Untitled Texas Attorney General Opinion ( 1959 )

HonorableWllllamM. King OpinionNo. W-564 State SecurltieaCbmaaiesioner State Securitieshoard Re: Application‘ofthe exemption Austin, Texas containedIn Section 5 (I) of the SecuritiesAct to sale of oil and gaa faterests. Dear Mr..Kingi You&letter requestingour op$nionrelativeto the captlouad :. matterreade lu+rt as follows: “SeC$ion4.A. of the Securlties.Act states ‘The term ~“Beourity”or “securities”shall inclUe . ; ceitiflcateor any lnet.rument repreaentlugauy %utk est ia or under aa oil, gas or .ml+ag lease,fee or: title . ‘. l ,I “An opinion of your office is requestedae to (1) whethera person selling(as that term 18 deified la Section4. A of the Securftlefi Act) such interest may claim the uemption’of Section 5. 5. or the ‘Sacu- rltleeAct if after the sale of any oae such Inter- eet the total number of,perscasholdlug lutereetsin the particularoil, gaa or mining lease, fee or title, does not exceedthirty-fiveand the sale is .&de with- out the u8e ‘ofadvertisementsor shy form of publld ,solicitatioh. “If youx answer to this questionis ~3.u the af: flrmative,~(2) Is it aeceeaaryfo? the person eeiilng’ atch a eecurltyto hold a .llceheeunder the Secukitida Act aa a dealer in oil aud gas.” Article581-5,V.C.8, dada lh,parta44i0im8: “Exceptan hereiu#ter in this”Acfapecifioally provided,’the provieioaeof thie Act shsll not i@pSy. .~ to the sale of auy seourltywhen made in auy of the followingtransactloneaud under any of the follow- bq coaditlons,and the coapauyor pcreoh engaged, thereinahall not be deemed a dealerwfthfrr the meau- lag of this Act; that ,la to say, the p~ovlelonsof I : HonorableWilliamM. Klug, Page 2, (WW-564) this Act shall not apply, to any sale, offer for sale, solicitation,subscription, dealing'inor deliveryof any securityunder any of the follow- ing tramactions or conditions: .. . . "I. The sale by any corporationof it6 ee- curitleaor by any unincorporated associationor partaerehlpof interest,where the total mamber- ship or stockholderswill not thereafterexceed thirty-five(35), and where the sale Is made withoutthe use of advertisements or any form of public solicitation;" SectionI ouly mentionssalesby corporations, unincorporated associations and partnerships; accordingly this exemptioncau ohly spply to a traasactlouwhere au entity of thls,charactex Is the vaudor. With respect to unincorporated associationsaud partnerehlps, the ohly securityexemptedby SectlonI is the sale of au.Yihterest". Iu otherwords, the vendee must acquirea proprietaryiatei'e'eef'iuthe partziershlpor unincorporated associationas such. The legielatlvehia- tory of SectionI iudicatessuch is the proper comtructlou. The pre- sent exemptionIs really a merger of three sectionsfound in Section3 (exempttramactions) of the 1955 SecuritiesAct, Acts 54th Legislature, KS., 1955, Chapter67, Article 579.l through579-42V.C.S. and Section 3 of the Iusurauce'Securlties Act, Acts 54 Legislature,R.S. 1955, Chapter384, Article 580-l through580-39V.C.S. Thoee rrectlons were Sec- thns 3(J), (k) .-J (1). Section3(k),,which $6 the sectionapplicable to partnerships, pools or other companiesnot a corporation,exempted ouly "the sale of an intereetia a partnership,etc." Therefore,with respectto sales in which the vendor 1s an unincorporated aseociation or partnership,lu order for the sale to qualifyas exemptunder Sectlou I, the sale must be of au Interestin~thevendor-association or partaer- ahip,as the case may be, and after the sale there must not be @re thau thirty-rivemambers In the associationor partnership. (Of couree,the salemust be msde withoutthe use'of advertisementor advertisements or auy rmu of public sollcltatlon.) Concerningcorporations,Section I only exemptsfrom the Secu- ritiesAct, salee made by corporationsof its securities,which could re- 6ult ln lucreasingthe stockholdersof the corporation.The only eecu- rltiesthat a corporationcould sell that could increasethe number of stockholders would be shares of its capitalstock. The exemptioncontainedin SectionI is ouly.appllcable to the sale of a securitythat would result in the vendee acquiring a pro- prietaryinterestin the corporation,uuincorporated associationor part- nership. The number of personsholdingan Interestin ox under au oil, HonorableWilliamM. King, Page 3, (WW-564) gas or mining lease, fee or title as a result of the sale is.immaterial as far as such exemptionis concerned. The purchaserof an interestin or under an oil, gas or mining lease, fee or title from a corporationdoes not therebybecome a stock- holder In the sellercorporation.The mere purchaseof an Interestin or under an oil, gas or mining lease, fee or title from an unincorporated associationor partnershipdoes not therebymake the purchasera member of the unincorporated associationor partnershipwhich sold the security and the purchaserdoes not acquirean "interest"therein. Of course, by subsequentcontract,either expressor implied,or by subsequent acts or conductamountingto an estoppelsuch purchasercould becomea memberthereofor acquirean interesttherein,but the mere purchaseof an Interestin or under an oil, gas or mining lease, fee or title would not make the purchasera member of the unincorporated associationor partner- ship, or amountto the acquisitionof an interesttherein,or make him a stockholderin a seller corporation. Your first questionis thereforeansweredin the negative. We are not passingon your secondquestion,in that it was predicatedon an affirmativeanswer to your first question. SUMMAR,Y The sellerof any interestin or under an oil, gas or mining lease, fee or title may not claim the exemptioncontainedin Section I. of Article 581-5V.C.S. Yours very truly, WILL WILSON AttorneyGeneralof Texas WVG/fb APPROVED: W. V. Geppert OFlNIONCO~ITTEE: Geo. P. Blackburn,Chairman J. C. Davis,Jr. WallaceP. Fiufrock RBVIm FOR THE ATTORNEXGENFBAL. BY: . MorganNesbitt