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
EMM:wb