 

Opinion No. S-33. 

Be; Construction of the 

exemption provisions 

under Section 3 of 

the Texas Securities 

Act, Art. 600a, V.C.S. 

Dear Senator Carney: 

Your letter of April 3 

following question for determina 4 

1953, presents 

ion: 

Where the 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 when the number of 

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 moment a corporation exceede g 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, and then 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 

3 were construed together rather than 

separately.” 

the 
c 

Hon. Howard Carney, page 2 (S-33) 

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

“(ii) The sale bv anv d mes ic co D ra 

&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 number of stockholders’and security holders of said corporation does not 

and will not after such sale exceed twentyfive (2.5) and the securities are issued and 

disposed of without the use of advertisement s, circulars, agents, salesmen, solicitors, or any form of public solicitation.” 

(Emphasis supplied) 

(Art. 

The provisions of the Texas Securities Act 

600a V.C.S.) applicable to the question presented 

are as follows: 

“Section 5. No dealer, agent or salesman shall sell or offer for sale any securities issued after the passage of this Act, 

except those which come within 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 dea i er registered under the 

provisions of this Act shall have been granted 

a permit by the Secretary of State. . .” 

“Section 12. Except as provided in Section 3 of this Act no person, firm, corporation or dealer shail, directly or through 

agents or salesmen, offer for sale, sell or 

make a sale of, any securities in this State 

without first being registered as in this Act 

provided. . .‘I 

“Section 3. Exempt transactions. Except as hereinafter in this Act specifically 

provided, the provisions of this Act shall 

not apply to the sale of u security when 

made in m of the following transactions 

and under m of the following conditions, 

and the company or persons engaged therein 

shall not be deemed a dealer within the meaning of this Act; that is to say the provisions of this Act shall not app I y to u 
Hon. Howard Carney, 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 made by 

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 when made or 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 and without payment of any 

commission or expense to any officer employee, broker or agents, and withou $ incurring any liability for any expenses 

whatsoever in connection with such distribution.” (Emphasis supplied) 

II 

. * . . 

Section 3(c), supra, provides an exemption 

allowing an individual not engaged in the securities 

business the right to dispose of his personal lnvestment without 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 &QJ ne . la & 135 Tex. 446 

1944, 

143 S.W.2d 197 (1940) andacaszs there& cited. Such a 

provision is obviously intended to give a certain degree of latitude to the individual investor. 
Hon. Howard Carney, 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 an increase in capital stock to the stockholders of 

the corporation under certain conditions. 

Your letter states that the company here involved has met all the requirements of sub-divisions 

(d) and (e) of Se’ction 3. Having met the requirements 

set out in the statute for an exempt transaction, it 

will not now be necessary to look to other exempt transTurning now to consideration of your second 

problem, one of the most basic concepts of our jurlsprudence is the refusal of courts and administrati~s;$~- 

ties to assume that 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. The request for an opinion indicates 

that there is no question of this company attempting in 

any manner to evade the provisions of the Act. 

The courts 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 no value. &g 

&&se Oil Comnany v. Reagan County 217 S.W.2d 171 (Tex. 

Civ.App. 1948 error ref.); A. B.‘Frank Comnanv V. 

190 S.W.2d 734 (Tex.Civ.Agti 

, 1946); & 

1945 , affirmed 145 Tex. t 

, 41 S.W.2d 

urn v. Associated Retail @edit. 

i 

sion of Texas v. Red Arrow Freight L 

language 

(Tex.Clv.App., 1936, error ref.). 

,WWa the 

of the statute is plain and clear 

given effect as It is written. Gatelv V. 

Tex. , 254 S.W.2d 98 (1952). 

Since each of the transactions increasing the 

number of security holders in the corporation occurred 

according to the submitted facts, in such a manner as 40 

come within one of the exemptions under Section 3 Of Art. 

6OOa, V.C.S., the Secretary of State may not now require 
Hon. Howard Carney, page 5 (S-33) 

the qualffication of the securities or the reglstratfon of the corporation as a dealer merely because 

the number of security holders has now exceeded 25. 

For the reasons stated above, your question 

is answered in the negatfve. 

SUMMARY 

Where a transaction is exempt from the 

Securities Act, Art. 600a V.C.S., under 

any provision of Section 3 it Is not necessary or proper for the Secretary of State 

to consider another exemption that may not 

be applicable ., Each exemption mr Sectiog 

3 is of equal weight. 

APPROVED2 

C. K, Richards 

Appellate Division 

Willis E. Gresham 

Revfewer 

Yours very truly, 

JOBN BEE SBEPPERD 

Attorney General 

Robert S. Trotti 

First Assistant 

John Ben Shepperd 

Attorney General 

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