         OFFICE   OF THE ATTORNEY GENERAL      OF TEXAS
                            AUSTIN




!i::norable Claude Isbell
Secretary or State
Austin, Texas
Attention:   J. L. ELoGarlty
Dear Sir:




                                             ha purposes ror
                                             ash oorporaticP is
                                             ed is the eaas?
                                     And related questions.




                        tore8 Corporation is a Delaware
                         a permit to do business in Texas.
                         ridnally     obtained rrom thls
                           1935, at whioh tlma it dfd
                         e oorporate name of Frank Ruben-
                                      This permit has alnoe
                         an edditional~ period of ten
     years.    I am attaching hereto a oopy of the
     complete file relative      to the orlglnal    permit
     of this said corporation      for your use in eon-
     sldering   the questions that I will later present
     you with.    This oorporatfon     under this permit
     owns and operates a number of retail        stores
     where they sell ladies’ and children’s        ready-
     to-wear zerchandise.
Bonorable   Claude Isbell,   Page 2


           “v+sataklln Stores Corporation Of Shame-, Is
     a domestio oorporation    whose charter was filed ln
     this of!‘ioe on May 28, 1945.     I am attaching hereto
     a copy of this oharter together with the aff!.darlt
     riled in support thereto.
            Y.‘he attornias   for the Delaware corporatim       have
     asksd us ff we wm approve and file         sow3 fortp or
     fifty   additional    charters ldsntloal  with that o?
     Fvanklln Stores C rporatlon of Shertian,       exoept that
     a different     town Pn Texas ~111 be named in saoh
     corporate name, and exoept with the provlslou         that
     ln the affidavit      aoooapaanying aaoh oherter all of the
     capital stock of the proposed oorporationa        will be
     aubsoribed and paid for by Franklin Storm Corpora-
     tion, a Delaware oorporaticm with a prmlt to do
     buainesa in Texas.
           YX?ESTICNJ Can the Seoretary of State approva
     and file a charter for a dOW8tiO oorporatlon      wham
     all of the qmlifying sharse of th8 oapitd      stook
     of euah proposed oorporation   has bean auboorlbed
     and paid Sor by a fovelgn oorporat%on with a
     permit to do bualmss In Texas, where the purpose
     for whrhioheach oorporatlon  I8 organized Is the
     name?
          Would your answer to qoestlon 1 be differant
     if the purpose for whioh the Texas corporation  is
     osgpanlzed was not the same as the subaoriblng oor-
     poration?

           Would your answer to question 1 be any dlf-
     ferent if the subaorlblng oorporation did not have
     a pernit to Uo business in Texas?
           *?iould your answer to qUeStiO!I 2 be any dif-
     ferent if the eubaorlbing corporation    did not have
     a permit to UO buelness in Texas?”
               sith raferenoe to your question as to whether
the Secret&y   of State should napprove and file a charter for
a domsstio oorporatfcm where all of the qualify%!    Share-3 Of
the aapital stock of such proposed corporation   has been eub-
790
                                                                            793.



Honorable   Claude Isbell,   Page 4


      rellglous,    chari%able or eleemosynarg actlrltles,
      or to OO.WIC~C~O~   OX Industrial   clubs or associations
      or other civio enterprises      or organizations    not &I
      any mannernor to any extent directly         or indirectly
      engaged in iurtherlng     the cause of any political
      party, or aiding In the eleotion       or defeat of any
      candldata for office,     or siding In defraying     the
      azpanses or any political     campaign, or political
      hsadquartsrs,    or aiding or assl6ting    the ~~~008s
      or defeat or any questfon to bs voted uponby thr
      gwiriea    voters or this Stats or any subdIvisIon
      th8rcor. ”

             By the great might of authority,     a copporatlon   oan-
 not subeorlbe for stock in a newly formed corporation.         (Hllde-
 brand, Texas Corporations,    Vol. 1, Sec. 31, go 168-169; Denny
 Hotel Co, vs. Sohram, 32 P. 1002, 6 Waeh. 134P’ “The prevailing
 doctirlns la that a corporation    hsr no powar either to subsoribe
 ror m purchase share.8 of 'stock in another oorporatlon,       unless
 euoh power ls’sxprassly    OOnierred upon it by its ohartar or
 other statuts,   or unless the cirouastanees    am such that the
.transaotlon   la s necessary or reasonable means of carrying
 out or aooanpllahing    the objasts ror whloh it was otiaatea.
 Moreover, purchases or stock of other corporations      have bsen
held to be contrary to publlo polloy,      in addition to being
 bayopd the powsr of the oorporatim,w      Flstahar,  Cyelopedla
 Corporatl‘ms,   Vol. 2, Sso. 1117, p. 2067.
            Under the provIsion     or Artlols 1349, a ror~eign or
domestic oorporatlon doing,businese       III this State would ba
parmittsa to subaoribe fti and aoquire capital stock in a
aomstlo    Oorporatlon where such domestlo CorpOratiOtI Oon-
stitutes   a noivlo enterprlss*     (see xocora Co. v. Cltizene
Hotel Co., (Tel. CIv. AP .) 287 s, w 906, (error ai8mi68d
for want or jurlsdictlon 7., Adams National Bank V. AdamUCo.,
298 S. :v. 309 (writ dismissed);      A. J. Anderson Co. v. CitIzsns
riote1 CO.) Tex. Civ. App., 8 S. w’. (26) 702, (writ refused);
ati 8. J. &demon Co. 0. KinsOlVing, (Tax. CiV. APP.) 262             .
S. vi 150, dit      or error dismissed ror want br 5urisai0ti0d,
op f& the bensflt of oertain charitable,          raligiOU8  Or OlOemOsY-
nary activities     or industirial olubs Or aasoolations.      Under
said article,     such oorpmatlons    .my do uire stook ti another
corporation    “to accomplish the l&t 3!iikhiina~~          or its
i


    ‘onorabls   Clsudr Isbell,     Fage 5


    craYtion,R end the power to acquire suoh stock is implied, if
    such acquisition       is s ressonable      or necessary mesns of eifeo-
    tuating the oorporate object;           thus, a oorporatlon      may take
    stock in satlsraotlon        or s debt (Holmes & Orlws Zrg. CO. I.
    Holmes & ‘;r’esssl Metal co., 27 N. r:. 831, 127 N. Y. 252), as
    oollateral     seourity ror an existing         debt (Citizens    State
    Bank of Noble6vllle       V. Hewkins, C. C. A          Ind., 71 F. 3691,
    or in satisfaotion       of a disputed claim [i’iret Netlonal Pank
    or Charlotte v. National Exchange Bank or Baltimore,                92 U. s.
    122, 23 L. Ed. 679)i          It is cpparent that the subaoriptlon
    for the aapital steak of a domestic corporatlaa               by another
    corporation,      under the facts stated,        doss not oanstltuts    anp
    or the raregoing purposes.           Alao, the power to *aoquircP
    stock in another company is to be ai8tingthwa                 rrom power
    to be a *purohaoor* Q *aubsoribern or capital                stock ln
    another uorposatlm,         and statutory      power to uacquirrn hook
    in anotha oorporatla           doss not carry with it the power to
    eubrorlbe     for NW stook in anothar c-any.               (Robotham v’. Pru-
    aontlal fns. co., 64 N. J. Fa. 673, 53 Atl. 842.)                 It 1s ~011
    asttlad that, exoapt where it is othrwlsa               providdd by ltatutr,
    a oorporatlcm aannot beuoms an original              subearlbsr tor stook
    in anothar corporation.          (Soa FLatchar, Cyolopeddia Corpora-
    tions, voli 2, Se0. lll9,          p. 2071, and oaaoa Oit@d thrroin).
    A mere banrilt       to the purohaaer dora
    lawful;      (Rowan v. Taxas Orchard Davslopmenk Co
    App.) 1.81 8. Y.. 871 (writ dsnlsd))*
    any statutory      authority,    oxpressed or lmpliad, whereby suah
    subac~lptlon      for the orlglnal      oapital    hook o? I dommtfa
    corporatim       by a foralga corporation        doing bumlnrm in Texas
    wo@d be wl&hln the *purposea otherwiaa permitted by law*
    rersrrsd    to in Artlolr      1349., Although the purpose         OS tha
    subeorlblng      foreign oorporation       and the proposed domoatlo
    oorporatlon are the same, k0m                aa the lack oi power or a
    oorpoxatfcn      to purohase @hares of stook in another company
    1s concerned, it ie immaterial that’ths              car orations are
    engaged in similar business.             (Prople v. Ch15oa,go Gas Trust
    co., 130 Ill.       268, 8 L. R. A. 497, 22 N. t. $98; Buaksye
    Marble dc Freeatone CO. v., Harvey 92 Term. 115, 20 5. 7. 427;
    Flatchar,     Cyolopedle Corporations,         Vol. 2, Section 1118,
    pp. 2070-2071)
              In the absenoe of laglelatlve   sanction,   either ex-
    pressed or hpii5a   and in view of the authorities     cited hsrs-
    in, it la OUT opdon    that a rorelgn oorporetLti   vlth a permit
                                                                           793




Honorable   Clsctde Inbell,   ?age 6


,to do business in Texas would not be authorized to aubecrlbe
 and pay for all the qualifying  eheree of stock of a proposed
 domeatlc oorporatlon,  end that the Seorrtnry of State should
 not approve the oharter of said proposed domeatlo aorporatlon,
            2.   In view of the mamona above glron, our answers
to Uueetlon 1 would be no dltf went If the purpoaerr of the
subaorlblng foreign oorporatlon       and the propoasd domestlo
oorporatlai    uora different.     The rule applloable   to the pur-
ohass of stoak by one corporation       In another la the eusme,
regardlera    of whether laoh oorporatloa     la oraatrd for the
8ame or ror dirrerenti     purports.   (Platoher,  Cyolopedla
Corporrtlono,    Vol. 1, Sea; 1118, p. 2071).
            Y. Our answer to’ Question 1 would be no dlfrerant
If the subrorlblng    foreign oorporatlon     did not hata a permit
to do busInrs8 in Texaa.       The oourts have gmerally     held that
a toreign oorporatlm      oannot exerolre &roster ponr8 than
the looal lewvt allow to elmllar daaestlo oorporatlons.          (SO0
Flstoher,   Cyolopbdla Cor oratlonn,     Vol. 2, Sea. ll25, p. 2081).
The llmltatlons    and proh f bltlonr  o? A.rtIole 1349, V. A. C. S.,
apply to domeetlo oorporatlona;       and iOr Ithe aama roaronr herr-
torore dlsouasfl    In 9,uestIon 1, it Is our opinion that a
drmsatlo oorporation would not be authoxI@ad,under the facts
given, to ~ubscrlbs for all of the oapltal         #took In anothm
domeatic oorpo?atIon.
            In then oaae of Color v. Taooma Rallwey and Power Co.,
65 N. J. I?q* 347 103 hm. St. Rep., 786,        54 Atl. 4.l3, the oourt
of New Jsresy ha i d, in view of reoogaimd       prlnoiplelr   of oomlty
end pub110 polloy,    that a New JereQy oorporatlan       oould not own
stock In a iVaahln&ton oorporation,     when under the laws of
Waehlngton, a domeatlo oorpoxatim        oould not own atook in
another domestio oorporation,     rrgardlees    of the poware of the
foreign  (I?. J.) aorporation ln Its orn etate.        This oaae In-
volved an arrangement by whlah the New Jersey Company (appar-
ently wlthout a permit to do businesr        In WeeshIngton) was to
traneier all its property and rranohiass,        rxoept the frenahlse
of’ being a oorporatlar,    to a oorporatim     In the State of
Xashlngton, end reorlve therefor      twenty thousand ahara oi
paid up stock In the latter company of the par va,lue of one
hundred dollars    each, b&sides certain assumptions and guaranties.
Ke quote from the opinion of the court an f oU.owt3r
Honorable   Claude    Isball,   Page 7


            Yha oourtr oi Waahlngton have daolded that
     oae oorporatlon     oanuot subaorlba      for, purahase,
     hold or vote upon the shares of a took of another
     oorporatlcn    wIthout loglalatlv~      sanatlon,     and
     that the leglalature       of the state hae never aano-
     timed    such aotar    Danny Hotel CO. v. Sohram,
     6 Wash. 134, 36 m. St.. rep. 130, 32 pao. x002;
     Parsons v. Taooaa Smelting        ato. Do., 25 Wash.
     492; 65 Pao. 765.      This dootrlne      rests al&-,
     gather on oonaldaratlona       of public pollog.
     But it Is said that the polloy,         80 daolarad,
     extends only to doarrtlo       oorporatlana,      and
     whether it a+ould embraoa torqlm           oorporationa
     la a matter to be daoldad by the oaurta of
     that stats alone.       I do not tmdrratand that tha
     p?lloy   la 80 r4atrlot4d.       On4 of its objeota la
     tb parent     an4 oorporatlon     fr~om latatfrrin~
     with the oontrol     of another.      This wan the
     purpose to be labberrtad by the daolafon           in
     Parsons 1. Taooma Smaltin(l ate. Co., jwrt
     olted,   where although the title       of the atoak-
     holding oompany was not aaaalla6,          Ita right
     to vote upon the stook wq denied.              It Is true
     that the stookholding       oompnny was a domqatlo
     oorporatlm,      but the denial     or Its ri&t      to
     vote could not be based on ,that oIroua#tanoa,




     pretatlon,      not an extenalon,   of’ the dootrlea.
            “But Ii’ it be an extension,     the extanalan
     le made by the constitution      ot Washington,      which
     provides   (artlola   12, paragraph 7) that ‘ne oor-
     poratlon   organized   outside  the llmlta    of this
     state shell    be allowed to tranaaot business        within
     the state   on more favorable    oondltlona     than are
     preaoribed    by law to similar    oorporations     organlaed
     under the laws of this state.'
                                                                                  795



Honorable    Claude Isball,     Page    8




              *. . , . Zf thla  Hew forsoy oorporatIon       Out
      legally    do what 1s thus pohlblkd        to a Washington
      aorporatlon,    than the foraiga     oorporatlon    la allowad
      to trmaaot     bualnaas in Washingtan aa oondItIona
      more favorable     than those praaarlbati     far lta domaa-
      tlo oorporatloaa.      The oanatltutlun     ~farblda this.”
      (uudoraoming      ours)
          & vlaw of the llmllarlty sf the lltuation  ln Tnam
and Waahlngtaa, partloularly rith rafaronor to tha abraaoa ho?


partloular  nature);   ln view of raoo lwd pub110 ~0110~~ am3
ln view of the above oitad authorit r as, i,t la our oplnlcra that
the Saarataap   of State should not a pore   and flla a 0Wtat
of a domaatlo oorporation;    wham a 9 or the qu@ftln&!    UaWaa
of oapltal   atook ara aubaorIbad and paid for by a aorpo@atlan
wlthout~a  parinlt to do bualnaaa ln Taras.

             4.     zh vlaw of our holdlag          that uudrr tho faota
etatod,    a foreign      oorporatlm      (w&@houta permit      ta do biaminrar
in Texas) would not be parmlttad               to lubaorlba for all of thr
qualifying    shores of oap%tal stoat of a dbmoetio oorpnr~tion,
as haratofora       stated,    Inrofar as the laok of authozl$~ is
oonooamd,      It la immatarlal        u&ether    @ia  pmpmaa of the
foralga eubaorlblng          oorporatlai     a& tha propcrrad damratio
oorporatlap     are    the   maa or dlffaront.         ~Tharaioro, our anawar
to Qtmatlca 2 would bo ao dlffaiant               if. t&S purpcia~r of the
foreign    o~orporatlon (without a peralt            to do buaInaaa ln Texas)
awl tha proposed domaatlo oorporatlm wars dlffyaat.
             We trust   the faregoing       ~atiafaot~r’ily      anawara row!
Lnquirloa.
                                                    Toura     vary   truly
