Untitled Texas Attorney General Opinion ( 1948 )

December 20, 1948
Hon. Paul H. Brown Opinion No. V-746
Secretary of State
Austin, Texas Re: The legality of permitting a
foreign corporation to do
business for profit in Texas
Dear Sir: when it-has no capital stock.
Sand Springs Home, an Oklahoma corporation, has applied
for a permit to do business in Texas under the provisions of Ar-
title 1529, Revised Ci,vil Statutes of Texas, for the purpose of en-
gaging in business for pecuniary profit within the State of Texas,
as authorized by~the provisions of Subdivision 37 of Article 1302,
Revised Civil Statutes of Texas. Under the provisions of the
charter granted to the corporation by the State of Oklahoma, it
is authorized to engage in business for the same purposes pro-
vided in Subdivision 37 of Article UOZ,,
The corporation has. not authorized or issued. shares of
capital stock but has net capital assets in excess of $lOO,OOO.OO.
Its corporate powers are exercised by trustees; and the profits
realized from the business ventures of the corporation arc us,ed
and applied’to the trust purposes set forth in its charter, which
ar’e the support of charitable and benevolent organizations, the
net result being that the corporation engages in business en-
deavors for profit, and the trustees then allocate the profits re-
alized among various charitable and benevolent undertakings.
The Secretary of State returned the application for the
permit for the reason that the corporation, being a corporation
for profit, but without authorized capital stock, may not be grant-
‘ed a permit to engage in business in Texas since it is unable to
comply with the provisions of Article 1530, Revised Civil Statutes
of Texas, which provides that:,
“Before such permit.1~ issued such corporation
shall shop to the satisfaction of the Secretary of State
that at least one hundred thousand dollars in cash of
their authorized capital stock has been paid in, or
that fifty per cent of their authorized capital stock
has been subscribed, and at least ten per cent there-
of paid in.”
Upon this factual situation, you request the answer to the follow-
ing questions-
. .
Hon. Paul H. Brown, Page 2 (V-746)
“(1) Can the Secretary of State legally ap-
prove ~the application of this corporation for a
permit to do business in Texas?
“(2) If this corporation were not engaged
in business for profit, could the application be
approved ? ”
The objection to the issuance of the permit is not based
upon the nature or the purpose of the business proposed to be
done in Texas or any insufficiency of the capital of the corpora-
tion, since it is manifest that both the purpose of the business
and the sufficiency of the capital are in full compliance with
the laws of Texas, but upon the framework or structure of tha
corporation, since it has no shares of capital stock either au-
thorized or issued.
It is a well-settled rule of law that under the doctrine
of comity and in the absence of any prohibitory law or rule of
public policy, foreign corporations are entitled to enter a State
and make any contracts or transact any business therein falling
within the scope of their lawful corporate powers which are
permitted to domestic corporations of like kind and character.,
In accordance with this ‘rule, if the laws of a State prohibit the
formation of domestic corporations of a specified character, or
for certain purposes, its policy is controlling; and a foreign
corporation of that character or created for such purposes
would not be allowed to enter the State and transact business
therein. However, an intention to exclude foreign corporations
from a State is not to be deduced from circumstances that the
laws of the State have made no provisions for domestic corpo-
.rations of like character. And in the absence of express con-
stitutional or statutory inhibition, foreign corporations may
enter a State and engage in business therein under the rules
of comity, notwithstanding they are organized in accordance
with methods which do not obtain in such State. Therefore,
the comity of the State will not be withheld from foreign cor-
porations merely because they have a framework or stock
structure ,unlike that for domestic corporations. 17 Fletcher
.Cyclopedia Corporations (Per. Ed.) Sec. 8335, pages 140 to 142.
The State of Texas recognized these rules of law when
foreign corporations created with no-pars-value stock first
sought to enter the State of Texas before the enactment of
Chapter 19A, Title 32, Revised Civil Statutes, in’l925. See
Staples v. Kirby Petr~oleum Company, 250 S.W. 293 ‘(1923);
American Refining Company v. Staples, 260 S.W. 614 (1924),
affirmed 269 S.W. 420. In these opinions the courts cited with
Lpproval the case of North American Petroleum Company v.
Hopkins, 181 P. 625 by the Supreme Court of Kansas and State
.
Hon. Paul H. Brown, Page 3 (v-746)
ex rel Standard Tank Car Company v. Sullivan, 221 S.W. 728 by
the Supreme Court of Missouri. See also Commonwealth Accep-
tance Corporation v. Jordan, 246 P. 796 (,Sup.Ct. of California).
Under the reasoning of these opinions, it is the present
rule of law in Texas that there is no express statutory inhibition
or prohibition against the admission of foreign corporations en-
tering this State and engaging in business therein, even though it
might be that as to their framework and especially as to their
stock structure or lack of it, such corporations would not have
been entitled to organize as domestic corporations or receive
certificates of incorporation as such under the lay of the State
of Texas.
It is therefore necessary to construe the provisions of
Article 1530, Revised Civil Statutes of Texas, above quoted, as
to whether or not by the inclusion of such Section as a part of
Chapter 19, Title 32. Revised Civil Statutes of Texas, 1925, “For-
eign Corporations,” it was the intention of the Legislature to
forbN~‘the issuance of a permit to a foreign corporation for pe-
cuniary profit unless the corporate structure thereof provided
for authorized or issued capital stock. The Legislature of Texas
has classified private corporations into three classes: (1) reli-
gious, (2) for charity or benevolence, and (3) for profit (Article
1319, R.C.S., 1925). To determine whether or not ,it was the leg-
islative intent to prohibit the ‘creation of domestic corporations
or the admission of foreign corporations without capital stock to
engage in business for profit within the State of Texas, it is nec-
essary to look to all of the statutory provisions governing cor-
porations, domestic and foreign, and their rights, privileges,
and liabilities.
Article 7084, Revised Civil Statutes of Texas, provides
for the payment of a franchise tax by both domestic and foreign
corporations chartered or authorized to do business in Texas
or doing business within the State of Texas. Article 7094, Ele-
vised Civil Statutes of Texas, exempts from the payment of the
franchise tax, among other, corporations organized for the pur-
pose of religious worship or for strictly educational purposes
or for purposes of purely public charity. Article 7084, there-
fore, imposes a franchise tax on all corporations organized for
profit except those otherwise specifically exempted by the Leg-
islature. Prior to 1930, the franchise tax was based, among
other elements, upon the authorized and issued capital stock
of both domestic and foreign corporations (Article 7084, Revia-
.
ed Civil Statutes of Texas, 1925).
However, in 1930 the 4lst Legislature enacted Section 2,
Chap. 68, Acts 41st Leg., Fifth C.S.; p. 220, amending and com-
bining Arts. 7084 and 7085, Revised Civil Statutes of Texas, 1925,
Hon. Paul H. Brown, Page 4 (V-746)
and provided in the amended Article in Subdivision (A) as fol-
lows: “Capital stock as applied to corporations without capital
stock shall mean the net assets.” This amendment has been
carried as a part of Article 7084 through subsequent amend-
ments down to and including 1941. It is apparent that the Leg-
islature would not have added the quoted sentence unless it had
intended to include corporations organized for profit but with-
out capital stock which previously had not been taxed.
Of further significance is the fact that in the codifica-
tion of the Revised Civil Statutes of 1925, the Legislature in-
cluded within the provisions of Chapter 2, Tftle 32, “Creation
of Corporations,” Article 1312 dealing with corporations having
no capital stock, as follows:
“No society, assocation, company, corporation or
institution that does not have a capital stock is requir-
ed in its charter to make any statement of the amount
of capital stock or amount of each share; but it will
suffice if the charter contains the other statenatnts
required, and also an estimate of the value of the
goods, chattels, lands, rights and credits owned by
the corporation.”
This Article was derived from Article 1224, Revised Civil Skt-
utes of 1911 which formed a part of Chapter 11, Title 25, dealing
with religious, charitable and other corporations, and which then
read as f~ollowe:
“‘No religious, literary, social, scientific, in-
dustrial,benevolent or other society, association,
company, corporation or institution that does not
have a capital stock will be required in its charter
to make any statement of the amount of capital stock
or amount of each share; but such charter, if it con-
tains the other statements therein required, and also
an estimate of the value of the goods, chattels, lands,
rights and credits owned by the corporation will be
sufficient. ” (Emphasis supplied)
.The deletionof the emphasixed words’ from ArticIe 1312
and the transposition of Article 1312 from Chap. 9 of Title 32
and its inclusion within Chap. 2 of Title 32 in the 1925 codifica-
tion is indicative of the intention of the Legislature to permit the
creation of domestic corporations for pecuniary profit without
the requirement of capital stock under the provisions of Article
1308, Revised Civil Statutes of Texas.
Additional evidence of legislative intent is shown by the
enactment in 1943 of Senate Bill 21, Chapter 138, Acts 48th Leg-
Hon. Paul H. Brown, Page 5 (v-746)
islature, 1942, page 219 (Article 1315c, V.C.S.), which provides that
corporations without capital stock shall have the right to have
their charters extended upon proper application to the Secretary
of Stite. The material portion of the emergency clause reads:
“The fact that there are many corporations op-
erating in the State that were organized without cap-
ital stock and that some of them are nearmg expira-
Ron, and the further fact that the present law is vague
and indefinite, creates an emergency. . . .” (Emphasis
supplied).
The renewal of charters of corporationscreated for the
support of benevolent, charitable, educational, or religious un-
dertakings had theretofore been sufficiently provided for by Ar-
ticle 1315, Revised Civil Statutes of Texas, which was originally
enacted in 1874, so that the inference may be drawn that Article
1315c, V.C.S., was enacted to provide for the renewal of charters
of corporations without capital stock which were organized for
profit.
The construction of an almost identical statute by the Su-
preme Court of Massachusetts in Pacific Wool Growers v. Com-
missioner of Corporation & Taxation, 25 N.E.(2d) 208, is highly
persuasive. In that case the Supreme Court of Massachusetts,
upon the application for a permit by a foreign corporation with-
out shares of capital stock, granted a writ of mandamus requir-
ing the Commissioner to admit the corporation. The Massachu-
setts statutes required every foreign corporation, before trans-
acting business in the Commonwealth, to file a copy of its charter
and by-laws and a certificate setting forth, among other things,
*the amount of its capital stock, authorized and issued, the num-
ber and par value of its shares, the amount paid in thereon, and,
if any part of such payment has been made otherwise than in
money, the details of such payment . , ,” The contentions of
the parties to the suit and the disposition made of the case is
set forth in the last paragraph of the Court’s opinion, as follows:
“The respondent contends that, if it had been the
legislative’ intent to include corporations such as the
petitioner within the scope of c. 181, it would have been
natural for the Legislature to have inserted the words
‘if any,’ after the words ‘the amount of its capital stock’
in section 5. We do not think this follows. The words
‘the amount of its capital stock’ in said section are
immediately qualified by the words ‘authorized and
issued.’ To accept this contention would be in effect
to require the court to read into the definition of
‘Foreign Corporation’ . . . the words ‘having a cap-
ital stock.’ , , . When the Business Corporation Law
l. ,
Hon. Paul H. Brown, Page 6 (V-746)
was enacted . , . the manifest purpose of the Legis-
lature in defining the term ‘Foreign Corporation’ as
used in that act was to include every corporation, aa-
eociation~or organization established, organized or
chartered under laws other than those of the Com-
monwealth for purposes, for which domestic corpo-
rations could be organized under that act. The im-
portant consideration was the purpose for which
such foreign corporation, association or organiza-
tion was established, organized or chartered and not
the precise form or manner in which it had been so
established. Such an intent is in harmony with the
rule as to comity of States which extends to corpo-
rations the privilege of exercising the powers con-
ferred by their charters beyond the limits of the
State, or country, in which they had their origin and
legitimate existence:’
In answer to your first ,question, it is our opinion that
the Secretary of State may legally approve the application of
Sand Springs Farm, an Oklahoma corporation, for a permit to
do business in the State of Texas for the purposes provided in
Subdivision 37 of Article 1302, Revised Civil Statutes of Texas.
In view of our answer to your first questibn, it is, not,
deemed necessary to answer your second question,
SUMMARY
The Secretary of State may legally approve the
application for a permit by a foreign corporation to
dr business in Texas for prefit where the purpose
clause and the capital requirements of the corpora-
tion are in compliance with the laws of Texas, .oven,
though the foreign corporation is without authorized
or issued capital stock. ,Staplaa v* Kirby Petroleum
Company, 250 SW. 293.; American Refining Co, v,
Staples, 260 S.W, 614; North American Petroleum Co;
v. Hopkins, 181 Pat’. 625; State v. Sullivan, 221 S.W.
728; Commonwealth Acceptance Corp, v, Jordan, 246
P. 796; Art. 1312, R.C.S.: Art. 1315c, V,C.S.; Art,
1530, R,C,S.; Art. 7084, R,C.S,; Pacific Wool Grow-
ers v, Commissioner of Corporation k Taxation, 25
N+E.(Zd) 208.
Yours very truly
APPROVED:
CKR/JCP Assistant