Untitled Texas Attorney General Opinion ( 1960 )

E Y GENE
F 1L‘EZKAS’
AUSTlN 11. TEXAS
hue 14, 1960
Hon. 2olU.e steahley Opinion No. WW-849
Secretary of State
Capitol Station Re: Authority of the Secretary of
Austin 11, Texas State to accept and file articler
of incorporation for the purpose
of acquiring and operating an
apartment building for the use
and enjoyment of the members
on a co-bperative basis as a
non-profit corporation under
the Texas Non-Profit Corpora-
Dear Mr. Steakleyr tion Act.
You have requested an opinion of this office as to whether the
Secretary of State should accept and fileunder the provisions of the Texas
Non-Profit Corporation Act proposed articlea of incorporation stating that
the purpose of the proposed corporation is “Acquiring, owning, erecting,
leasing, maintaining, improving, and operating an apartment build-.
ancillary properties, the site thereof and the appurtenances thereto, for
the use and enjoyment of the members of this corporation on a co-operative
basis as a non-profit corporation as defined and within the amaning of
Article 1.02 of the Texas Non-Profit Corporation Act. This purpose clause
is subject to the restrictions of Chapter 4, Title 32 of the Revised Civil
Statutes of the State of Texas, Revision d 1925.”
We asmane that your inquiry is limited to whether the presence
of such a purpose clause in and of itself prohibits filing of the propoaecj
articles of incorporation pursuant to the Nongrofit Act. Xn our opinion
the purpose clause does not so prohibit the filing.
Article 2.01 A of the Act rovides “Except as hereinafter $n
this Article expressly excluded her et porn. non-profit corporations may be
organized under this Act for any lawful purpose or purposes, which pur-
pomea shall ba fully stated in the articles of incorporation. . .** There is
PO reason to believe the proposed purpose ie unlawful. It remains to be
lacertafned whether the Akt can apply to such a corporation.
While Section 2.01 B(o) does exclude certain co-operative cor-
poratioamfrom application of the Nan-Profit Act, this type of co-op is not
one of thoee lo excluded. Furthermore. each one of the named co-ops which
. .
Ho+ Zollie Steakley, page 2 (WW-849)
is so excluded are incorporated pursuant to specific and special Acts
elsewhere contained in the statutes. There is no special statute auth-
orizing the incorporation of a co-operative apartment house. No doubt,
the co;operatives so excluded were excluded because there were speci-
fic statutes dealing with that particular type of co~op. We do not believe
that the exclusory language of Article 2.01 B(3) should be construed to
exclude all co-ops from the purview of the Act. So f&r as we have been
able to ascertain, there are no other exclusions in the Act which are
applicable to this character of co-op#
While religious, charitable and literary corporations are not
the only nonrprofit corporations, Reed v. Tidewater Coal Exchange Inc.,
116 Atlantic 898 (DeLChan. 1922), the mere factthat the purpose clause
states that a corporation is to be a non-profit corporation is not conclu-
sive or definitive as to whether the corporation is in fact a non-profit
Telephone Co. v, Union Center
St. 487, 133 N .I,’ 54V m up. t.)and
go Inc., supra.
Article 1.02 A(3) of the Act defines a non-profit corporation
thtls:
““‘Non-Profit Corporation’ is the equivalent of
‘not for profit corporation* and means a corporation
no part of the income of which is distributabb to its
members, directors, or officers*”
This does not mean that no member, offikw or director may be paid by
a non-profit corporation from its revenues or income in a proper case.
Article 2.24 provides:
“NO dividend shall be paid and no part of the in-
come of a corporatibn sh@ibe distributed t+ta;lnembers,
directors, or offfcers. A corporation may pay compen-
sation in a reasonable amount ti its members, directors,
or officers for services rendered, may confer benefits
upon its members in conformity with its purpoees, and
upon dissolution or final liquidation may mahe distribu-
tfons to its members, but only as permitted by this Act.”
The prohibitions involved in these two statutes are fundament-.
tally prohibitions against dividends or against the distribution of a
proportionate share of profits as profits whether under the guise of
.
Hon. Zollie Steakley, page 3 (WW-849)
dividends, salary or otherwise. As stated in the leading case of Reed v.
Tidewater Coal Exchange Inc., 116 Atlantic 698 (Del.Chan. 1922) p-4:
“Whether dividends are expected to be paid
may, generally speaking,. be taken as the test by
which we are to determine whether, or not, a given
corporation is organized for profit, Perhaps a
better way to put it would be to say that a corpor-
ation is for profit when its purpose is, whether
dividends are intended to be declared or not, to
make a profit on the business it does which in r B
reason belongs to it and which if its affairs are
administered in good faith would be available for
dividends.”
Thus, the Act excludes from its purview the incorporation of enterprises,
whether commercial or otherwise, which have as their predominant pur-
pose the making of a pecuniary profit for the corporation. That is to say,
the end in mind is to return or distribute to members, directors, or
officers of the corporation (with the exception of liquidation) any portion
of the net revenues above and beyond the actual costs of operation with
exception of payment of reasonable compensation for services actually
rendered the corporation.
Co-operatives sometimes, and often do, distribute a portion
of their income to their members, In such cases, they are corporations
for profit and would be excluded from the purview,,of the Act. In other
instances their income is not distributable to the members in the sense
above discussed, but is used entirely in paying the reasonable costs of
operation and for the improvement of the properties. if any, held and
owned by the corporation. The proposed corporation may well fall into
the latter category and as such could incorporate under the Non-Profit
Act.
Certainly member% of the apartment house co-op, if tenants,
will receive benefits by being members of the corporation; however,
Article 2.24 expressly authorizes non-profit corporations to confer
benefits upon its members in conformity with the purposes of the cor-
poration as expressed by its articles of incorporation. The benefits
that tenant-members of the proposed corporation would receive do not
substantially differ from the benefits that would be conferred upon
members of a college fraternity who reside in the fraternity house.
Fraternities are expressly authorized to be incorporated as non-profit
corporations by Article 2.01 A of the Act. Thus, the mere fact that
Hon. Zollie Steakley. page 4 (WW-849)
this character of benefit is conferred upon the tenant-members ofthe
proposed corporation should not bar the Secretary af State from accepting
the Articles of Incorporation. Furthermore, the courts have held in
several instances that co-operatives similar to the proposed corporation
may be organized as not-for-profit corporations. Burley Tobacco
Growers Co-op v. Rogers, 150 N.E. 384 (Ind. 1926); L;X Park Be&i&
County Producers Co-op. 203 Ala. 345, 83 So. 69 (1919).
It is to be noted that the proposed articles of incorporation
authorize the purchase of a single apartment house and its related
appurtenances rather than the general dealing in real estate by the pro-
posed corporation. In this respect it should be distinguished from the type
of corporation which is dealing in real estate properties and rentals for
strictly profit-making purposes.
Accordingly, you are advised that the purposes expressed in
the propesed articles of incorporation do not in and of themselves paohibit
the Secretary of State from accepting and filing the proposed articles of
incorporation under the Texas Non-Profit Corporation Act.
SUMMARY
The Secretary of State is not prohibited from
accepting and filing Articles of Incorporation &’
under the provisions of the Texas Non-Profit
Corporation Act merely because the corporate
purpose is to acquire. own, operate, etc.. an
apartment house to be used by the members of
the corporation on a co-operative basis.
Very truly yours,
WILL WILSON
Attornsy General of Texas
Wallace P. Finfrock ”
~Assishnt Attorney General
Hon. Zollie Steakley. page 5 (WW-649)
APPROVED:
OPINION COMMITTEE
W. V. Geppert, Chairman
Jack Goodman
R. V. Loftin. Jr.
Larry Hargrove
Iola Wilcox
REVIEWEDFORTHEATTORNEYGENERAL
BY:
Leonard Passmore