Hon. John H. Bickett, Jr. Opinion No, O-4997

Chairman, Board of Regents Re: Authority of the Board of ReUniversity of Texas gents of the University of Texas Telephone Building to organize the corporation known Dallas, Texas as the Texas Research Corporation and to appropriate funds of the University in the furtherance: of Dear Sir: its objects.

Your letter addressed to Honorable Gerald C. Xann, Attorney General of Texas, dated February 23, 

### 19Li3. requesting the opinion of this department on the above subject, has been received from which letter we quote:

“The Board of Regents of TheUniversity of Texas respectfully presents, and requests your opinion upon, the following questions, to-wit:

“1

. Did TheBoard of Hegents of the Univsrsity of Texas have the authority to organize the corporation k.mwnas Texas Research Corporation, the charter of which was filed by the Secretary of State, of the State of Texas, Karch 1, 134W “2
. Does The Board of Regents of The Uhiversity of Texas have the authority to appropriate and to pay over to Texas Research Corporation public funds belonging to The University of Texas to be used by the corporation for costs andexpenses incident. .to obtaining and acquir,lng patents and copyrights? 

### "3. Does Texas Research Corporation, orgauised under Article 1302, Section 

### 3,Revised Civil Statutes of Texas, as a corporation for educational purposes, have the power to purchase, acquire, and ownpatents or copyrights, to manufacture and sell products under patents ownedby it, and to license manufacturers or others under patents ownedby it, and to exercise the incidental powers of such corporations as are authorized by Article 1302 Section 101 Revised Civil Statutes of Texas (Acts 

### 1937,45&hLegislature, p. 

### 654,ch. 

### 323,Section I)? i

.- .-Hon. JohnH. Bickett, Jr. - Page 2



### “4. Is Texas Research Corporation subject to taxes, Including federal income tax?

“Copies of the charter andthe by-laws of Texas Research Corporation sre hereto attached.

“The University has for manyyears conducted andwill continue to conduct scientific research In manyfields through the usual administrative andfaculty organleatlons under the supervision of TheBoard of Regents.

“The corporation was, In fact, organized for the principal purpose of acquiring end owningthe patents that might be obtained by membersof the faculty of the Unlverslty, covering the discoveries or inventions madeby themin the course of their scientific research work in the laboratories of the University.

“A few patents obtained by membersof the faculty have been assigned by themto the corporation under agreements providing for psrtlclpation by the patentee In future royaltles. (‘TheBoard of Regents of the University of Texas appropriated $20000 of University funds to Texas Research Corporation uponthe forming of the corporation. f ’If ‘;he corporation continues to exist, additlonal ap roprlatlons of the funds of the University wll.lf dou tless,

! be madeto it f?om time to time.

“The co oration has madeand, if it continues to exist, wll from time to time makecontracts

‘p with natural persons andother corporations looking to the us&anddevelopment of the atents andthe granting licenses thereunder. Sue R activities may involve manyof the problems of business andindustry endmaylead to litigation by or against the corporation! The corporation, of course, can sue and be suedr The University could not be suedwlthout the consent of the state.

“Theviews of those favoring the organization of the corporatloa andits continued existence are: that TheBoard of Regents mayresort to anyappropriate business methodor instrumentality; that aHon. John H. Bickett, Jr. - Page 

### 3

corporation is a customary instrumentelity for acquiring, owning, andutilizing patents and copyrights; that a corporation organized for research purposes under one section of the statute mayhave the power to acquire, own, anduse patents as an incident to its declared purpoaes w.ithout violating the rule of law that a corporation maynot be organized for separate purposes permitted by a different section of the statute; andthat there Is no proNbit.lon by constitution or statute in Texas against the organizing of such a state or government ownedcorporation.

“Serious doubt is entertained by someof the present membersof TheBoard of Regents as to whether, in view of their duties as prescribed by the constitution andthe statute, they can lawfully create a private corporation and delegate the performance of their duties to the corporation and its agents.

“Similar doubt exists as to the authority to transfer moneyand other assets of the University to the corporation.
t’Apprehenslon is also, felt by somethat, the course Indicated by this corporation Is susIf tained and continued other activities and properties of the University mayfrom time to time be transferred Promthe University to other corporations.

‘Those whoentertain such objections, doubts, andfears, have In mindthe foll~lngr the prescribed constitutional and statutory duties of the regents as individual officers of the state; the absence of any affirmative constitutional or statutory authorization for the creation of a private corporation as an agency of the state government; the absence of any such precedent in the governmental affairs of this state; the statutory requirement that state funds must be deposited with the state treasurer; andthe prohibition of Article III, Section !jl of the Constitution of Texas, that: ‘The Leglsla4ure shall have no power to makeany grant or authorize the makingof anygrant of public moneysto any individual, association or individuals, munlcipal or other corporations whatsoever.’.I

Hon. John Ii. Bickett, Jr. - Page 4

“For your information, someof the different points of view, heretofore expressed, are herewith presented to you for whatever they maybeworth by the following letters1 (1) from I*. Scott &aines to Dr. J. \i. Calhoun, President of The University of Texas, Xay27, 1939; (2) from Xr. Ira P. Hildebrand, of the law faculty of the University to Dr. Homer?. Rainey, President of TheUniversity of Texas, September 1, 1939; (3) from JohnH. Bickett, Jr., to Hr. D. F. Strickland, October 

### 15, 1942.” The copies of the letters accompanying your request as well as the copy of the Charter of the Texas Research Corporation have been valuable to us in preparing the answer of this department to the questions propounded, for which we thank you.

TheUniversity of Texas authorized andestablished by the Constitution andStatutes of this State is an agency of the State existing in virtue of biennial appropriations madeby the Legislature.TheUniversity is governed by a Board of Regents appointed by the Governor andconfirmed by the Senate whoare State officials exercising only such‘authority andperforming only such duties as prescribed by the statutes of this State.

Article 2584, Vernon’s Revised Texas Civil Statutes, pertaining to the government of the University reads:

“The government of the University of Texas shall be vested in a Board of Regents composed of nine persons. They shall elect a chairman from their number who shall serve at the pleasure of the Board. The %$ Treasurer shall be the treasurer of the UniverThe board shall have the right to makeanduse a cohon seal andmayalter the sameat pleasure.”
.-*_,_J_ Article 2585, .Vernonts Revised Texas Civil Statutes, YuA Ib.,,.Ag to she-dut$es of the Board.sf, Regents of the Unlversity, reads:~ _,

“They shall establish the departments of a flrstclass university, determine the offices andprofessorships, appoint a president, whoshall, If they think it advisable, also discharge the duties of a professor, appoint the professors and‘other ,offlcers, fix their respective salaries; andthey shall enact such by-laws, rules and regulations as maybe necessary for the successful managementandgovernment of the University;Hon. JohnH. Bickett, Jr. - Page 5

they shall have power to regulate the course of instruction andprescribe, by andwith the advice of the professors, the books andauthorities used l.nthe several departments, and to confer such degrees andto grant such diplomas as are usually conferred andgranted by universltles.1l Wehave not found any authority in this state that would authorize the Board of Regents of the University of Texas In their official capacity to organize andestablish the corporation in question andtransfer to such corporation for the furtherance of Its object andpurpose a part of the funds appropriated to the University of Texas by the Legislature for its maintenance and support, andwe think no such authority exists. i;;;efore, we answeryour questions NOS. 1 and2 in the nega-

. The purposes for which a corporation maybe formed In this State are set out In A rticle 1302, Revised Civil Statutes. Section 3 of said article reads:

“The support of any literary and scientific undertaking, the maintenance of a library, or Rromotion 

### of painting, mu&o and other fine arts. Article 1302, Sec. 101 Revised Civil Statutes of Texas (Acts 45th Leg., p* 654, ch. 323, Sec. 1) reads:

%orporatlons maybe created for the purpose of purchasing and owning patents wlth all rights lncldental thereto, and to manufacture products and processes thereunder and to market such products, andlicense dealers i sell, distribute o use such procesaes in prescribed territories 

### on a 

### royalty baals.t8 It is our opinion that a corporation that is organized for the purposes authorlzed by Section 2 or for the purposes authorized by Section 3.of said Article 1302, R.C.S., would not be authorized to 

### exercise the powers conferred by Section 101 of said article. 124 S.W. 417. Tex.Jur., Vol. 10, p. 625; Johnson V. Townsend,

tie, therefore answer your question No. 3 in the negative. Wethink that in view of what has been said that it 1s unnecessary to answeryour fourth question. However wewill add that it is our opinion that a corporation organized #or ‘scientific, literary or educational purposes would not be subject to taxation so long as it is operated exclusively for those purposes, or either of them, andnot for profit, but should Its net earnings,- .

.

Hon. JohnIi. Blckett, Jr. - Page 6

If any, or any part thereof inure to the benefit of gyotgt;- vlduel, 3.twould be subject to federal. Income tax. words, an exempt corporation mustkeep its activities within the scope of the exemption or it will be subject to the tax. Santee Club v. White, 87 Fed. (2) 5. Yours very truly ATTORNEY

GENERAL

OFTEXAS By/s/ E. P. Price E. P. Price, Assistant APPROVED

MAR 12, 19b3 /s/ Grover Sellers FIRST ASSISTANT

ATTORNEY

GENERAL APPROVEVt

OPINION

COMMITTEE BY: GWB,CHAIRMAN EPP:BT:wb