I




                    OFFICE      OF THE ATTORNEY                 GENERAL    OF TEXAS

                                                       AUSTIN




                     Tou   requoat         Ml*    op                      lpartmant on tba
    quertion        e~tained          in   pur     1                       , quoted below,
    aa   fOllow~(
                                                                          e proper bash
                                                                           wiu Lon8 Leaf

                                                                   lLo h lr ta
                                                                            o xr ep o r t,
                                                                   to show thet it ua~
                                                                  011.I)#ooatempl~t.84




                                      nstlon 0r the oorpor~tlon~e traaohbe
           t&   Xi&t     bi80108e#                that  it h & d in lXOeIa  Of $&~.oo
           in l eooant8 wablo                    la at the olose of btmlnoar     imaombar    5
           194t    and #tN!,714.4t                  shown aa *To ‘?tookholdor8   Upon ?inU
          49&.tfoa~~             .”
               l.
                           l.
                                                                                                      :!f;




                 "It    la our opinion             tha     ttm     debte     cf   (L oorporatlon
      entSrlli          U atate        Or   1iqUidatiOn          IBUd    firat     be paid   and
      any illstrlbutlanmade to the etookholdors first oher+.yd
      a&n8t            SUIF&‘IlUS balM808,           Nld    apply      the    rmainlng
      diVidOnd8 a&Eat   the ~Ut8tMMtill~mpitd   8tOOk. If thi8
      pToo*dure bad boon followed, approximately .?365,000.00
      in outatandinr,capital 8tiOk would i!avebeen available
      for oocalderatlon in ooaputing the amount of franohlae
      tax paysblo.

           "In vie+ Of WS 8bOTe f#IOt8,8hOuld t\-18d~~tment
      acoopt tileminimus payment 0r #20.00 la full 8ati8raotlon
      of the sorporation*a franohlac tax or ohodd ua oonpute
      the tax upan $36t,914.49 ohom a8 due lTa Btookholdora
      upon Flaal Llquldatloa*9a
                 Uo -1    8180  oonai6u                   in this oonnoetion tbe letter
ot Iionorable       J. L. Lookott, dated                  July 26, aa follow8,

            Vti   oaaulon    for thi8 letter  io a letter Jwt re-
     oelreb    rrom ths offlar of the seorduy      of State dated
     JUly   24,  1042,   OOpf Or uhloh  i8 &ttWh~b  hereto.
             “In       oonnestIon           with ym,r oor:d4aratioa                 of   the quaa-
     tiOU    8UbMittOa            tG   JOU    by   the     SeOTewr           Of   d&O      WO UOuld
     like to h** ywl take Into oau8Id*r8tIon the r0Li~
     faota, afflbvit or other verlflo~tion of ubloh will br
     fUd8h46   t0 YOU If 80 d4~84~84dr

             ~Ltqu;datioa aC Wlu                     Long Loaf Lombor Oompuy had
     bea3 uodor 0008ldorutA0n, tie ia h*t  qroed  upan amme
     the stookholdaa, for rorrtb8 prior to the and of the
     year 1948. At l me+tIly      of  the  dookhol4ora     he14 oa
     or about Uovembu 14, 1942, llquld~$lon wu a@ead upon
     but formal a&Ion tharaon Ua8 not Won             beowaee the
     roqolrwY prior notloe of the me&lag          fad aot boon gltan,
     eo tbst lmmmdldoly    aftor    djournnent     or that mutln6
     propor notloo ~88 i8aUed far a mw&In(r on %oember 1.0,
     1942 nt whioh all of the otook outetaadi~ w&a rot.&
     for iiqul6nitioa  and eir~olotion 0r the oorporatlon to
     ba 8irc0td   rorthwith.     Tbueafter, and prior       to Dooam-
     bar  St, 1942, tha corporation lstually @old and deliitorti
     itn mill, wh10:x hd been ~eTiOU84          8hut down: it8 lo&W
                                                                                        . ,




                                  ,
       operations had bssn prorlou6ly dlsaontlnued. The
       entire llquldatin~ aI8trlbutlon of ~1.030.000 In
       or8h was paid out after rdoptlon of t&e rkolutlon
       for liquidation and diuolutlon at:dafter male of the
       mill, ate. Aa tiriddt     illaorpll8nea with ReTieed
       Statute 7097 8howI?rgthe oorporatlm wa8 In lotual
       dl&eolution was filed with the frmohl8e   tax report. ”

           From flu Information before un, there is no
quaatlon but tht the d&r Lo      Luf Lumber Conpany 18 In
the prooe8s of bona lid. llqul3 atIon, wlthln the purview
of Art.lol*7097, v. R, c. 8. ThI8 bsla(!true, the sole
quutlon for our a0t0wnhi0n      18, what 8m0unt or frM8hi8e
tu,  ii any under the hw,   d008 t5e wla  Lanp, LOat Lumber
Coqany ow under Artlola 7091, V. F..C. 3.. reading a8
iollowst
           @Tf a oorporatlon  I8 aotually in pro0088 0r
      llquldation, suo!3oorporation 8hall only be roqufred
      t0 pxy 8 fmOhi80    tax oalsulated tmon the di.ffmenOe



      t0m     rrPOUn3   Of   Oapiki    8tOOk   i88Ud      ad      88    to    iha
      aiwunt of 1lqulid~tIa dida d lotully                        paid       an4 that
      8UOh   OOr~OZY~tiOtl 18 &.      (D   aOtrdJ. bon8    iid0        8t8t4J   Of
      llqulaatlon." ( 3q lh ul
                             l8
                              a a o d)
             ?IadO0m it helpful in UI lffmt to ~IVO          at 8
OOrreOt M8w8r     to thi8 <UO8tlOlk,     t@ TOti8W  brlof1.Jtha
anrOkWit@     Of the lq#8lmtutO      i.n TO&8Td  to fr~Ohl8.  tue8
hri0d    yin8t  oo+pardlOEi8.       A llUiM1       tr@Wh18.       t8X -8
rir8t   bip80a UpOn fOh*        Md   iiOM8tiO      UrpOZUtiU8          itI
1695. Thi8 8tstUtO    WU     UOn6.6    in   2897. (hot8     55th    ti43181&
two, Copter 104) q the tam8 of the 8moadnont,                       a muoh
larger frMohi80 tu      wu -0804         th8n   un4a    the    protiou8
nOt8.

          fn 1967, (id8 SOth h~l8htUr0,      firat Called
Xo88lon, Chapter M, p. 5O5) bv mawhent,      frurohlso tax08
wra agalm..lrr@y Inoro88od.    In  th18 aasndmsnt  or1907,
rhloh 18 l ampleto fraaohlu tar law, there     mm8 flrst  added
what 18 now Artldls 7097, Y. R. C. S., whIoh has remained
UnotmnRed In al.1subaoquent rmvimiono and oodifiontion8 of
the frena~lne tax law.
              In4ofar     44 w6 here been able ta arosrtsln        in a
oareful reb66rab, thla proti4ion of Cur 8tntutes h64 neror
beeLIjUdiOi4liY       OOII8tN4d.      The 1907 Aot, wbloh fIr8t
lnoorpor*ted wht          18 now hrtiol4    7099, rim4    the rranohlse
tal UQOll the     04pital     8toOk 188tlOd 44d OUt8tafldttl&    p1U8
Lb?     4wQtU8       4lld         UDdiVidd             prOfit.8.     731.8, Of        OOuf80,      18   0
tax upon the rldht to do                              b~sln4as     of a going:        oono6rn.
 ,Ub84qUat          rd8lOU8                   4Iid
                                    h8VO iuCr4484d the~4fIdm4nt8
tnx and brordoned the ba84, but Arti    7097 h48 rQmnhd
unohana6cl.
                   ‘RhQll        AttiOl4         9097 W48 Odd46,               4 lS4thOd   W8     PO-
tided    for O4lou14tlag tkw fraaOhi84 tax whioh oorporrtlon8
in the pm4488 of 1lquIdatlon are reqnired to p4y. Xn other
w0M8,      the 8tOtUt4 pr6aOrib6d       a rule     m Pethod     Of OdCUl4ting
t?i6 rranah!.n4    tax dur by a oorporetlon In the proo48s                 of
iiquia4ti0n      88 dI8tiCgui8hed from a g0In.roo::o*rn,or 0114
doiC6 bu8inO88. In ooa8trulng the len*age or Artlola 7097,
it 844B8 OoSp8r4tiVOly          8iJEfl4 tOr  U8 to d4tUld44         Wtl4t 18
lernt br Wi4 amount Of 8tQ4k ~OtU4iiJ                i88~4d,-    but   it    i8
not    UC 488y   t0 det6naine      *hat 18 moat      by "the WUnt           Of
liquidating diridendu lotmlly paid upon 8uoh 8kWk,* the
differenor      b4tww     th484    tw oon8tituting       the b48i8 upon
Mioh a oorpratlon           In pro0488    0f llqulaatlon       ~478 a iran-
ohl8a    tax. The term 'liquid6tin(tdividend”               ha8 bau       judioi-
ally deflIm6 84veral         tiW8, Qnd with 8&#lt           Vari4tlOKtOT in
4Ub8tantiti      4ooord dth that 4xpr4484d           in the a684 of Xul4
v’.   o4mJW~,          66         f.    (a)          818,   ti   thQ    fOlbWhg        ln~llq61

                   lA8 ordlmrlly
                            u nduuto o d, l dltidoad 18 4 did-
        a4na       thou& it 18 pad out 0r a muplauJ; 1lkWi80,
                   even
         u   orllnull~ tmduutood, l J.lauld~tlau'~lvl~ead  ubloh
         lu @a,   inoidMt4l $6 the 00nolu8lCO 4f the OOmOr8-
         tiOlt'8lif4, 18 IlOt 8 dit148nd; it WY bo llW.17 l
         return of oa~ltal.~ (-18                                      6664)

                  The       0486        of   -884tt    V.  Ooraai881OIlU      Oi bIt4rti
R~VSXIUO,         59 F.          (24)      555,  18 of   8aw   aid  in   oluifYtn&       tha
dl8tiaetlon b&wan                          UL ordinuf     dirld4nd pal4 out of earned
8U?plU4 6nd 4 llquldOtIn,sdlrld6nd paid by a OOrpr4tiOn 1x1
bona fid4,prOO484 0r 1lqul4ation. ZrQpL thi8 0484 wo quote
48    fOlklWi~,             .\
                                                                                                                           ..
                                                                                                                           .;d



jion. ,ld:loyl.atlmu,pa e 9


             -3hortly eftor t Q ~.xtraordlnarllylareo SO per
         amt.   Qlrld4n4 me paid out of t:.emoney reoelrsd for
        thQ 8alo of tim oorporatloa. Cutainly             et the time
        Of the p4pIOnt Of the dIvId4nd in qtlsetion          the oorpora-
        tiO,l148 not 4 mIf,c OOnOOrn, In the 14@,1 84,,84, 48
        it8  di88Oltltiofl  W48 llr446r   UlldOr rrj.     It A4ke8 no
        diff6rano6 what the direotor8 oell~d it wh6n thQ dirl-
        aone wan eoolus~, uor 6048 th9 inOf that 8Ub84qU4nt
        dltidOnd8      WrQ teAed   *11qUldatit&*      diVidQne8 UhOn ml8
        pertloular dlrldsad ~44 not 80 term84 alter           it8 ohuaotu.
        TM qu48tlon of whethu It ~44 a *putlel llquidatln~
        dividend'           18       to   be        d4termined,            not        from     Wh4t     it   (148
        oell06, but by the                      f'66t848 8h0m by the r44Ord. The
        l'44ahd8hUW8 that.                   it   W4S 8 t4rf UtlU8U41 ditidOnd,  8d
        WtirQiY           OUtSid            Of ths   dU4 OOuC84  Of th4 bU8in488  Of
        the wrporetioa.
                w         deai6ioo of thm Co5mI84ion4r                                    and       ttm  Boed
        that      it   -8        4    ‘p4.l-tiLt.         liqUid4tir~’                 diVid4Ild        W88 0144r&
        right, end ptitionur8 wra vop6rl.y charge&b14 In their
        lnomae tax with thQ eaount of the dlrldsad 'en ii they
        had 8016 their StO4k to third p4r4Ofl8.'-
           OUr 8btUt48   8&XeOifi4411~ pOddO                                                 iOr    V'OltUlt~
di4801UtiOfl Of 44t&W4ti448,    Al-tiOl481367                                                3ubdiri8iOIl 4,
1388 end lsm,       v. R. C. a., end the O~Uatiofl Of th484                                                      8t4-
td48     18 di84~884d   in tha ore4 Of akytin 1. SOUthWUt4lTI
Life   In8~r4A40    Co.,lW'S.~. (ad) em, in th6 iblla*Ily                                                        len-
we84 I
            "Who 8t4tut4 (ht. 1-7, 8ubbd. 4) pl’OVhh8 t4F th4
       roluutuf dI88olutIon of.4 6oiporetlon br thewrittw
       Wn8mt     of 4fl  8tookhol66ra,                                  66rtiSi66            to ad        fihd      dth
       th4   S4U.tq     Of st8t4   4Ud,                                 18 8U4h        4484        ( fUt. la),
       QrOtid44    thAt the m48 f 6Ult                                  dir44tO?8        Or        ml8         of
       the aStaIr  of the euporetba,   4t the fir4 of th6 d-80-
       lutbn,  8hel.lb8 trrutOQ4 Of the OreditOr Md lWOk h a la *
       'with pow   to 86ttl6 tihsltteIr8, oOll44t tbQ OUt8t44~ing
       d6bt8, 6n4 dlrldo thn mO6678 4116OthU &WO rtY UOLLg the
       lto4kh4lder8 atkr p4~lw, the debt8 dU4 4n F hrlng  by 8uoh
       wrpor?tial            4t   tha          til64      Of      it8     di8WlUtiOll               7 4 + 8Jd        for
       thb-p&y048              they         a8y        in th4           n4m4     of    euoh        Wrpor8tion,
       4411,      o’&w~          ma       tranaf4r ell roe1 n-14 puwnal                                      PrOrrW
     belonglne to/such oompsny, oolloot al.1debts, oohpromisc
     oontrmorai&s, melntsln or d&and judlolal prooudlngs,
     end ernois~ nil1 power ead authority of seld oompur7
     01sr suoh assets and pro rt.7.‘; Itbqlng also provided
     (Arf.lJBO) that 'Tha exrstmoo or every oorporetlon me7
     be oontIaued l'orthree years mer   Its 6lssolutIon from
     whatever 0ausc, fO? tt!*jWpOS0 Of mnblJ~~~t~~s~ OhUged
     with the dut7, to uottls up Its r;frelrs.
         VonmtruIry WI* aeverel provIsions or the stat&o
    on the lubjeot of dia8olntIon, wo think It obrloum.that,
    where l reoeivor Is not eppolnted, l oo oration lxl*ta
    aa l lagal a&It? ror three pars       rrom t   ?il riling of the
    oertltloati of dlmolutlon with the Yearotary of Stat.,
    tin&u Ita lffalrs em sooner settled, debtm paid, and
    mone7 or othu  proprty,      Ii en7 on hmd, dirI4sd among
    the ltoekholders. Until the three ymers elapse, or the
    atralrs of the oorporetlon era fall7 settled, lt be8 a
    lIlait or do taoto   oxistanoo    r0r ti4bg-up       purposes.*

          The three 7oar limitation Is merely fixed as s
measure of suttiolent tims to allw the 4Isaolting oorporation
to pay Ita dobta, if -7,   an6 divide the money or other property
on h-6 emnng the ltoakholdera. If thou nsoooo~       prerequIsit.8
of oomploto dieaolutlon era looorplishad prior to the lx p lr etio n
o ftbru pars,    wo 800 no rueon u& lta exldowe     a8 a legal
sntlty Is not thaseb7 lfooSlrol7 tarmlnatod.
          ?r(%
             ua oonmtralnul to the riau that  Artiole 9099,
supre proaarlbea a definite a.114lxela8im hula for the deter-
a&don    of the amount oi iranshl8e tax to bo pal4 by a oorpora-
tion in prOWas oi liqtidatioa, eed that wo 8hould aonalda it
sopante and apart from the buim provided b7 statute for the
detomlmation of tha amount OS franehlmo tax dw by a going
sonoorn not In ths prooeu of llquldetlon. This Ia born. oat
by an lxpresalon found ln tha ease of Rosa Amigos 011 00. v.
 xato, 136&ly. (Ed) 996, (Suproan.Oourt) froawhloh M quota
as rollows~
          -nrtlolo 9099 prorldae the ml0 oc methoa for oal-
    euletlng the truiohlse tax rhloh oorporatlonr In She
    proous   Of lI~.quIdetloa
                            8hall be requlrsd to pal.*
            lf this tier   bc oorrsot, let ~11 appl7 It to the
faots   4lsaloe86 In the affidavit filed by the ‘odor Long
Iad   Lumba    Comw,     t,heoorporetlon In proooms of llqulde-
tlon, mm requlrod by lmld lrtlolo. It IO obmervmd that the
basis for the dstaminmtion      oi the tax Intolrom l proomem
of subtreotlon, that im, to find the dlireronoe        betmen the
as;rltelsto c klotually Ismuad -6 tY.amount, of llquldatlng
dlvib!adO lotrull7 paid upon sueh stook.      Th om ltal ‘took
aotully    issued by tha oorpmretlon in tNm oeme 8 41 OOo,oOO.,
*fiiokvs think oonetltutss ths minuend In the lubtreo  p    cIn6
operation nsosmsuy to dokrmlns the basis for t&s tu and
the llquidetlng 4IrId~ds lotumll~ paid upon smoh tu,
$1 050,000, whioh m thlmk oonmtitutmmthe subtrahend in
thfm lubtrmotlng   operation, thue lem+iae   119 aiitermaoe   wIthIm
the puvler    of the ltetuto upon uhleh the fruaohlw tax in
to be amlmuletd mgminmt tNm ~pmrmtlon          in liqoidmtlom.
              ‘r7i do    not think it of 8nf    pertloulu     nmaent    that
there   wmm   sot   up    om thm bmokm of t&e    morpmntimm      the   Itrn
of 3560,914.49 To   ltoo&hmldmre upon final lIquldetlon.*
This 1s mn eesmtIn le&el lSreot OS the ltoakholhrm mud
SOL of the oorpormtlaa.     Un6u the luthorltf of     ma et sl.
v. Cmmls8laemr or Intunel Rltenw, 113 F. (8dJ7          l oorpora-
tlon Im not roqulred to dimtrIbut8 ml1 of th8 lur us prior
to proammtllngtith 4lmtrIbufIom cf ths umetm by if    Iqui4mtlng
dlvldondm. This urns holds In &toot       that where a mmrpormtlmn
aold l portion or ita mmsotm, and pwmumnt to remolutlam to
llquidetm pmld tuo,dirIdmndm whloh ware aadormed mm liquldmting
dividends on.‘took,  wllleh  hmd l -ml      pa ~mluo of on8 doll&r,
there wem l ipoo6With partlbl     lIquldmtImm, mnd the dividends
were liqUid&iXi#$4Irl&Aa4‘ frOP wbIoh ood of ‘took eoulb be
deduota4 lm eoaputin ltookhmlderm* not lnmoro, notwI#mtawl~
the earporation roSa& ld lmmetm in lzoeee of the nmdaml pm?
rhlue of the shuu    of stock:    It must be borao In rird that
the franmhlee tu,   lueh as we hare in our ltetutes,    Is fom the
prlvlloga of doin& bumlness mnd not ior quitting 5~lnmms.
          B 9 t.h o r der th a t l wrporatlon rh~lohba  oea(Ud to
do buslnems but haa not lotumlly krmInrtvl Its 1045d latity,
w::Iohle looorded   the pItIlcg8 of rIadlnC;up Itm lftair8     xuy
not ssosps eltugother th8 burdur.of tution        Art1mlo rod
aupr8, wea aneetd.      SIB00   UJldOrthl8 8tdRld in Our TiW fB
the lneknt ode,     lqquldstion hme prooomdoa to where thus im
. .   --




           '<on.Yidnoy Latham, Papa @


           no ditforonoo botwoon the *took eotuall7 lsausd end the
           smount of 1IquIdmtIng dIrIdooQm lotusll7 pei4 on suoh 8tOok
           UPB whloh to oalmulat. tho tax, the oorporetlon would bS
           subjoot on17 to the ~InImtmntax of twmnt7 dolbrm imposed
           upon all oorpormtIons oot othorwlee mbjeot  bt tax.

                    Frar4ihe   toregoIng,   it   is   lp p umtth a wa
                                                                   t uo
           of the riow thet tbo WIer,LonC:Lm   Lumber aompaa7 18 sub-
                                    tax of tza t7 dollus, whlohlt
           jeot on17 to tbo alnlzllun
           has pid 0rteoda.d.
                     It 8hOdd be borne in mind that thlm opimlon is
                    to lpPl7 t0 th4 iJI8tUltOS88 OkJu Ud to t&S faOtS
           iSht0Ild.d
           submItto ln ooaneotion tlamrmwlthmnd should not bo tmkon
           as aypl7ing to ~7 other mmrporstion unlom8inlstusl pr~ooee
           of a bona fide lIquIdetImn, andor the *mm*or 8imiim~8tSte
           of taots.
                                                 Tour* Tel-ytruly




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