Hon. John H. Bickett, Jr.    Opinion No, O-4997
Chairman, Board of Regents   Re: Authority of the Board of Re-
University of Texas          gents of the University of Texas
Telephone Building           to organize the corporation known
Dallas, Texas                as the Texas Research Corporation
                             and to appropriate funds of the
                             University in the furtherance: of
Dear Sir:                    its objects.
           Your letter addressed to Honorable Gerald C. Xann,
Attorney General of Texas, dated February 23, 19Li3.requesting
the opinion of this department on the above subject, has been
received from which letter we quote:
           “The Board of Regents of The University of
     Texas respectfully  presents, and requests your
     opinion upon, the following questions, to-wit:
           “1 . Did The Board of Hegents of the Univsr-
     sity of Texas have the authority to organize the
     corporation k.mwn as Texas Research Corporation,
     the charter of which was filed by the Secretary
     of State, of the State of Texas, Karch 1, 134W
           “2 . Does The Board of Regents of The Uhiver-
     sity of Texas have the authority to appropriate
     and to pay over to Texas Research Corporation pub-
     lic funds belonging to The University of Texas to
     be used by the corporation for costs and expenses
     incident. .to obtaining and acquir,lng patents and
     copyrights?
           "3. Does Texas Research Corporation, orgau-
     ised under Article 1302, Section 3, Revised Civil
     Statutes of Texas, as a corporation for educational
     purposes, have the power to purchase, acquire, and
     own patents or copyrights,   to manufacture and sell
     products under patents owned by it, and to license
     manufacturers or others under patents owned by it,
     and to exercise the incidental   powers of such cor-
     porations as are authorized by Article 1302 Sec-
     tion 101 Revised Civil Statutes of Texas (Acts
     1937, 45&h Legislature,   p. 654, ch. 323, Section I)?      i

       .-                                                  .-
Hon. John H. Bickett,   Jr. - Page 2


           “4. Is Texas Research Corporation         subject
     to taxes,   Including   federal   income tax?
          “Copies of the charter and the by-laws of
     Texas Research Corporation sre hereto attached.
           “The University has for many years conducted
     and will continue to conduct scientific  research
     In many fields through the usual administrative
     and faculty organleatlons under the supervision
     of The Board of Regents.
           “The corporation was, In fact, organized for
     the principal purpose of acquiring end owning the
     patents that might be obtained by members of the
     faculty of the Unlverslty, covering the discoveries
     or inventions made by them in the course of their
     scientific  research work in the laboratories of the
     University.
           “A few patents obtained by members of the fa-
     culty have been assigned by them to the corporation
     under agreements providing for psrtlclpation  by the
     patentee In future royaltles.
           (‘The Board of Regents of the University of
     Texas appropriated $20 000 of University funds to
     Texas Research Corporation upon the forming of the
     corporation.
           f’If ‘;he corporation continues to exist, addi-
     tlonal ap roprlatlons     of the funds of the University
     wll.lf dou! tless, be made to it f?om time to time.
           “The co oration has made and, if it continues
     to exist, wll‘p from time to time make contracts
     with natural persons and other corporations looking
     to the us& and development of the atents and the
     granting licenses thereunder.   SueR activities  may
     involve many of the problems of business and indus-
     try end may lead to litigation  by or against the
     corporation!   The corporation, of course, can sue
     and be suedr The University could not be sued wlth-
     out the consent of the state.
           “The views of those favoring the organization
     of the corporatloa and its continued existence are:
     that The Board of Regents may resort to any appro-
     priate business method or instrumentality;  that a
Hon. John H. Bickett,   Jr. - Page 3


     corporation   is a customary instrumentelity  for
     acquiring,   owning, and utilizing  patents and
     copyrights;   that a corporation organized for re-
     search purposes under one section of the statute
     may have the power to acquire, own, and use pa-
     tents as an incident to its declared purpoaes
     w.ithout violating the rule of law that a corpora-
     tion may not be organized for separate purposes
     permitted by a different    section of the statute;
     and that there Is no proNbit.lon by constitution
     or statute in Texas against the organizing of
     such a state or government owned corporation.
           “Serious doubt is entertained by some of the
     present members of The Board of Regents as to
     whether, in view of their duties as prescribed by
     the constitution  and the statute, they can lawfully
     create a private corporation and delegate the per-
     formance of their duties to the corporation and its
     agents.
           “Similar doubt exists as to the authority to
     transfer money and other assets of the University
     to the corporation.
            t’Apprehenslon is also, felt by some that, If
     the course Indicated by this corporation Is sus-
     tained and continued other activities    and proper-
     ties of the University may from time to time be
     transferred Prom the University to other corpora-
     tions.
           ‘Those who entertain such objections,        doubts,
     and fears, have In mind the foll~lngr         the pre-
     scribed constitutional     and statutory duties of the
     regents as individual officers       of the state; the ab-
     sence of any affirmative      constitutional  or statutory
     authorization   for the creation of a private corpora-
     tion as an agency of the state government; the ab-
     sence of any such precedent in the governmental af-
     fairs of this state; the statutory requirement that
     state funds must be deposited with the state treas-
     urer; and the prohibition      of Article III, Section
     !jl of the Constitution of Texas, that:          ‘The Legls-
     la4ure shall have no power to make any grant or au-
     thorize the making of any grant of public moneys to
     any individual,    association   or individuals,    munlci-
     pal or other corporations whatsoever.’
                                                                    .I




Hon. John Ii. Bickett,   Jr. - Page 4


           “For your information, some of the different
     points of view, heretofore expressed, are herewith
     presented to you for whatever they may be worth
     by the following letters1    (1) from I*. Scott &aines
     to Dr. J. \i. Calhoun, President of The University of
     Texas, Xay 27, 1939; (2) from Xr. Ira P. Hildebrand,
     of the law faculty of the University to Dr. Homer ?.
     Rainey, President of The University of Texas, Septem-
     ber 1, 1939; (3) from John H. Bickett, Jr., to Hr.
     D. F. Strickland,   October 15, 1942.”
          The copies of the letters accompanying your request
as well as the copy of the Charter of the Texas Research Corpor-
ation have been valuable to us in preparing the answer of this
department to the questions propounded, for which we thank you.
             The University of Texas authorized and established by
the Constitution    and Statutes of this State is an agency of the
State existing in virtue of biennial appropriations made by the
Legislature.
          The University is governed by a Board of Regents ap-
pointed by the Governor and confirmed by the Senate who are State
officials exercising only such ‘authority and performing only such
duties as prescribed by the statutes of this State.
             Article 2584, Vernon’s Revised Texas Civil Statutes,
pertaining    to the government of the University reads:
          “The government of the University of Texas shall
     be vested in a Board of Regents composed of nine per-
     sons. They shall elect a chairman from their number
     who shall serve at the pleasure of the Board. The
     %$    Treasurer shall be the treasurer of the Univer-
             The board shall have the right to make and use
     a cohon seal and may alter the same at pleasure.”

      _,_J_ Article
  .-*Ib.,,.Ag
YuA
                      2585, .Vernonts Revised Texas Civil Statutes,
              to she -dut$es of the Board. sf, Regents of the Unlver-
sity, reads:~                                          _,
            “They shall establish the departments of a flrst-
      class university,     determine the offices  and professor-
      ships, appoint a president, who shall, If they think
      it advisable,    also discharge the duties of a professor,
      appoint the professors and ‘other ,offlcers,    fix their
      respective   salaries;   and they shall enact such by-laws,
      rules and regulations as may be necessary for the suc-
      cessful management and government of the University;
Hon. John H. Bickett,   Jr. - Page 5


     they shall have power to regulate the course of
     instruction  and prescribe,  by and with the advice
     of the professors,  the books and authorities  used
     l.n the several departments, and to confer such de-
     grees and to grant such diplomas as are usually
     conferred and granted by universltles.1l
           We have not found any authority in this state that
would authorize the Board of Regents of the University of Texas
In their official  capacity to organize and establish the cor-
poration in question and transfer to such corporation for the
furtherance of Its object and purpose a part of the funds appro-
priated to the University of Texas by the Legislature for its
maintenance and support, and we think no such authority exists.
i;;;efore,  we answer your questions NOS. 1 and 2 in the nega-
       .
          The purposes for which a corporation may be formed In
this State are set out In A rticle 1302, Revised Civil Statutes.
Section 3 of said article reads:
          “The support of any literary and scientific
     undertaking, the maintenance of a library,  or Rro-
     motion of painting, mu&o and other fine arts.
           Article 1302, Sec. 101 Revised Civil Statutes     of
Texas (Acts 45th Leg., p* 654, ch. 323, Sec. 1) reads:
            %orporatlons  may be created for the purpose
      of purchasing and owning patents wlth all rights ln-
      cldental thereto, and to manufacture products and
      processes thereunder and to market sell, distribute
      such products, and license dealers i o use such pro-
      cesaes in prescribed territories   on a royalty baals.t8
           It is our opinion that a corporation that is organized
for the purposes authorlzed by Section 2 or for the purposes
authorized by Section 3 .of said Article 1302, R.C.S., would not
be authorized to exercise the powers conferred by Section 101
of said article.   Tex.Jur., Vol. 10, p. 625; Johnson V. Townsend,
124 S.W. 417. tie, therefore answer your question No. 3 in the
negative.
             We think that in view of what has been said that it 1s
 unnecessary to answer your fourth question.    However we will add
 that it is our opinion that a corporation   organized #or ‘scientif-
 ic, literary   or educational purposes would not be subject to
 taxation so long as it is operated exclusively   for those purposes,
 or either of them, and not for profit,   but should Its net earnings,
                                                           -   .
                                                                   .

Hon. John Ii. Blckett,   Jr. - Page 6


If any, or any part thereof inure to the benefit of gyotgt;-
vlduel, 3.t would be subject to federal. Income tax.
words, an exempt corporation must keep its activities within
the scope of the exemption or it will be subject to the tax.
Santee Club v. White, 87 Fed. (2) 5.
                              Yours very truly
                              ATTORNEY
                                     GENERAL
                                           OFTEXAS
                              By /s/ E. P. Price
                              E. P. Price, Assistant
APPROVED MAR12, 19b3
/s/ Grover Sellers
FIRST ASSISTANTATTORNEY
                      GENERAL
APPROVEVt
        OPINIONCOMMITTEE
BY:     GWB,CHAIRMAN
EPP:BT:wb
