Court Opinion

ID: 4136099
Source: CourtListenerOpinion
Date Created: 2017-02-18 02:09:49.13865+00
Date Added: 2024-06-11T14:35:02.680972
License: Public Domain

THEA~TORNEY       GENERAL
                               OF TEXAS
                                    Aus-        ~.TEXAS

  W’ILL      WILSON
A’CIORNEY      GENERAL
                                           July 11, 1960

     Hon. Zollie Steakley                           Opinion No. WW -880
     secretary  of state
     Austin, Texas                                  Re:   Authority of the Secretary    of State
                                                          to accept and file an application
                                                          for the adoption of the provisions
                                                          of the Texas Non-Profit    Corporation
                                                          Act by a corporation   which is incor-
                                                          porated for the purpose of maintain-
                                                          ing fishing and hunting clubs and
                                                          protecting Bnd preserving    fish and
                                                          game and raising livestock for pro-
                                                          fit on the preserves  of the tilub.
     ,Dear   Mr. Steakley:

             You have requested an opinion of this office concerning     a corporation
     which has applied to adopt the provisions   of the Texas Non-Profit    Corporation
     Act and which has authority in its charter to issue stock and has for its cor-
     porate purpose the purpose expressed     in Subdivision 10 of Article 1302 of
     Texas Revised Civil Statutes   of 1925.   Your questions are:

              1. Should the Secretary   of State accept and file the application
              when the applicant was organized for the purpose expressed         in
              Subdivision 10 of Article 1302 ?

               2. Should the Secretary  of State 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 of those      corporations    which
              were organized under the provisions     of Title      32 of the Revised
              Civil Statutes of 1925 and whose charters    do     not contain any ex-
              press statement to the effect that they were        organized for non-
              profit purposes ?

               Your questions   will be dealt   with in reverse    order.

              We assume the third question is asked with reference      to such a deter-
     mination being made in connection with an application for the adoption of the
     Texas Non-Profit    Corporation  Act.  This opinion is accordingly    so lim,ited.
     It is, of course, fundamental that no corporation   except a non-profit    corpora-
     tion may adopt the provisions   of the 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      of the Act. and makes appli-
cation to that effect to the Secretary        of State, he, the Secretary      of State, must
find that the application      “conforms    to the law.”     Article 10.04R (3). Non-
Profit Corporation       Act.   In so doing, the Secretary      of State must nec,essarily
determine whether the applicant corporation             is, in fact, a non-profit    corpora-
tion. As enunciated in Attorney General’s            Opinion WW-849,       the mere fact
that the purpose clause in the charter of the applicant corporation               recites
that hit is    non-profit   is not conclusive    or definitive of the corporation’s
non-profit    status.   See Celina & Mercer County Telephone Co. v. Union Center
Mutual Telephone Association,          102 Ohio St. 487, 133 N.K. 540 (1921) and Read v.
Tidewater     Coal Exchange Inc., 116 A. 898 (Del.Chan.           1922).  The criterr
b     h’ h th Secretary       of State should determine whether a corporation             is in
f~c~a’~on-;rofit      corporation    are set out in Article     1.02A (3) and 2.24 of the
Act and were discussed         at greater lengthsyin Opinion WW-849          to which you
are referred.

         Your further attention is called to the provisions          of Article       9.04   relat-
ing to the powers of the Secretary   of State. which reads          as follows:

               “The Secretary   of State shall have the power and
          authority reasonably   necessary    to enable him to ad-
          minister this Act efficiently  and to perform the duties
          therein imposed upon him.”

         Since the Secretary    of State must decide whether a corporation     is, in
fact, a nonFprofit corporation     and since such a decision is necessarily    factual
in nature, the provisions    of Article 9.04 authorize the Secretary    of State as a
condition precedent to the accepting and filing of any application for adoption
of the provisions    of the Non-Profit   Corporation   Act to require the applicant
corporation    to furnish such gerpane     and material information   as is reasonably
necessary    to enable the Secretary    of State to determine the non-profit   status
of the corporation.

         In response to your second question, you are advised that the provision
of the applicant corporation’s   charter authorizing the issuance     of capital stock
is not in and of itself a bar to the applicant corporation’s   adoption of the Non-
Profit Corporation    Act.  Snyder V* Findlay Chamber of Commerce,         53 Ohio St.
1. 41 N.E. 33 (1895); Celina & Mercer County T           one Co; v. Union Center
                                   102 Vhio 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         of the opinion
merely     as the Act or as the Non-Profit   Corporation  Act.
        1

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

expressly   authorize the issuance of stock, but Article 2.08D does authorize
the issuance of certificates    or cards or other instruments        evidencing,    inter
a~lia. ownership rights as authorized by artitiles of incor,poration arid the by-
laws.   In view of these authorities,    we think that the authorization      in the 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        of the stock issued4
and related factors are all materia,l facts, which, when considered            with allother
material facts, may well justify the Secretary       of State in determining      that a
particular   applicant corporation    is not in fact a non-profit    corporation.

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

                 ” ‘The purpose for which it is 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 of water as may be desirable       in connec-
            tion therewith; to erect suitable improvements     thereon, and to
            raise such livestock for profit only as the preserves      of the
            club will maintain,”   as authorized by subdivision 10 of Article
            1302 of the Texas Revised Civil Statutes of 1925.’ ”

         Were it not for the phrase “to raise such livestock for profit only as
the preserves    of the club will maintain’:  it would be abundantly evident that
such a corporation     could be a non:profit  corporation.    Again this question,
like all questions,   is a matter of considering   all relevant facts instead of
merely the provisions      of the purpose clause.   The issue then evolves as to
whether or not the addition of this phrase precludes        an applicant corporation
having such a purpose from being a non-profit        corporation.

         The purpose clause in question has its historical         origin in Article  642
of the Revised Statutes of 1895, Section 42, which at th at time provided that
corporations    might be formed for the purpose of providing for “the protection,
preservation    and propagation    of fish and game.”      Later the purpose was en-
larged to include the propagation       of oysters 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
of corporations   which had as their general purpose the raising, buying, and
selling of livestock.   Thus the Legislature       did not intend by its 1907 amend-
ment 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    of raising 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 in the 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 in Acts 1897, 25th Leg., Ch. 48, p. 48.

        Subdiv,ision 10 further limits the raising of livestock     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 of livestock 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 live-
stock for profit when limited by this context does not by any means authorize
a corporation   to engage in a business of raising livestock in such a way 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  10 corporation  to raise livestock
for profit under these limited circumstances    is not determinative   of the non-
profit status.  The Act does not bar a corporation within its purview from
engaging in an income producing enterprise    but in fact contemplates    such
will be the case in some instances.   Article 1.02A (3). The language of the
Court in Southerland v. Decimo Club, Inc., 142 A. 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 and within reasonable    and proper limite engage
         in an activity to make profit.     How far such an organiza-
         tion can go in that direction it is impossible     to say in
        ,-general terms.     Each case as observed in Read v. Tide-
         water Coal Exchange,      Inc., supra, must stand on its own
         facts.”

         The ultimate question again to be determined     is whether the corpora-
tion is in fact 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 10 of Article 1302, Revised Civil Statutes of 1925.
is not per se barred from adoption of the Act.

                                       SUMMARY

                The Secretary   of State is authorized   as a condition
Hon. Zollie   Steakley,   page   5   (WW-880)

         precedent to the filing of application 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   of State
         to determine whether the applicant       corporation   is in
         fact a non-profit  corporation.

             Provis,ions   in the corporate   charter of a corporation
         +&g   to adopt the provisions     of the 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 of the provisions      of the Act.

              A corporation   desiring to adopt the provisions   of the
         Texas Non-Profit     Corporation   Act is not per se barred from
         doing so by virtue of provisions     of its corporate charter
         setting out a purpose clause identical to that contained in
         Section 10 of Article   1302, Revised Civil Statutes of 1925.

                                                Yours   very   truly,

                                                WILL WILSON
                                                Attorney General        6f Texas

                                                BY
                                                     Wallace 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