                                 May   22,    1974



The Honorable Maurice Coats                          Opinion    No.   H-   313
Executive Director
Texas Commission     on the Arts                     Rel Construction    of Article
    and Humanities                                   6252-9b,  requirements      as to
P. 0. Box 13406, Capitol Station                     financial disclosure.
Austin,  Texas   78711



Dear Mr.   Coats:

       Your letter requesting our opinion asks whether members        of
your commission,    in submitting the information    required by 6 5 of
Article 6252-9b,   V1 T. C. S. *’the Ethics ,Act, must report the follow-
ing:

            l1 “stocks   in National   Banks    in Texas”

            2. “stocks in bank holding companies            which own
            Texas bank stocks”

            3. “stocks in out-of-State        banks which have ‘Edge
            Act’ branches for foreign         trade in Texas”

            4. “holdings held in a trust in which the public
            servant is a trustee but fin which he has‘no benem
            ficial interest”

            5. holdings in an entity in which the public
            servant   is an “Advisory  Director” and in which
            he has no voting rights.

             6. the holdings of private foundations            in which the
             commissioner    is a trustee




                                  p.   1447
The Honorable     Maurice   Coats    page 2      (H-313)




        Section 3 (a) of the Ethics Act requires “every elected officer,
salaried appointed officer,     appointed officer of a major state agency,
and executive head of a state agency, ” as those terms are defined in
the Act, to file with the Secretary of State a financial statement dis-
closing their financial condition.     Section 5 (a) requires  every appointed
officer (defined in the Act) who is not required to file a financial state-
ment under $ 3 and who has or acquires or divests himself of “a substan-
tial interest” in a business    entity which either is subject to regulation
by a state regulatory    agency or does business with any state agency,
to file with the Secretary of State an affidavit giving certain information
concerning the business      entity, his interest in it, and the relationship
to the State.

        The Texas Commission         on the Arts and Humanities        is established
pursuant to Article 6144g, Vernon’s         Texas Civil Statutes,      as amended by
Acts 1971, ‘62nd.Le.g.;     ch. 597, p’. 1956.    It~consists of eighteen members,
appointed by the Governor for a term of six years each.               They receive no
compensation     for.thkir   services   but are to be paid their actual traveling
and other necessary       expenses in the performance        of their duties.     The
Commission     is not one oftbose listed in $ 2 (5,)(A) of~the Ethics Act as a
major state, agency and, therefore,         while the members       of the Commission
are appointed officers,      .they are neither elected officers,       salaried appointed
officers,  appointed officers of a major state agency or executive heads of
state agencies and are not required to file the financial statement required
by 5 3(a) of A.rticle 6252-9b,      V. T. C. S. They are, therefore,          required to
file the affidavit required by $ 5(a) of thk’Act,        if they have, acquire,or
divest themselves      of a substantial interest in a business        entity which
either is subject to regulation by a state agency or does business with a
state agency.

      The Act, in $ 2(12), very specifically       defines    what is meant by
“a substantial interest” as follows:

                  “(12) An individual    has a ‘substantial    interest’   in a
              business  entity if he:




                                    p. 1448
The Honorable    Maurice   Coats     page 3      (H-313)




                  “(A) has controlling    interest   in the business
             entity;

                 ‘l(B) has ownership     in excess   of 10 percent     of
             the voting interest in the business entity or in
             excess of $25, 000 of the fair market value of the
             business  entity;

                 “(C) has any participating  interest,  either direct
             or indirect,  by shares,  stock, or otherwise,     whether
             or not voting rights are included,   in the profits& pro-
             ceeds, or capital gains of the business    entity in: excess
             of 10 percent of them;

                  ‘l(D) holds the positibn of a member of the board of
             ,directors  or other governing board of the b;usiness
           I entity;

                  ‘Y(E) serves   as an elected   officer   of the business
             entity;.

                 “(F).is   an employee    of the business     entity, ”

      Business   entity is defined by 5 2 (,11) of the Act as:

              ‘1. . . a sole proprietorship,  partnership,   firm,
              corporation,    holding companyi joint stock company.
             .receivership,    true, or any other entity recognized
              in law through which business     for profit is conducted.~”

       The only interests required to be reported under $ 5 are those in
“business   entities, ” as that term is defined in the Ac~t. Therefore        any
question~invblving     filing requirements     under § 5 must be prefaced with
a determination     of whether a business      entity is involved.  One aspect
of this determination       will be a finding that the entity i6 one “through
which busines~s for profit is conducted. ” This aspect may be especially




                                    p.   1449
The Honorable    Maurice   Coats    page 4     (H-313)




relevant in cases involving trusts and foundations.        Of course, whether
a particular  organization    is a “business entity, ” will depend upon the
facts of each particular    case.   For the purpose of answering your inqui-
ries about types of organizations     we assume,    without deciding, that they
are “business   entities. ”

       In determining whether or not the ownership of any particular
interest in a business    entity or the acquisition    or disposition of any such
interest   should be reported in the affidavit,      each transaction   will have
to be examined to determine:        (1) Is the interest held, acquired or dis-
posed of a “substantial    interest!‘?    (2) If it is a substantial interest,
is it an interest in a business entity which is subject to regulation by
a regulatory   agency as the terms “regulation”        and “regulatory    agency”
are defined in $ $ 2 (10) and 2(9) of the Act, respectively.         Or (3) Is
it an entity which is doing business with any State agency?           State agency
is defined. in $ 2(E) of the Act.    It would appear that there should be no
great difficulty in making this determination.

      To answer your specific question,       84 far as we know,   national
banks in Texas are not regulated by any state regulatory agency.
Whether they~are doing business with any state agency is a fact which
would have to be ,determined.      If the particular  bank is doing such
business and if the Commissioner        owns or holds, acquires or disposes
of a substantial interest in the bank, he will have to report it.       The
same answer would hold true for “Edge Act” (12 USC 5 5 611 et seq. )
banks in Texas.    Bank holding companies are subject to regulation by
the Banking~Department     if they contain state banks, e. g., 12 USC
§ 1842, and therefore    substantial interest in such a bank holding company
must be reported.

       We doubt that the fact holdings are held as trustee rather than as
beneficial  interest owner makes any difference        if, in fact, the commissioner
owns, acquires ordisposes        of a “substantial  interest” as that term is de-
fined.   The fact that the entity is a trust certainly would seem to make no
difference.    Section 2 (11) in defining a business    entity defines it to include,
as well as sole proprietorships,      partnerships,    firms,   etc., trusts.




                                   p.   1450
The Honorable   Maurice   Coats   page 5      (H-313)




       The fifth category about which you inquire is that of an advisory
director who has no voting rights.      Assuming that this is the sole ‘in-
terest the commissioner      has in the business entity, it would appear
that the position of advisory director with no voting rights does not by
itself constitute a substantial interest.    Section 2 (12) (D) provides that
the position of member of the board of directors      or “other governing
board of the business    entity” is a substantial interest.   We construe
this to indicate that being in a position to govern is an important element
of the substantial interest of a director.

       Finally, a commissioner    who owns a~ substantial interest, as that
term is defined, in a private foundation of which he is trustee must Iike-
wise report the holding, acquisition or disposition of such interest,   if ‘.
the foundation is either regulated by the State of Texas or does business
with a state agency.

                             SUMMARY

                 ‘Article 6252.913, V. T. C. S. , defines precisely
             those who have a substantial interest in a business
         i   entity., A person who has such an intere’st in an
             entity which either is~regixlated by a regulatory agency
             of the State or which does business with a State
             agency and who is not.otherwise      required to file a
             financial disciosure   statement as called for by $ 3(a)
             of the Ethics Act, must file the affidavit required
             by § 5(a).

                                               very     truly yours,




                                  p.   1451
The Honorable     Maurice   Coats   page 6      (H-313)




DAVID     M.   KENDALL,     Chairman
Opinion   Committee




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