**May 22,**  **1974**
The Honorable Maurice Coats Executive Director Texas Commission on the Arts and Humanities P. 0. Box 13406, Capitol Station Austin, Texas 78711 Opinion No. H- 313 Rel Construction ofArticle 6252-9b, requirements as to financial disclosure.

Dear Mr. Coats: Your letter requesting our opinion asks whether members of your commission, in submitting the information required by 65of Article 6252-9b, V1T. C. S. *’the Ethics ,Act, must report the following: l1“stocks inNational Banks in Texas”

**2.** “stocks inbank holding companies which own Texas bank stocks” 3. “stocks inout-of-State banks which have ‘Edge Act’ branches for foreign trade in Texas” 4. “holdings held in atrust inwhich the public servant isa trustee butfinwhich he has‘no benem ficial interest” 5. holdings inan entity inwhich the public servant is an “Advisory Director” and inwhich he has no voting rights. 6. the holdings of private foundations inwhich the commissioner is a trustee

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Section 3(a) of the Ethics Act requires “every elected officer, salaried appointed officer, appointed officer of amajor state agency, and executive head of a state agency, ” as those terms are defined in theAct, to file with the Secretary of State a financial statement disclosing their financial condition. Section 5(a) requires every appointed officer (defined inthe Act) who is not required to file a financial statement under $3and who has or acquires or divests himself of “a substantial interest” in abusiness entity which either is subject to regulation by a state regulatory agency or does business with any state agency, to file with the Secretary of State an affidavit giving certain information concerning the business entity, his interest in it, and the relationship to the State. The Texas Commission on the Arts and Humanities is established pursuant to Article 6144g, Vernon’s Texas Civil Statutes, as amended by Acts 1971, ‘62nd.Le.g.; ch. 597, p’
. 1956. It~consists of eighteen members, appointed by the Governor for a term of six years each. They receive no compensation for.thkir services but are to be paid their actual traveling and other necessary expenses inthe performance oftheir duties. The Commission is not one oftbose listed in $ 2 (5,)(A) of~the Ethics Act as a major state, agency and, therefore, while the members of the Commission are appointed officers, .they are neither elected officers, salaried appointed officers, appointed officers of a major state agency or executive heads of state agencies and are not required to file the financial statement required by 5 3(a) of A.rticle 6252-9b, V. T. C. S. They are, therefore, required to file the affidavit required by $ 5(a) ofthk’Act, ifthey have, acquire,or divest themselves of a substantial interest in a business entity which either is subject to regulation by a state agency or does business with a state agency. The Act, in $2(12), very specifically defines what is meant by “a substantial interest” as follows:

“(12) An individual has a ‘substantial interest’ in a business entity ifhe:

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“(A) has controlling interest inthe business entity;

‘l(B) has ownership in excess of 10percent of the voting interest in the business entity or in excess of $25, 000 of the fair market value of the business entity;

“(C) has any participating interest, either direct or indirect, by shares, stock, or otherwise, whether or not voting rights are included, inthe profits& proceeds, or capital gains of the business entity in:excess of 10percent of them;

‘l(D) holds the positibn of a member of the board of ,directors or other governing board of the b;usiness I entity;

‘Y(E) serves as an elected officer of the business entity;.

“(F).is an employee ofthe business entity, ” Business entity is defined by 52 (,11)of the Act as:

‘1. . .a sole proprietorship, partnership, firm, corporation, holding companyi joint stock company. .receivership, true, or any other entity recognized inlaw through which business for profit is conducted.~” The only interests required to be reported under $5are those in
“business entities, ” as that term is defined in the Ac~t. Therefore any question~invblving filing requirements under §5must be prefaced with a determination ofwhether abusiness entity is involved. One aspect ofthis determination will be a finding that the entity i6 one “through which busines~s for profit is conducted. ” This aspect may be especially

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relevant in cases involving trusts and foundations. Of course, whether a particular organization is a “business entity, ” will depend upon the facts of each particular case. For the purpose of answering your inquiries about types of organizations we assume, without deciding, that they are “business entities. ” Indetermining whether or not the ownership of any particular interest ina business entity or the acquisition or disposition of any such interest should be reported inthe affidavit, each transaction will have to be examined to determine: (1) Is the interest held, acquired or disposed of a “substantial interest!‘? (2) Ifit is a substantial interest, is it an interest in a business entity which is subject to regulation by a regulatory agency as the terms “regulation” and “regulatory agency” are defined in $$ 2 (10) and 2(9) of the Act, respectively. Or (3) Is it an entity which is doing business with any State agency? State agency is defined. in $2(E) ofthe Act. Itwould appear that there should be no great difficulty inmaking this determination.

To answer your specific question, 84 far as we know, national banks in Texas are not regulated by any state regulatory agency. Whether they~are doing business with any state agency is a fact which would have to be,determined. Ifthe particular bank is doing such business and ifthe Commissioner owns or holds, acquires or disposes of a substantial interest in the bank, he will have to report it. The same answer would hold true for “Edge Act” (12 USC 55 611et seq. ) banks in Texas. Bank holding companies are subject to regulation by the Banking~Department if they contain state banks, e.g., 12USC § 1842, and therefore substantial interest in such a bank holding company must be reported. We doubt that the fact holdings are held as trustee rather than as beneficial interest owner makes any difference if, infact, the commissioner owns, acquires ordisposes of **a** “substantial interest” as that term is defined. The fact that the entity is a trust certainly would seem to make no difference. Section 2 (11)in defining abusiness entity defines it to include, as well as sole proprietorships, partnerships, firms, etc., trusts.

p. 1450The Honorable Maurice Coats page 5 (H-313)

The fifth category about which you inquire is that of an advisory director who has no voting rights. Assuming that this is the sole ‘interest the commissioner has inthe business entity, itwould appear that the position of advisory director with no voting rights does not by itself constitute a substantial interest. Section 2 (12) (D) provides that the position of member of the board of directors or “other governing board of the business entity” is a substantial interest. We construe this to indicate that being ina position to govern is an important element of the substantial interest of a director. Finally, a commissioner who owns a~substantial interest, as that term is defined, in aprivate foundation of which he is trustee must Iikewise report the holding, acquisition or disposition of such interest, if ‘
. the foundation is either regulated by the State of Texas or does business with a state agency. SUMMARY

‘Article 6252.913, V. T. C. S., defines precisely those who have a substantial interest in abusiness i entity., A person who has such an intere’st in an entity which either is~regixlated by a regulatory agency ofthe State or which does business with a State agency and who is not.otherwise required to file a financial disciosure statement as called for by $3(a) of the Ethics Act, must file the affidavit required by §5(a). very truly yours,

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DAVID M. KENDALL, Chairman Opinion Committee

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