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
p. 1452