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 of Article 

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 6 5 of 

Article 6252-9b, V1 T. C. S. *’ the Ethics ,Act, must report the following: 

l1 “stocks in National Banks in Texas” 

2. “stocks in bank holding companies which own 

Texas bank stocks” 

3. “stocks in out-of-State banks which have ‘Edge 

Act’ branches for foreign trade in Texas” 

4. “holdings held in a trust in which the public 

servant is a trustee but fin which he has‘no benem 

ficial interest” 

5. holdings in an entity in which the public 

servant is an “Advisory Director” and in which 

he has no voting rights. 

6. the holdings of private foundations in which the 

commissioner is a trustee 

p. 1447 
The Honorable Maurice Coats page 2 (H-313) 

Section 3 (a) of the Ethics Act requires “every elected officer, 

salaried appointed officer, appointed officer of a major state agency, 

and executive head of a state agency, ” as those terms are defined in 

the Act, to file with the Secretary of State a financial statement disclosing their financial condition. Section 5 (a) requires every appointed 

officer (defined in the Act) who is not required to file a financial statement under $ 3 and who has or acquires or divests himself of “a substantial interest” in a business 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 in the performance of their 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) of thk’Act, if they 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 if he: 

p. 1448 
The Honorable Maurice Coats page 3 (H-313) 

“(A) has controlling interest in the business 

entity; 

‘l(B) has ownership in excess of 10 percent 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, in the profits& proceeds, or capital gains of the business entity in: excess 

of 10 percent 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 of the business entity, ” 

Business entity is defined by 5 2 (,11) of the Act as: 

‘1. . . a sole proprietorship, partnership, firm, 

corporation, holding companyi joint stock company. 

.receivership, true, or any other entity recognized 

in law through which business for profit is conducted.~” 

The only interests required to be reported under $ 5 are those in 

“business entities, ” as that term is defined in the Ac~t. Therefore any 

question~invblving filing requirements under § 5 must be prefaced with 

a determination of whether a business entity is involved. One aspect 

of this determination will be a finding that the entity i6 one “through 

which busines~s for profit is conducted. ” This aspect may be especially 

p. 1449 
The Honorable Maurice Coats page 4 (H-313) 

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. ” 

In determining whether or not the ownership of any particular 

interest in a business entity or the acquisition or disposition of any such 

interest should be reported in the affidavit, each transaction will have 

to be examined to determine: (1) Is the interest held, acquired or disposed of a “substantial interest!‘? (2) If it 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) of the Act. It would appear that there should be no 

great difficulty in making 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. If the particular bank is doing such 

business and if the 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 5 5 611 et seq. ) 

banks in Texas. Bank holding companies are subject to regulation by 

the Banking~Department if they contain state banks, e. g., 12 USC 

§ 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, in fact, 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 a business entity defines it to include, 

as well as sole proprietorships, partnerships, firms, etc., trusts. 

p. 1450 
The 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 in the business entity, it would 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 in a 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 a private 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 a business 

i entity., A person who has such an intere’st in an 

entity which either is~regixlated by a regulatory agency 

of the 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, 

p. 1451 
The Honorable Maurice Coats page 6 (H-313) 

DAVID M. KENDALL, Chairman 

Opinion Committee 

p. 1452