                            April      23, 1953

Hon. Howard Carney               Opinion No. S-33.
Secretary of State
Austin, Texas                    Be;    Construction  of the
                                        exemption provisions
                                        under Section 3 of
                                        the Texas Securities
                                        Act, Art. 600a, V.C.S.
Dear Senator   Carney:
            Your letter  of April 3 1953,          presents   the
following   question for determina 4 ion:
            Where the previous sales of corpor-
      ate securities    were exempt under the Texas
      Securities   Act, is it necessary for the
      corporation    to qualify its securities and
      register   as a dealer when the number of
      security   holders exceeds twenty-five?
            Pour letter   also    states   that:
           “It has been a longstanding      Depart-
      mental Construction    from the passage of
      the Texas Securities     Act in 1935 that
      the moment a corporation     exceede g twenty-
      five stockholders,    the corporation   would
      be in violation    of the Texas Securities
      Act.
             ‘This construction    seems to have
      been reached by implying from Subdivision
      (j) of Section 3, Article      600a, V.C.S.,
      that a corporation     would circumvent the
      Act by selling,    in the first   inst.&,    all
      of its securities     to a group smaller than
      twenty-five,    and then the stockholders,
      relying on another exemption, selling        a
      part of their personal holdings to other
      persons.     In addition,  it seems that each
      of the exemptions provided under Section
      3 were construed together rather than
      separately.”
                                                                    c




Hon. Howard Carney, page 2        (S-33)


     Section   3(j)   of Art.   600a   V.C.S.   reads as follows:

          “(ii)   The sale bv anv d mes ic co D ra
    &Q    of its stock or other sicurtities     ffsOsuea
    in good faith pd not for the DurDose o
    avoimrr     the urovislons   of this AC& so long
    as the total number of stockholders’and        se-
    curity holders of said corporation       does not
    and will not after such sale exceed twenty-
    five (2.5) and the securities     are issued and
    disposed of without the use of advertise-
    ment s, circulars,    agents, salesmen, solici-
    tors, or any form of public solicitation.”
    (Emphasis supplied)
            The provisions of the Texas Securities Act
(Art. 600a V.C.S.) applicable   to the question presented
are as follows:
            “Section 5. No dealer, agent or sales-
     man shall sell or offer for sale any securi-
     ties issued after the passage of this Act,
     except those which come within the classes
     enumerated in Subdivisions        (a) to (r), both
     inclusive      of Section 3 of this Act, or Sub-
     division    I a) to (i) both inclusive,     of Sec-
     tion 23 of this Act until the issuer of such
     securities     or a dea i er registered  under the
     provisions     of this Act shall have been granted
     a permit by the Secretary of State. . .”
           “Section 12.      Except as provided in Sec-
     tion 3 of this Act no person, firm, corpora-
     tion or dealer shail, directly      or through
     agents or salesmen, offer for sale, sell or
     make a sale of, any securities      in this State
     without first      being registered as in this Act
     provided.    . .‘I
           “Section 3. Exempt transactions.            Ex-
     cept as hereinafter      in this Act specifically
     provided,    the provisions    of this Act shall
     not apply to the sale of u         security when
     made in m      of the following    transactions
     and under m      of the following     conditions,
     and the company or persons engaged therein
     shall not be deemed a dealer within the mean-
     ing of this Act; that is to say the provi-
     sions of this Act shall not appI y to u
Hon. Howard Carney,    page 3   (S-33)


     sale, offer for sale, solicitation,   sub-
     scription,  dealing in or delivery  of any
     security under any of the following   trans-
     actions or conditions:
           It. . . e

           “(~1 Sales of secues            made by
     or in behalf of a a             in the ordina;y
     course of bona fidz personal Investment of
     his personal holdings,       or change of such
     investment,    if such vendor is not other-
     wise engaged either permanently or tempor-
     ariiy in selling     securities;    provided,
     that in no event shall such sales or offer-
     ings be exempt from the provisions         of this
     Act when made or intended, either directly
     or indirectly,    for the benefit of any com-
     pany or corporation     within the purview of
     this Act.
            “(d)    she distribution   bv a eoroa-
            of securitie,s    direct to its stock-
                 as a stock dividend or other dis-
     tribution     paid out of earnings or surplus.


     stockholders    and without payment of any
     commission or expense to any officer       em-
     ployee,  broker or agents, and withou $ in-
     curring any liability     for any expenses
     whatsoever in connection with such distri-
     bution.”     (Emphasis supplied)
           II. * . .

            Section 3(c),  supra, provides an exemption
allowing an individual    not engaged in the securities
business the right to dispose of his personal lnvest-
ment without serious restriction.      &blev     v . Co-
193 S.W.2d,239 (Tex.Civ.App.,     1946 error ref. n.r.e.j*
Shriver v. titou        188 S.W.2d ~9~r(Tex.Clv.App.        1944,
error ref.)     See alLo &QJ ne . la & 135 Tex. 446
143 S.W.2d 197 (1940) andacaszs there& cited.            Such a
provision   is obviously intended to give a certain de-
gree of latitude    to the individual  investor.
Hon. Howard Carney,    page 4    (S-33)


           Section 3(d), supra, permits the corporation
to declare a stock dividend to be paid out of earnings
or surplus, while Sectlon 3(e),    supra, permits the sale
of an increase in capital    stock to the stockholders of
the corporation   under certain conditions.
           Your letter  states that the company here in-
volved has met all the requirements of sub-divisions
(d) and (e) of Se’ction 3. Having met the requirements
set out in the statute for an exempt transaction,    it
will not now be necessary to look to other exempt trans-




          Turning now to consideration     of your second
problem, one of the most basic concepts of our jurlspru-
dence is the refusal  of courts and administrati~s;$~-
ties to assume that the law will be violated.
guarding procedure is certainly   available   here for the
language of Section 3(c) limits the right of the indi-
vidual vendor.   The request for an opinion indicates
that there is no question of this company attempting in
any manner to evade the provisions   of the Act.
            The courts of this State have long recognized
that in the adminlstration        of statutes of doubtful con-
struction,   a reasonable interpretation        adopted by the
administering     agency will have considerable      weight.   How-
ever, where the statute is not ambiguous, the interpreta-
tion by the departmental officials         is of no value.    &g
&&se Oil Comnany v. Reagan County 217 S.W.2d 171 (Tex.
Civ.App. 1948 error ref.);         A. B.‘Frank Comnanv V.
190  S.W.2d  734   (Tex.Civ.Agti    1945 , affirmed 145 Tex. t
                  , 1946); &        urn v. Associated Retail @edit.
                  , 41 S.W.2di
              sion of Texas v. Red Arrow Freight L           ,W-
              (Tex.Clv.App.,     1936, error ref.).    Wa     the
language of the statute is plain and clear
given effect     as It is written.      Gatelv V.
Tex.        , 254 S.W.2d 98 (1952).
           Since each of the transactions    increasing   the
number of security   holders in the corporation    occurred
according to the submitted facts,   in such a manner as 40
come within one of the exemptions under Section 3 Of Art.
6OOa, V.C.S.,   the Secretary of State may not now require
Hon. Howard Carney,   page 5   (S-33)



the qualffication  of the securities or the reglstra-
tfon of the corporation  as a dealer merely because
the number of security holders has now exceeded 25.
          For the reasons stated    above,   your question
is answered in the negatfve.
                               SUMMARY
           Where a transaction   is exempt from the
     Securities   Act, Art. 600a V.C.S., under
     any provision    of Section 3 it Is not neces-
     sary or proper for the Secretary of State
     to consider another exemption that may not
     be applicable ., Each exemption mr       Sectiog
     3 is of equal weight.

APPROVED2                               Yours very truly,
C. K, Richards                          JOBNBEE SBEPPERD
Appellate Division                        Attorney General

Willis E. Gresham
Revfewer
Robert S. Trotti
First Assistant
John Ben Shepperd
Attorney General
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