Untitled Texas Attorney General Opinion ( 1960 )

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