    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
