# GENERAL THEA~TORNEY

OF TEXAS

Aus- ~.TEXAS W’ILL WILSON A’CIORNEY GENERAL July 11, 1960

Hon. Zollie Steakley secretary ofstate Austin, Texas

,Dear Mr. Steakley: Opinion No. WW-880
Re: Authority ofthe Secretary ofState to accept and file an application for the adoption ofthe provisions ofthe Texas Non-Profit Corporation Act by a corporation which is incorporated for the purpose ofmaintaining fishing and hunting clubs and protecting Bndpreserving fish and game and raising livestock for profit onthe preserves ofthe tilub.

You have requested an opinion ofthis office concerning a corporation which has applied to adopt the provisions ofthe Texas Non-Profit Corporation Act andwhich has authority in its charter to issue stock andhas for its corporate purpose the purpose expressed inSubdivision 10ofArticle 1302 of Texas Revised Civil Statutes of 1925. Your questions are:

1. Should the Secretary ofState accept andfile the application when the applicant was organized for the purpose expressed in Subdivision 10ofArticle 1302?
2. Should the Secretary ofState accept and file an application made by a corporation authorized to issue capital stock under its existing charter ?
3. What procedure should be followed by the Secretary of State in determining the non-profit status ofthose corporations which were organized under the provisions of Title 32 ofthe Revised Civil Statutes of 1925 andwhose charters do not contain any express statement to the effect that they were organized for nonprofit purposes ?
Your questions will be dealt with in reverse order.
We assume the third question is asked with reference to such a determination being made in connection with an application for the adoption ofthe Texas Non-Profit Corporation Act. This opinion is accordingly so lim,ited. It is, ofcourse, fundamental that no corporation except anon-profit corporation may adopt the provisions ofthe Non-Profit Corporation Act. Article 10.04.

Hon. Zollie Steakley. page 2 (WW- 880)

and Article 1.02A (I), (2). and (3), Texas Non-Profit Corporation Act.1 ~When a corporation proposes to adopt the provisions ofthe Act. and makes application to that effect to the Secretary ofState, he, the Secretary of State, must find that the application “conforms to the law.” Article 10.04R (3). NonProfit Corporation Act. Inso doing, the Secretary ofState must nec,essarily determine whether the applicant corporation is, in fact, a non-profit corporation. As enunciated inAttorney General’s Opinion WW-849, the mere fact that the purpose clause in the charter ofthe applicant corporation recites thathitis non-profit is not conclusive or definitive ofthe corporation’s non-profit status. See Celina &Mercer County Telephone Co. v. Union Center Mutual Telephone Association, 102 Ohio St. 487, 133N.K. 540 (1921) and Read v. Tidewater Coal Exchange Inc., 116Atl. 898 (Del.Chan. 1922). The criterr 

### b h’ hth Secretary of State should determine whether a corporation is in f~c~a’~on-;rofit corporation are set out inArticle 1.02A (3) and 2.24 ofthe Act andwere discussed at greater lengthsyin Opinion WW-849 towhich you are referred.

Your further attention is called to the provisions ofArticle 9.04 relating to the powers ofthe Secretary ofState. which reads as follows:

“The Secretary ofState shall have the power and authority reasonably necessary to enable him to administer this Act efficiently and to perform the duties therein imposed uponhim.”
Since the Secretary of State must decide whether a corporation is, in fact, anonFprofit corporation and since such adecision is necessarily factual innature, the provisions ofArticle 9.04 authorize the Secretary ofState as a condition precedent to the accepting and filing ofany application for adoption ofthe provisions ofthe Non-Profit Corporation Act to require the applicant corporation to furnish such gerpane and material information as is reasonably necessary to enable the Secretary ofState to determine the non-profit status ofthe corporation.

Inresponse to your second question, you are advised that the provision ofthe applicant corporation’s charter authorizing the issuance ofcapital stock is not in and ofitself abar to the applicant corporation’s adoption ofthe NonProfit Corporation Act. Snyder V*Findlay Chamber of Commerce, 53 Ohio St. 1.41N.E. 33 (1895); Celina &Mercer County T one Co; v. Union Center 102Vhio St. 487,

. . 0 (1921). As you quest, the Non-Profit Corporation Act does not

lFo,r brevity this Act shall be,referred to in the balance ofthe opinion merely as theAct or as the Non-Profit Corporation Act.1

Hon. Zollie Steakley, page 3 (WW-880)

expressly authorize the issuance of stock, butArticle 2.08D does authorize the issuance of certificates or cards or other instruments evidencing, inter a~lia. ownership rights as authorized by artitiles ofincor,poration aridthe bylaws. Inview ofthese authorities, we think that the authorization inthe charter to issue stock is not in and of itself conclusive. Of course the authority to issue stock,. the,amount of stock issued, the distribution ofthe stock issued4 and related factors are all materia,l facts, which, when considered with allother material facts, may well justify the Secretary ofState in determining that a particular applicant corporation is not infact anon-profit corporation.

The purpose clause which is the subject matter ofyour first question reads as follows:

” ‘The purpose for which itis formed is to “To establish and maintain fishing, hunting and boating clubs: to protect, preserve and propagate fish and game; to purchases and own such lands and bodies ofwater as may be desirable in connection therewith; to erect suitable improvements thereon, and to raise such livestock for profit only as the preserves ofthe club will maintain,” as authorized by subdivision 10ofArticle 1302 ofthe Texas Revised Civil Statutes of 1925.’ ”
Were it not for the phrase “to raise such livestock for profit only as the preserves ofthe club will maintain’: it would be abundantly evident that such a corporation could be anon:profit corporation. Again this question, like all questions, is a matter ofconsidering all relevant facts instead of merely the provisions ofthe purpose clause. The issue then evolves as to whether or not the addition ofthis phrase precludes an applicant corporation having such apurpose from being anon-profit corporation.

The purpose clause in question has its historical origin inArticle 642 ofthe Revised Statutes of 1895, Section 42, which at that time provided that corporations might be formed for the purpose ofproviding for “the protection, preservation and propagation offish and game.” Later the purpose was enlarged to include the propagation ofoysters as well. Acts 1897, 25th Leg., Ch. 130. p. 188. In 1907 the statute was amended to enlarge the purpose to the present language. Acts 1907. 30th Leg., Ch. 150, p. 291. At that time, there was a provision inthe corporate statutes providing for the formation ofcorporations which had as their general purpose the raising, buying, and selling oflivestock. Thus the Legislature did not intend by its 1907 amendment to Article 642 R.S. 1895 to authorize corporations organized pursuant to Section 42 thereof (now subdivision 10, Article 1302, R.C.S., 1925) to engage in the general business ofraising and selling livestock for profit.

As we construe subdivision 10, Article 1302, it~authorises such a cor-Hon. Zollie Steakley, page 4 (WW-880)

poration to own land only insofar as it is incident to the main and principal purpose of establishing and maintaining fishing and hunting and boating clubs, protecting, preserving and propagating fish and game. This construction is in accordance with the general prohibition inthe corporate laws prohibiting corporations from owning land except as an incident to the carrying **out** of their corporate purposes. See Articles 1359, et seq, Revised Civil Statutes of 1925, having their historical origin inActs 1897, 25th Leg., Ch. 48, p. 48.

Subdiv,ision 10further limits the raising oflivestock and acquiring such livestock as may be sustained wholly from the game and fish preserves which the corporation has acquired. This, of course, would naturally present a rather stringent limitation upon the number oflivestock that could be raised by the corporation since the preserves must primarily be used as game and fish preserves. The language authorizing such corporations to raise livestock for profit when limited by this context does not by any means authorize
a corporation to engage in abusiness of raising livestock in such away as would necessarily be calculated and intended that the profit or income thereby derived would be distributable to the members or stockholders in the club.

The provision allowing a subdivision 10corporation to raise livestock for profit under these limited circumstances is not determinative ofthe nonprofit status. The Act does not bar a corporation within its purview from engaging in an income producing enterprise butin fact contemplates such will be the case in some instances. Article 1.02A (3). The language ofthe Court in Southerland v. Decimo Club, Inc., 142Atl. 786 (Del. Chan. 1928) is **most** appropriate in this regard:

“It is doubtless true that a social organization may be incorporated under the non-profit provision of **our** statute andwithin reasonable and proper limite engage in an activity to make profit. How far such an organization can go in that direction it is impossible to say in ,-general **terms.** Each case as observed in Read v. Tidewater Coal Exchange, Inc., supra, must stand onits own facts.”
The ultimate question again to be determined is whether the corporation is infact a non-profit corporation as that term is defined by the Act. YOU are accordingly advised that a corporation desiring to adopt the provisions of the Texas Non-Profit Corporation Act and having a corporate purpose identical to that set out in subdivison 10ofArticle 1302, Revised Civil Statutes of 1925. is not per se barred from adoption of the Act.
SUMMARY
The Secretary ofState is authorized as a conditionHon. Zollie Steakley, page 5 (WW-880)

precedent to the filing ofapplication for the adoption of the Texas Non-Profit Corporation Act to require such germane and material information from the applicant as may be reasonably necessary for the Secretary ofState to determine whether the applicant corporation is in fact anon-profit corporation. Provis,ions inthe corporate charter ofa corporation +&g to adopt the provisions ofthe Texas Non-Profit Corporation Act which authorize the corporation to idsue shares of capital stock would not per se bar the corporation from the adoption ofthe provisions ofthe Act.
A corporation desiring to adopt the provisions ofthe Texas Non-Profit Corporation Act is not per se barred from doing so by virtue ofprovisions ofits corporate charter setting out apurpose clause identical to that contained in Section 10ofArticle 1302, Revised Civil **Statutes** of 1925.

**Yours very**  **truly,**
WILL WILSON Attorney General 6fTexas

BYWallace P. Finfrock Assistant WPF:pe
APPROVED: OPINION COMMITTEE
W. **V.** Geppert, Chairman Fred B. Werkenthin C. K. Richards J. C. Davis Donald Bernard
REVIEWED FOR THE ATTORNEY GENERAL BY: Leonard Passmore