December 20, 1948

Hon. Paul H. Brown Opinion No. V-746 Secretary ofState Austin, Texas Re: The legality of permitting a foreign corporation to do business for profit inTexas Dear Sir: when it-has no capital stock.

Sand Springs Home, an Oklahoma corporation, has applied for a permit to do business in Texas under the provisions ofArtitle 1529, Revised Ci,vil Statutes of Texas, for the purpose of engaging inbusiness for pecuniary profit within the State ofTexas,
as authorized by~the provisions ofSubdivision 37 ofArticle 1302, Revised Civil Statutes of Texas. Under the provisions ofthe charter granted to the corporation by the State ofOklahoma, it is authorized to engage in business for the same purposes provided in Subdivision 37ofArticle UOZ,,

The corporation has.not authorized or issued. shares of capital stock but has net capital assets in excess of $lOO,OOO.OO. Its corporate powers are exercised by trustees; and the profits realized from the business ventures ofthe corporation arc us,ed and applied’to the trust purposes set forth in its charter, which
ar’e the support of charitable and benevolent organizations, the net result being that the corporation engages in business endeavors for profit, and the trustees then allocate the profits realized among various charitable and benevolent undertakings.

The Secretary ofState returned the application for the permit for the reason that the corporation, being a corporation for profit, butwithout authorized capital stock, may not be grant-

‘ed a permit to engage inbusiness in Texas since it is unable to comply with the provisions ofArticle 1530, Revised Civil Statutes ofTexas, which provides that:,

“Before such permit.1~ issued such corporation shall shop to the satisfaction ofthe Secretary ofState that at least one hundred thousand dollars in cash of 

### their authorized capital stock has been paid in, or that fifty per cent oftheir authorized capital stock has been subscribed, and at least ten per cent thereofpaid in.” Upon this factual situation, you request the answer tothe following questions-. .

Hon. Paul H. Brown, Page 2 (V-746)

“(1) Can the Secretary ofState legally approve ~theapplication ofthis corporation for a permit to do business in Texas?

“(2) Ifthis corporation were not engaged inbusiness for profit, could the application be approved ?”
The objection to the issuance ofthe permit is not based upon the nature or the purpose ofthe business proposed to be done inTexas or any insufficiency ofthe capital ofthe corporation, since it is manifest that both the purpose ofthe business and the sufficiency ofthe capital are in full compliance with the laws of Texas, but upon the framework or structure oftha corporation, since ithas no shares of capital stock either 

### authorized or issued.

Itis awell-settled rule oflaw that under the doctrine of comity and inthe absence of any prohibitory law or rule of public policy, foreign corporations 

### are entitled to enter aState and make any contracts or transact any business therein falling within the scope oftheir lawful corporate powers which are permitted to domestic corporations of like kind and character., Inaccordance with this ‘rule, ifthe laws of aState prohibit the formation ofdomestic corporations ofa specified character, or for certain purposes, its policy is controlling; and aforeign corporation ofthat character or created for such purposes would not be allowed to enter the State and transact business therein. However, an intention to exclude foreign corporations from aState is not to be deduced from circumstances that the laws ofthe State have made no provisions for domestic corpo- .rations oflike character. And inthe absence of express constitutional or statutory inhibition, foreign corporations may enter aState and engage inbusiness therein under the rules of comity, notwithstanding they are organized inaccordance with methods which do not obtain in such State. Therefore, the comity ofthe State will not be withheld from foreign corporations merely because they have a framework or stock structure ,unlike that for domestic corporations. 17Fletcher .Cyclopedia Corporations (Per. Ed.) Sec. 8335, pages 140to 142.

The State of Texas recognized these rules of law when foreign corporations created with no-pars-value stock first sought to enter the State ofTexas before the enactment of Chapter 19A, Title 32, Revised Civil Statutes, in’l925. See Staples v. Kirby Petr~oleum Company, 250 S.W. 293 ‘(1923); American Refining Company v. Staples, 260 S.W. 614 (1924), affirmed 269 S.W. 420. Inthese opinions the courts cited with Lpproval the case ofNorth American Petroleum Company v. Hopkins, 181Pac. 625 by the Supreme Court ofKansas and State.

Hon. Paul H. Brown, Page 3 (v-746)

ex rel Standard Tank Car Company v. Sullivan, 221 S.W. 728 by the Supreme Court ofMissouri. See also Commonwealth Acceptance Corporation v. Jordan, 246 Pac. 796 (,Sup.Ct. ofCalifornia).

Under the reasoning ofthese opinions, it is the present rule oflaw inTexas that there is no express statutory inhibition
or prohibition against the admission of foreign corporations entering this State and engaging inbusiness therein, even though it might be that as to their framework and especially as to their stock structure or lack of it, such corporations would not have been entitled to organize as domestic corporations or receive certificates ofincorporation as such under the lay ofthe State of Texas.

Itis therefore necessary to construe the provisions of Article 1530, Revised Civil Statutes ofTexas, above quoted, as to whether or not by the inclusion of such Section as a part of Chapter 19, Title 32. Revised Civil Statutes ofTexas, 1925, “Foreign Corporations,” itwas the intention ofthe Legislature to forbN~‘the issuance ofa permit to a foreign corporation for pecuniary profit unless the corporate structure thereof provided for authorized or issued capital stock. The Legislature ofTexas has classified private corporations into three classes: (1) religious, (2) for charity or benevolence, and (3) for profit (Article 1319, R.C.S., 1925). To determine whether or not,itwas the legislative intent to prohibit the ‘creation of domestic corporations
or the admission offoreign corporations without capital stock to engage in business for profit within the State of Texas, it is necessary to look to all ofthe statutory provisions governing corporations, domestic and foreign, and their rights, privileges, and liabilities.

Article 7084, Revised Civil Statutes ofTexas, provides for the payment of afranchise tax by both domestic and foreign corporations chartered or authorized to do business in Texas
or doing business within the State of Texas. Article 7094, Elevised Civil Statutes ofTexas, exempts from the payment ofthe franchise tax, among other, corporations organized for the purpose of religious worship or for strictly educational purposes or for purposes ofpurely public charity. Article 7084, therefore, imposes a franchise tax onall corporations organized for profit except those otherwise specifically exempted by the Legislature. Prior to 1930, the franchise tax was based, among other elements, upon the authorized and issued capital stock

. of both domestic and foreign corporations (Article 7084, Reviaed Civil Statutes of Texas, 1925).

However, in 1930 the 4lst Legislature enacted Section 2, Chap. 68, Acts 41st Leg., Fifth C.S.; p. 220, amending and combining Arts. 7084 and 7085, Revised Civil Statutes ofTexas, 1925,Hon. Paul H. Brown, Page 4 

### (V-746)

and provided inthe amended Article in Subdivision (A) as follows: “Capital stock as applied to corporations without capital stock shall mean the net assets.” This amendment has been carried as a part ofArticle 7084 through subsequent amendments down to and including 1941. Itis apparent that the Legislature would not have added the quoted sentence unless ithad intended to include corporations organized for profit butwithout capital stock which previously had not been taxed.

Of further significance is the fact that inthe codification ofthe Revised Civil Statutes of 1925, the Legislature included within the provisions of Chapter 2, Tftle 32, “Creation of Corporations,” Article 1312dealing with corporations having
no capital stock, as follows:

“No society, assocation, company, corporation or institution that does not have a capital stock is required in its charter to make any statement ofthe amount of capital stock or amount of each share; but itwill suffice ifthe charter contains the other statenatnts required, and also an estimate ofthe value ofthe goods, chattels, lands, rights and credits owned by the corporation.”
This Article was derived from Article 1224, Revised Civil Sktutes of 1911which formed a part of Chapter 11,Title 25, dealing with religious, charitable and other corporations, and which then read as f~ollowe:

“‘Noreligious, literary, social, scientific, industrial,benevolent or other society, association, company, corporation or institution that does not have a capital stock will be required in its charter to make any statement ofthe amount ofcapital stock
or amount of each share; but such charter, ifit contains the other statements therein required, and also
an estimate ofthe value ofthe goods, chattels, lands, rights and credits owned by the corporation will be sufficient. ” (Emphasis supplied)
.The deletion ofthe emphasixed words’ from ArticIe 1312 

### and the transposition ofArticle 1312from Chap. 9ofTitle 32 and its inclusion within Chap. 2 of Title 32 inthe 1925 codification is indicative ofthe intention ofthe Legislature to permit the creation ofdomestic corporations for pecuniary profit without the requirement of capital stock under the provisions ofArticle 1308, Revised Civil Statutes ofTexas.

Additional evidence oflegislative intent is shown by the enactment in 1943 ofSenate Bill 21, Chapter 138, Acts 48th Leg-Hon. Paul H. Brown, Page 5 (v-746)

islature, 1942, page 219 (Article 1315c, V.C.S.), which provides that corporations without capital stock shall have the right to have their charters extended upon proper application to the Secretary ofStite. The material portion ofthe emergency clause reads:

“The fact that there are many corporations operating inthe State that were organized without capital stock and that some ofthem are nearmg expiraRon, and the further fact that the present law is vague and indefinite, creates an emergency.

. . .” (Emphasis supplied).
The renewal of charters of corporationscreated for the support ofbenevolent, charitable, educational, or religious undertakings had theretofore been sufficiently provided for byArticle 1315, Revised Civil Statutes ofTexas, which was originally enacted in 1874, so that the inference may be drawn that Article 1315c, V.C.S., was enacted to provide for the renewal ofcharters of corporations without capital stock which were organized for profit.
The construction ofan almost identical statute by the Supreme Court ofMassachusetts inPacific Wool Growers v. Commissioner of Corporation &Taxation, 25 N.E.(2d) 208, is highly persuasive. Inthat case the Supreme Court ofMassachusetts, upon the application for a permit by a foreign corporation without shares of capital stock, granted awrit ofmandamus requiring the Commissioner to admit the corporation. The Massachusetts statutes required every foreign corporation, before transacting business inthe Commonwealth, to file a copy of its charter and by-laws and a certificate setting forth, 

### among other things, *the amount of its capital stock, authorized and issued, the number and par value ofits shares, the amount paid inthereon, and, if any part of such payment has been made otherwise than in money, the details ofsuch payment

. , ,” The contentions of the parties tothe suit and the disposition made ofthe 

### caseis set forth inthe last paragraph ofthe Court’s opinion, as follows:

“The respondent contends that, if ithad been the legislative’ intent to include corporations such as the petitioner within the scope of c. 181,itwould have been natural for the Legislature to have inserted the words

‘if any,’ after the words ‘the amount of its capital stock’ in section 5. We do not think this follows. The words

‘the amount of its capital stock’ in said section are immediately qualified bythe words ‘authorized and issued.’ To accept this contention would be in effect to require the court to read into the definition of

‘Foreign Corporation’

. . .the words ‘having a capital stock.’
, , . When the Business Corporation Lawl. ,

Hon. Paul H. Brown, Page 6 (V-746)

was enacted

. , .the manifest purpose ofthe Legislature in defining the term ‘Foreign Corporation’ as used inthat act was to include every corporation, aaeociation~or organization established, organized or chartered under laws other than those ofthe Commonwealth for purposes, for which domestic corpo

### rations could be organized under that act. The important consideration was the purpose for which such foreign corporation, association or organization was established, organized or chartered and not the precise form or manner inwhich ithad been so established. Such an intent is in harmony with the rule 

### asto comity ofStates which extends to corporations the privilege ofexercising the powers conferred by their charters beyond the limits of the State, or country, inwhich they had their origin and legitimate existence:’

Inanswer to your first ,question, it is our opinion that the Secretary ofState may legally approve the application of Sand Springs Farm, an Oklahoma corporation, for a permit to do business inthe State of Texas for the purposes provided in Subdivision 37 ofArticle 1302, Revised Civil Statutes ofTexas.

Inview of our answer to your first questibn, it is,not, deemed necessary to answer your second question,

SUMMARY
The Secretary ofState may legally approve the application for a permit by a foreign corporation to dr business in Texas for prefit where the purpose clause and the capital requirements ofthe corporation are in compliance with the laws of Texas, .oven, though the foreign corporation is without authorized
or issued capital stock. ,Staplaa v* Kirby Petroleum Company, 250 SW. 293.; American Refining Co, v, Staples, 260 S.W, 614; North American Petroleum Co;
v. Hopkins, 181Pat’

. 625; State v. Sullivan, 221S.W. 728; Commonwealth Acceptance Corp, v, Jordan, 246 Pac. 796; Art. 1312, R.C.S.: Art. 1315c, V,C.S.; Art, 1530, R,C,S.; Art. 7084, R,C.S,; Pacific Wool Grow

### ers v, Commissioner ofCorporation k Taxation, 25 N+E.(Zd) 208.
Yours very truly APPROVED:

CKR/JCP Assistant