                      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 Pac. 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 Pac. 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
  Pac. 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
