Untitled Texas Attorney General Opinion ( 1958 )

THEA~TORNEYGENERAL
OF TEXAS
WILL WILSON
A’CFORNEY GEXSERAL bag 30, 1958
Hon. $3111~ Stealcley Opinion No. WY-.440
Sectietary of State
Capitol Station Re: Should the Zecretarg’ot S,tate
Austin, Texas accept arid file Article8 of
Incorporation In which the cor-
porate name includes one of’ the
words, “discount”, “redts&unt”,
“guaranty*, or “surety”, and
related questions.
Dear Mr. Steakley:
You have requested our opinion answering five questions
concerning the granting of charters to corporatlons~ under the
Business CorporatFon Act which conttiin proposed purpose Blauses
and corporate names contalnfng certain descriptive words. Your
first question is as follows:
“Should the Secretary of State accept and
file Articles of Incorporation which include one
or more of the following purposes:
!‘a I/ To endorse and guarantee protilssorg
notes, drafts, bills of exchange, ‘,warranta, bonds,
debentures, arid other negotl,able and non-negoti-
able instruments and evidences of indebtedness;
and to guarantee the payment of the principal and
interest thereon e
“b 6 To Guarantee any contract or under taking
between individuels, or bbtween private corpora:
tions, OP between indlviauals, or pirvate corpora-
tions and the State, and municipal’ corporation8, 6r
counties, or between corporations and individuals.
“c . To act as surety or guarantor of the
fidelity of any person, ftirm or corporation ap-
pointed to or assuming the performance’of any trust
artsing out of a contract between individuals or
corporations, or otherwise; to act as surety 6r
guar&htor for the performance of any contract; to
act as surety or guarantor. of the debts of any c’or-
poration, individual, firm, or partnership; to act
as agent for the purpose of any lawful act.
Hon. Zollle Steaklay, page 2 (Opinion No. WW-440)
“d . To accun.ul.ate, lend and advance money
or glve credit to any person, firm, or corpora-
tion, either with or without security, and on
such terms as may seem expedient, and to buy,
sell, dlsccxlnt and rediscount bonds, negotiable
instruments, condltlonal sales contracts, and
other evidences of indebtedness .I’
We will first discuss the validity of the following
proposed purpose:
“b . To guarantee any contract or undertak-
ing between individuals, or between private cor-
porat ions, or between Individuals, or private
corporations, and the State, and mnlclpal corpora-
tions, or counties, or between corporations and
Individuals . ”
The wording of thla clause la Identical with tht word-
ing of one of the purposes contained in Article 7.01 of the
Insurance Code, which was repealed by Chapter 388,/Section 1,
Acts 55th Leg., 1957, p. I162. Article 7.01 was part of Sub-
Chapter (A), Fidelity, Guaranty and Surety Corporations, and
Article 7.01 was captioned, “TO Act As Surety”. Althou& Chapter
7 of the Insurance Code has been repealed, ‘corporations may still
be incorporated under the provlslons of Chapter 8 of the Insur-
ance Code for the purpose of engaglng in this type of bualness.
Article 2.0IA, Suslness Corporation Act, provides that
cbrporatlons for profit may be organlzed~under this Act for any
lawful purpose or purposes, but that no corporation inay’adopt Or
be organiced, or obtain authority to transact business 1n’Texs.e
under the Act if any one’ of its plrposesls to operate insurance
companies of every type and character that o erate under the ln-
surance laws of this State. (Art. 2.OIB(4) yd)) . Article 9.14A,
Business CorporationAct, also provldes that the Act shall not
apply to corporations organized for the purpose’.of operating ln-
surance companies of every type or character that operate under
the Insurance laws of Texas.
Therefore, since the purpose above set forth is-to permit
the corporation to Issue contracts of surety or guaranty, such
corporation would be operating an insurance business; and under
the provlslons of Article 2.01B(4) (d) and Article 9.14A, a
charter could not be granted by you under tQe provisions of the
Business Corporation Act.
Although the following purpose clause:
"c, To act as surety or guarantor of the
Hon. Zollle Steakleg, page 3 (ww-440)
fidelity of any person, firm OP corporation
appointed to OP assuming the performance of any
trust arIsIng out of a contract between lndivld-
uals or corporations 3 OP otherwise; to act as
surety OP guarantor for the performance of any
contract; to act as surety or guaMntor of the
debts of any coPporatloc, individual, firm, or
partnership; to act as agent for the purpose of
any lawful act (I”
does no% use language which Is Identical with certain of the pur-
poses contained In Article 7'.01 of the Insurance Code discussed
above, nevertheless, the phraseology evlddnces the Intent of the
corporation to conduct Its business for part of the same purposes
which were formeplg authbrized by Atiticle 7.01 of ‘the Insurance
Code. The purpose, “to act as surety or guarantor of the
fidelity of any pepson, firm, or corporation appolnted to or’
assuming the performance of any trust arising out.of a Eohtract
between Individuals or corporations, or othe~wlse”,~‘l~ almbst
identical with one of the purposes formerly authb??Lzed uriaer
Article 7001, which was “to act as surety.and guarantbr bf the
f IdeUty of employees, trustees, executors 9 admlnltitP&t6rti,
guardians OF others appointed to, or ‘essumlng the p&f 0Mance of
any trust,,publ.fc 01”private, under eppolntment of any court or”
tribunal, or under contract between private lndfvlduals OP COP-
poratlons; 0 0 D e -”
It is clear that although the verbiage of the,fortgolng
purpose Is dlffepent from the ,verblage of Article 7.019’~neverthe-
less, thb nature of the proposed buslness&s’thereunder are lden-
tlcal, namely, to carry on a surety or guaranty busiaess, which
1s an insurance business, ar.d therefore, since such purpose falls
within the prohlbltIons .above described, you would not be au- -’
thorlzed to grant a charter containing this purpbse to a corpora-
tldh und’ep the provisions of the Business Corporation Act for the
reasons above set forth-
The same reasoning and the same conclujions are applfca-
ble to that papt of the purpose clause which reads as follows:
4,. 0 D 0 tb act as sur&g OP guarantor fop the
perfbrmance of any contract; to act as surety or
guarantoti. of ‘the debts of ‘any corptration, lfidlvld-
ual, firm, or pastnershlp; . D . ti
All of the’foregolng mrposes are r&stitements in different
Verbikge of purpose clauses foFmePly authorlzea’by Article 7.01,
Bfid~ilould authoplze the corporatlbn’ to conduct a surety or ”
guaranty business, which is insurance business (Ar%. 5.13, Insur-
iPnce Code), and therefore you could not iasue~a charter or an
amendment or certificate of authority to any corporation under
Hon. Zollle Steakleg, page 4 (W-440)
the Business Corporation Act to conduct a business for such pur-
pose or purposes.
The remaining part of the purpose clause is “to act as
agent for the purpose of any lawful act”. It Is our opinion
that you could not’ issue a charter or approve an amendment
thereto, or issue a certificate of authority to any corpora-
tion under the Business Corpbratlon Act which conttis this single
purpose for the following reasons:
(a) The purpose clause, standing alone,
is violative of Article 2.01A which provldtis
that corporations for profit may be organized
for any lawful purpose, which DurDose shall be
fills stat@ In the articles of Incorporation.
The purpose’ “to act as agent for the purpose of
any lawful. act” is too vague and ‘Indefinite,
since the word5 “for any lawful act” do riot
specify the nature of the act which the agent
Intends to perform. It Is possible that the
acts sought to be performed might, In the opLn-
Ion of the officers end directors of the cor-
poration, be lawful acts, butt such acts might
also be In violation of the lciws of this State
if accomplished In a particular manner.
(b) Prior to the enactment of the ‘Busl-,
ness Corporation Act there were three lawful
purposes under *Rich a corporation was permlt-
ted to act as agent for another. These were,
respectively, ~&ubdlvlslons 49 and 108, Article
1302, V.C.S., and Article-1303b, V.C.3~; Sub-
division 49, Article 1302, is in part as follows:
I, .to act as trustee under any
law&i ixpress trust committed to them
by contract, and as agent for the per-
formance of any lawful act VW
Article 1303(b), V.C.S., uses the identical language,
but aUds the tiesfriction that such oorporatlon will be “without
banking or Insurance privileges”.
Sub-division 108, Article 1302, V.C.S., provides as
follows:
“Corporationa may be creeted to furnish
the agent upon whom process may be si)rved, to
act as agent fop rtielpt of’comirmnlcatlons and
notices, to establish and maintain registered
Bon. Zollle Bteekley, page 5 (W-440)
offices for corporetfons and other organizations,
domestic or. forelgh, and for lndlvlduals, and for
the performance of any lawful act In connection
therewith; provided, however, no such corporation
shall as agent carry on the business of 8nOther.”
In addition to the p~ovlso con%alned,ln sub-division 108 that
“no such~corporatlon shell, as, agent; carry on the business of
bnother”, all corporations whose purpose clauses~ contain the
purposes mentioned ln sub-division 49, Article 1302, and Article
1303(b), were.subJect to the provisions of Sectfon 1, Article
152tie, V,C,S,, which provides that “nor shall such corporation
as agent or trustee ‘carry on t’he business of another,” which re-
striction 1s stfll applicable to corporatfons operating under such
purpose clauses 0 (Art 9 g,lgB, Business Corporation Act) . ~,_
It has been the unfform departmental construction of the
office of the Secretary of State over a long period-of pears,
following the opfnlons of various’ Attorneys General, that a
charter could not be granted ‘nor a permft Issued to a foreign ‘~’
corporation whose purpose clause oontalned the words, “to act as
agent ‘for the performanoe of any’lawful act”, standing alone; but
that the entire purpose clauses above se% forth under eub-clivl-
slons 49 and 108, Article 1302$ and Article 1303(b), V.C.‘S,, must
be set forth In the charter or amendment thereto, or permit in
the case of a foreign corporation,
In addltlon the Legfs’la%ures of Texas, over a’ long period
of years prior to the en&c%men%of the Business Corporation Act,
have no% seen fit to enlarge uEjon the purpose clauses ‘above se%
forth which perml%%ed a corporation to act as agent, but have
continued the restrfctlve provisIons or words of ~lmltatlon se%
forth therein,
1%~1s the opinion of this office that a single purposb
to “act as agent for the purpose of any lawful act” 1s no% a law-
ful purpose which may be contained fn any eher%er OP certificate
of authorfty for the reason that 1% is too indefinite and is not
fully stated so as to apprise the Secretary of State OP the &ub-
llc at large as to %he performance of whet lawful act or acts the
proposed corporatfon contemplates D
The proposed purpose clause whfch reads es follows:
“d. To accumula%e, lend and advance money
or give credit to any person, firm, or corpora-
tion, either w~lth or without security, and en
such.terms as may seem expedfent, and to buy,
sell, discount and rediscount bonds, negotiable
instruments, conditional sales contracts, and
other evidences of lnd,sb%edness *”
Hon. Zollle Steakleg, page 6 (wu-440)
Is a combination of the purpose clauses set forth in subdivi-
sion 49, Article 1302, V.C.S., and Article 1303(b), V.C.S., and
is an enumeration of some of the powers granted to trust com-
panies underArticle 1513, V.C.S. It also contains some of the
purposes enumerated in Article 342-301 of the Banking Code, which
authorlzes the incorporation of banks and trust companies,
although the verbiage used In the proposed purpose clause is
not Identical with any of the purpose clauses above enumerated.
ose clause could be subdivided into two distinct
to accumulate, lend and advance money or give
credit to any person, firm, or corporation, either with or wtth-
out security, and on such terms as may seem expedient, . .
and (2) “to buy, sell, discount and rediscount bonds, negotlible
lnatruments, condltlonal sales contracts, and other evidences of
indebtedness.”
Analgsl.ng the first purpose, lt may be reduced to the
purpose of acoumlating and or without
security, sLnce the words
synonymous w’lth the words
is given as a loan or an advance
Fmmaterial because the ordinary business practice followed by
both banks as well as lndlviduals and corporations engaged in the
business of lending money to the public is for the lender to
exercise discretion as to the requirement of security, provided
that such loans are not made Ln vlolatlon of the statutory re-
strictions governing the lending institution. The use of the
term “and on such terms as may seem expedient” agaln involves a
questton of discretion on the part of the lender, but would not
authorize the corporation to lend’or advance the money in vlola-
tion of the constitutional and statutory provisions governing
the amount of interest and other charges to be exacted from the
borrower. Standing alone, this Furpose clause would not consti-
tute a legal purpose, althou h it is almost identical with the
provislons of sub-divlslons &8 and 49, Article 1302, V.C.S., and
one of the purposes contained in Article 1303(b), V.C.S., since
the words “without banking and discounting privileges” ~would have
to be added to the’purpose clause before-you would be authorlied
to issue a charter, approve an amendment, or’grant a certificate
of authority to a foreign corporation to engage in business ln
Texas ‘for such purpose. The addltion of the,qualifglng phrase,
“without banking and discounting privileges”, will be discussed
lnthe answer to your second question.
‘The purpose clause authorlelng the corporation “to~buy,
sell, discount and r’ediscbunt bonds, negotiable instruments,,F;on-
ditional sales contracts and other evidences of indebtedness,
would be lnvalld as to the words “discount and rediscount” since
such language Fs almost’ldentlcal with the language in cub-dlvlL’
sion 49, Article 1302, which authorizes a corporation to “purchase,
I
Xon. Zollle Steakley, page 7 (ww-440)
sell, and deal In notes, b$$s or securltles, but Without banking
and discount1 and therefore, uiiless such quallfy-
hg words w&r?a~dr~il’,ues, as stated
’ above, this clause would not con-
stltu;4! ‘a lawful Frpose. Since the words, “disbount and redis-
w;,“;, a;e ln direct contradlctLon to the necessarg,,quallPyFng
without banking and discounting pPlvlLeges such words
tiould,‘of necessity, authorize the performance of a &ohlblted
act. ,.
Dlsooi.antlng”ls one of the finCtlons ef the.banklng’
‘business 0 This is manifest from the~wor%Liig of SMtion 16, ”
ArtZcle XVI, Constftution of Texas,‘whlch autharizes “the incor-
pvoation of corporate bodies wlth bankingand discounting prl-
vlleges”. The word “discaunt”, has been held to be Included
in the term, “banking”. ‘Kallskl v. Gossett, Bankina Coti ‘9sfoner,
IO9 S.W. 2% 340, 344 (Civ. App. 1937 errdr,ref,i)B Att orneg Gen-
eral’s.Oplnlon No. O-5646, dated Oethber X3$ 1943: arjd’Nb.
O-4912’, dated Octbber 17; 1942, H&-ice, any purpose clause.
which: atithoritied a corporation tci conduct a business of dtti-
counting or redlscountltig negotF&ble instrument& or commerclial
p&per would .constltute authoi”ltg for the corporation to do B
banking buslnesa and would.fall within the prohibltLon of Arti-
cle 2 .OlB( 4) (a) 0 Therefore, you would be without” authority t0
grant a charter OP amendment thereto, or certificate of author-
ity to a forsign corporation for such purpose. It may be iioted
that the phrasing of the proposed purpose clause (d) p su r
b&ars a strlklng slmlla~lty to hhe provisions of Artlc #&301
e
(a) and (e) ) V,C,S, (Banking Code of 1943) 0
The last of the proposed pupposes~ls, as follows~
nao To endorse and guarantee pPomiseo~y
notes, draft&, bills of exchange, warPants, bonas,
debentures, and other negotiable and nbn-,nqgotleble
LnZ3tfutient.a tin%’evidences of indebtednes~ti; arid to
``t;;;ef: the payment ‘of the pplnci~l and, int?rest
0
It will be noted %K&$,the propos6d purpose clause tWi%ti’
conta?ns the wbrda, “tb guaPantBe”. Article 5.13 of the ‘Insiipanbe
-Code $a applfcable to any insuranc,eLoti@p&lay OF other organlzatibn
writlang any fidelity, surety, or gW&rafitp bonds on risks or op&- ',
atlons In Texas, with ceP%aln exbeptFons’,not applicable here, and
vests the regulatory power over such oPgahiea%lons In the 'Board
bf Insuraiwe Commlsslonem3, The regulatory powers etimera%ed
are. gMerall$ conc&rtied with ratings and pblic$‘formti a Again
ref&Plng %b the p~ovlsihw of fotier Article 7.01, one of the ‘.
pUrposes named therein Was to’ guaMn%tie .any contract or under-
taking between individuals and bbtW&en~‘prlvate corporations, and
between lndlvlduals and private coppopatlons. The purport .of the
Hon. Zollle Steakley, page 8 ’ (wu-440)
proposed purpose clause is to generally guarantee the payment
of written evidences of indebtedness, both negotiable and non-
negotiable. That the wrltten evidences of Indebtedness named
in the purpose clause are contracts is so well settled as to
obviate the neceasltg of citation of authorltlea.
In Southern Surety Co.’ v. AustlQ 17 S.W. 2% 774
(COUUU. App. ‘1929) it was held th t in gu&anty insurance the
guarantor agrees co indemnify theainsured for any loss of money
sustained due to the failure of the principal to act. If, on
the other hand, it is contended that the obntract to”be issued
by the proposed corporation is one of suretyship, that is, to
guarantee the payment of the Indebtedness to the holder of the.
written evidence of ‘indebtedness upon the default of the maker,
nevertheless it la a contract of insurance since the holder of
the written evidence ‘of indebtedness would rely upon the obll-
gatlon of the corporation under its contract to guarantee the
payment of the indebtedness upon the default of the maker.
In National Auto Service Corn: v. State, 55 S.W. 2%
209, 211 (Clv. App. 1932; error dl ) th Court of Civil
Appeals stated the general rule ass~oliows~
‘Whether or not a contract 1s one of lnsur-
ante is to be determlned by Its purpose, effect,
contents, and import, and not necessarily by the
terminology used, and even though it contalns de-
clarations to the contrary.”
It is self-evident that’ a corporation organized for the foregoing
purpose would have the authority to and could issue contracts of
suretyship and guaranty In furtherance of such purpose.
It Is therefore our opinion that the proposed pureose
clause would authorize the corporation to issue contracts of
surety and guaranty, which’ Is an insurancebusiness, and there-
fore you would be withat authority to issue any charter or
amendment thereto, or cei-tlflcate of authority to any corpora-
tion under the provisions of the Business Corporation Act to con-
duct a business for such purpose.
Your second question Is as follows:
‘Is the Secretary of State authorized to
ac’ceptand file a domebtlc corporate charter,
or an application for 8~certificate of author-
ltg of a foreign corporation, contain purpose
clause in terms-of subdivisions 48, 49, and 50
of Article 1302, and Article 1303b, if the pur-
poses clauses do not contain the words of llml-
Bon. Zollle Steakley, page 9 (W-440)
tatlon of these statutes: “without banking
and discounting privileges 9p and ‘not .compet-
$.ng wFth each other” in the same line of bus-,
Lnes s ? fl
Her6 the basfc’questlofi is wheth’er restrictive provf-
sions br words``of lfmftatl6n qualZfylng .~r&wwl putiposes fbr
which a coPpor&%lon could be formed:‘iinddeP ‘the’ laws of T-exa’s’
prior to the enactment’of the Business Corporation Act, are still ~“’
in full force arid effect 0
As above sttited, Section 2.Cl.A~oS,%he Business Coi+$ora-
tion Act provfdez thet coPporatlons organ’ised for profit may be,’
brganfzed for any lawful mppose or plrposss which’Bnis%:.b6’ filly
stated fn the articles oS.ticorporti%lon. It ,14 a m&%Ebr:OS corn-
mbn and general knlbbwleiig’e~,of ‘whiqh the:, &Wt& .bft:Texae would
take judlclal notice, th&% under’~ the &orpWatlon, 1aPz bhich’ eX-
isted’ ilplor tb ‘the enactment of the’ BusInbes ~Corpor%$loh Act, no
corporatfdn SBP profit Wuld be formed excep%. SOP a~ Bp&iSii:
purpoa6 named fn the s%atiitee gOV~erni.ng.%be’incorpdra%lon dS‘ ‘~‘_~ ,
corporatlohs fop ,proSit, .and then the pippoSb for which”che, cdr-
porPatl6n was S@@J@ was conffned solely to the :~rpo6b’~named in
the statute 0 In o%hep.,Word6p although thePe ‘were over I10 ‘drf;,
Ser’eri% statutory papposea SOP which”cotip;Wat,lo~ oould. be fdPmed,
1% has long be&n se%t%ed law ln Telhas. that a chartee cold shots
be’ granted to a``eorporPr&fon Wifoh.:c,on%cr$n@ .rPrps.thanone .of the ,,
statutory purposes 0 ‘.gf~,TbX. 4040, 67 S.Y. 484
(1902) 0
One’of ~%helegfslis;%lve ilB$dn%s”‘Plin,,.%he‘bna6%m&& of ‘%h&
Business Corpora%fcm AC% ~wa(I’ %b ‘pe@fnit P i%~poP&%.tf6iiSOP ppbSi%
to be Sbrti&d fblp done OF more PaWul~ .pnv~p$sir, aubjeet: to’ the ‘ex-
tieptfoh8 pPovJfded fn Article' 2’iOlA B. :p”a6tOP .%@“%hib ‘Aclt %her6 "
beret many lnbs%anbee whei-e, a. s%&a%oP fcifpos'ti ,wab~epa6tXul b$ ttie
Le&lsl&u~e eontafnfng & g.eheral, sta iTemesbt;~ ” %h*t a &iv&%e coPpoP-
a%ion,,could be SoPme% “‘for any sne o``:-mo~eoc %,h?‘PolS6~iiig @P- ..‘,
pose8 p ,wlth an enume~atfoaa.the``~S``~h~d:,‘%h;e,p~opos68co~po~!e-:.,,‘- ,:’
tion could adop% %he au%horlzed p%rpPse ,tlausje~in’ fts,‘&n%fr6%p, :
or” ffmi% Fts purposes to one”op ,mbPe oS’~%tiieentire rii@bsr~‘ofP’@.UG ‘, ‘,
poses &iatkeJPleecI%@3Pt3faa. Many of the: a,%a$U%bm,, jxnrpoM5‘eli?iusee ~’ ,:,.‘I
were pref”aced by words’~of lfmftatfon OP pes%Tfctivs,‘~PbvfsYons
upon the authopity of’the corpoPa%fofi :$o perfokm the, business ./ : ‘``
‘.,
au%bc@lzed under the $u~pose``Mlthin a &elP%iifia ~sfihere ,‘6f .iadtlvltg,
so thaat’the eorpoP&fon e6uld ~6% ,do :bu&lnetib S&Q whieh.eorpWa-
t%oiM had been’ fortied ‘uh%eP o%her purposes Pablch w&Fe regulated ~,.:,.~:
,I
by specific State agenofes,’ !
‘,
A %yplc?il example of such 8.’purpose clause is to be ‘,
found In the provfsfona’,of’ APtfcige 1303(b) p V,C,S., whfch is as
follows; the restrictive p~ovLslowe or worda,,oS lfmF%atfon being ,’ ‘,
emphasfeed E
‘.
Steakley, page 10 (wi-440)
private corporation may be Parmed for
poses, wlth-
to acousuz-
1 in notes,
bbnds and securities; to act as Trustee under’eny
lawful express trust committed to” tt by contract
or will, or under appointment of any court having
jurisdiction of the sub’ject inetter; end es’ agent
fork the performance of any lawful act; to sub-
scribe for, purchase, invest in, hold, own, assign,
pledge and otherwise deal in and dispose of shares
of cepltal stocks, bonds, mortgages; debentures,
notes eiid other securities or obligations, con-
tracts and evidences of IndebtMness o;ltfyeign
or domestic cotiporatlons not COmDetinR each
other In the same line of buslnBag* to borrow
money or issue debentures fop carr&g out any
or all purposes above enumerated. . . . .”
Other restrictive rovisitina or words of llmltetion are emphasized
ln.sub-divisions 48 49, and 50, Article 1302, V.C.S.Subdlvle.lon
48, Article 1302, 1; es follows:
‘To accurmlate end lend money ylthout bsnk-
lng or discountinn .‘I
DriVileRe~S
Sub-division 49, Article 1302, IS aa follows:
“For eny one Or more of the following pur-
To &ccunulate end lend money, purchase
committed to them by contract atid as agent for
the performance of any lawful @ct.”
Sub-division 50, Article 1302, Is as follows:
.“To subscribe for, pui~hese, Invest ifi,
hold, own, assign; pledge 6ind titherwise deal in
and dispose of shares.of capital stock, bonds,
mortgages d debentui%s , notes and other securltles,
obl’igatibns, contracts and eWldencds of ‘inaebted-
ness of foreign Or domestlc corpoi%tlons not
comti6ting with each Other In the 8(u~e linnf busi-
tiesis’; prollded the @wetis and hu?horltg’ herein con-
me&~ shall in no way effisct any provision of the
antl-trust laws of this State.”
Sub-division 108, Article 1302, quoted above, contains
similar restrictive provisions or words of limitation.
Hon. Zollle Steekley, page 11 (WV-440)
Aswas stated in enswer to your first question, the
Legislature of Texas over a period of many gears prior to the
enactment of the Business Corporation Act has used words of
limitation or restrlctlve~provlslons In connection with the
statutory enactments of lawful purposes for which e corporation
could be formed under the laws of Texas. Manifestly, by provld-
lng such restrictive provlslons or words of limitation It was
the ‘leglslatlve Intent to limit the’ purposes for vhLch’e cor-
poratlon might legally do business wlttiln this State so that
lt.,could not transact’ builnebs which was properly being trans-
ac’ted by other corporations which were uiider.‘.strlct regulatory
end ~aupervlsory Ilmltetlona imposed by law, end which were ad-
minlatered by State- offlcers or agencies. Typical examples of
such words of limltatlon or restriction were applicable to cbr-
,poratlons formed for eny of,the purposes contained in sub-dlvi-
slons 48; 49, end 50, Article 1302, V.C.S., Article 1303(b),
V.C.S;, end under the present Busln6ss Corporetlon Act Article
15138, V.C.S., all of which car oretlons..ware end ares I Art.
9.15B, Bualness Corporation Act P sub’ject to the limitations end
restrictions imposed by Article 15,2&r; V;C.S., under the super-
vision of the State Banking Commlsslonerp Formerly all title
insurance companies incorporated under former Article 13028,
V.C.S., now Chapter’ 9, Texas Inarence Code, were Incorporated by
the Secretary of State, but were under the supervision of the
Board of Insurance Commlssloners. Banks end trust companies
which were created under the provisions of’ the Texas Benking Code
of 1943 are under the supervision of the Banking Commissioner of
Texas a Hence, any purposes contained In the general corporation
laws which contain words of limitation or restrictive-provisions
such as, “without banking and discounting prlvlleges”, although
permitting the corporation to perform certain business transactions
which were common to banks end trust oompenles, nevertheIes,s did
not permit such corporations to engage in eny phase of banking OP
discounting features which forms en integral part. of the banking
business, thereby carrying on a banklng business without any
supervlslon.
Thls office
has held (Attorney Cenerel’s Oplnian No.
WW-77, dated April 1, 1957), that the statutory &zrpose clauses
authorized under the provisions of Article ljO2’end sub-divisions
therebf, Article 1303b
Corporation Act were lawful purposes~ Andystill remain lawful~ pur-
hoses for which a corporation may be organized under the Act,
vith certeln exceptions noted therein,
In enacting the Business Corporatlon Act the Legislature
manlfestlg did’ not intend to ‘remove the restrlctlve provlsrons or
words of llmltatlon whleh qualifiedthe lawful purposes granted
Hon. Zollle Steakley, pegs 12 (lfu-440)
by it (Art. p.l5B), but Intended only that such purposes es
brlglnally enacted still COIMtitUted lewful pzrpos@ under which
8 corporation oould be ahertetied for one or more lawful purposes
which, under the prior law, wee prohibited.
It is our opinion that you world not be euthorleed to.
grant e charter or amendment thereto to~‘~e domestic cOrporetlon,
or an eppllcetion for 8 certlflcete oft euthority tb e Torelgn
cbrpotietlon which cohtelned purposs clause& aubstentially the
same es sub-divisions 48, 49, end 50; ArtlOle 1302; or Article’
1303b, or any other simller purpos&‘cleusea which were eutholiized
izs lawful-purposes prior to the enactment of the Bublness Corpe-
etlon Act, unless such pui?pose clauses contelned’ quaXlfying pro-
Visions or words of llmltetlon which were originally e part
thereof.
Your third question Is es follovs:
“Should the Secreterj of State accept and
file Artlcleb of Incorporetlon Including dls-
counting or redlsaountlng purposes if words of
llmltetlon lre added, to-wit: ‘wlthaut benklng
or dlacountlng privilegea? I”
This quest(ion``has been discussed end apawered in the
answers to your first and second queitlons.
Your fourth question is es followsr
“Should the Secretary of State ecc&pt end
file Article& of Incorporation which include
surety or. guerenty purporer If words oi’llmlta-
tion are added thereto, to-wit: ‘lnbofer es may
be’~permltted by law end nothlng cbnt8lnbd herein
shell be construed to grant this corporation ln-
surence powers?’ ’
Since we have held In emwer to yoim first queatlon thiit
a purpose to dc a surety or guaranty business would constitute a
purpbse tb don en lnsu+nc& business, yo!~ would“not be atithorlesd
to grant e charter or at~emendiUnt ‘theMto bra 6i ‘certificate 6f
auth6rlty for e foreign aorpotietion tb do buslne’ss In Teties-ilnder
the pri%lsl~ns of the Bublnebs Corporation Act, end therefore it
is lmmaterlel whether the qualifying or restrictive phrase should
be added to such purpose.
Your fifth question 1s es follows:
“Should the Seoretery of State eccept and ,
file Articlea of Incorporation in which the
Hon. Zollie Steakley, page 13 (Wu-440)
corporate name includes one of the words, ‘&is-
count ’, !~redlscount I, ‘guerenty’ , or ‘surety’?”
Article 2.05A62) of the Business Corporation Act refers
to the “Corporete Name es follows:
“It shell not contain any word or phrase
which lndlcetes or implies that It Is organized
for any purpose other then the one or more of
the purposes contained in its articles of ln-
corporation. ”
Since we have held that you are Ytthbut authority to
grant e cherter or en amendment thereto, or a certificate off
authority to’ a foreign corporation to-do a discounting, redls-
bountlng, guaranty or surety business, the use of such words lh
the corporat6 name would be in violetion of Section 2.05A(2) of
the Business Corporation Act.
The Secretary of State is without authority.
to issue e charter or grant a certificate of au-
thority to a foreign corporation for the purpose
of doing business es e fidelity, surety, or guer--
anty business, which is the business of lnsurence,
or for the purpose of doing a beriklng business.
Words of llmltetl~n or restrlctlve provlslons
contained In lawful stetutory purpose cleuaes of
private corporations for profit in effect prior to
the enectment of the Business Corporation Act ere
&till in full foroe end effect as to any lawful
Furpose for which e corporation mey-be formed un-
der the provisions of Article 2.OlA, Business
Corporation Act.
A corporetlon mey not use In Its corporete
tieme ,eny word or phrehe which is not descriptive
of one of the purposes for which the corporation
is formed.
CKR:wb:wc Very truly yours,
APPROVED : WILL WILSON
Opinion Committee Attorney General of Texas
Geo. P. B>ackburn, Chekrmen
Mary K. Well By s/C.K. Rlcherbs
Milton Richardson C.K. Rlcherds
Fred Werkenthln Assistant
Reviewed for the Attorney General
By: W. V. Geppert