OFFICE OF THE ATTORNEY GENERAL OF TEXAS
AUSTIN
!i::norable Claude Isbell
Secretary or State
Austin, Texas
Attention: J. L. ELoGarlty
Dear Sir:
ha purposes ror
ash oorporaticP is
ed is the eaas?
And related questions.
tore8 Corporation is a Delaware
a permit to do business in Texas.
ridnally obtained rrom thls
1935, at whioh tlma it dfd
e oorporate name of Frank Ruben-
This permit has alnoe
an edditional~ period of ten
years. I am attaching hereto a oopy of the
complete file relative to the orlglnal permit
of this said corporation for your use in eon-
sldering the questions that I will later present
you with. This oorporatfon under this permit
owns and operates a number of retail stores
where they sell ladies’ and children’s ready-
to-wear zerchandise.
Bonorable Claude Isbell, Page 2
“v+sataklln Stores Corporation Of Shame-, Is
a domestio oorporation whose charter was filed ln
this of!‘ioe on May 28, 1945. I am attaching hereto
a copy of this oharter together with the aff!.darlt
riled in support thereto.
Y.‘he attornias for the Delaware corporatim have
asksd us ff we wm approve and file sow3 fortp or
fifty additional charters ldsntloal with that o?
Fvanklln Stores C rporatlon of Shertian, exoept that
a different town Pn Texas ~111 be named in saoh
corporate name, and exoept with the provlslou that
ln the affidavit aoooapaanying aaoh oherter all of the
capital stock of the proposed oorporationa will be
aubsoribed and paid for by Franklin Storm Corpora-
tion, a Delaware oorporaticm with a prmlt to do
buainesa in Texas.
YX?ESTICNJ Can the Seoretary of State approva
and file a charter for a dOW8tiO oorporatlon wham
all of the qmlifying sharse of th8 oapitd stook
of euah proposed oorporation has bean auboorlbed
and paid Sor by a fovelgn oorporat%on with a
permit to do bualmss In Texas, where the purpose
for whrhioheach oorporatlon I8 organized Is the
name?
Would your answer to qoestlon 1 be differant
if the purpose for whioh the Texas corporation is
osgpanlzed was not the same as the subaoriblng oor-
poration?
Would your answer to question 1 be any dlf-
ferent if the subaorlblng oorporation did not have
a pernit to Uo business in Texas?
*?iould your answer to qUeStiO!I 2 be any dif-
ferent if the eubaorlbing corporation did not have
a permit to UO buelness in Texas?”
sith raferenoe to your question as to whether
the Secret&y of State should napprove and file a charter for
a domsstio oorporatfcm where all of the qualify%! Share-3 Of
the aapital stock of such proposed corporation has been eub-
790
793.
Honorable Claude Isbell, Page 4
rellglous, chari%able or eleemosynarg actlrltles,
or to OO.WIC~C~O~ OX Industrial clubs or associations
or other civio enterprises or organizations not &I
any mannernor to any extent directly or indirectly
engaged in iurtherlng the cause of any political
party, or aiding In the eleotion or defeat of any
candldata for office, or siding In defraying the
azpanses or any political campaign, or political
hsadquartsrs, or aiding or assl6ting the ~~~008s
or defeat or any questfon to bs voted uponby thr
gwiriea voters or this Stats or any subdIvisIon
th8rcor. ”
By the great might of authority, a copporatlon oan-
not subeorlbe for stock in a newly formed corporation. (Hllde-
brand, Texas Corporations, Vol. 1, Sec. 31, go 168-169; Denny
Hotel Co, vs. Sohram, 32 P. 1002, 6 Waeh. 134P’ “The prevailing
doctirlns la that a corporation hsr no powar either to subsoribe
ror m purchase share.8 of 'stock in another oorporatlon, unless
euoh power ls’sxprassly OOnierred upon it by its ohartar or
other statuts, or unless the cirouastanees am such that the
.transaotlon la s necessary or reasonable means of carrying
out or aooanpllahing the objasts ror whloh it was otiaatea.
Moreover, purchases or stock of other corporations have bsen
held to be contrary to publlo polloy, in addition to being
bayopd the powsr of the oorporatim,w Flstahar, Cyelopedla
Corporatl‘ms, Vol. 2, Sso. 1117, p. 2067.
Under the provIsion or Artlols 1349, a ror~eign or
domestic oorporatlon doing,businese III this State would ba
parmittsa to subaoribe fti and aoquire capital stock in a
aomstlo Oorporatlon where such domestlo CorpOratiOtI Oon-
stitutes a noivlo enterprlss* (see xocora Co. v. Cltizene
Hotel Co., (Tel. CIv. AP .) 287 s, w 906, (error ai8mi68d
for want or jurlsdictlon 7., Adams National Bank V. AdamUCo.,
298 S. :v. 309 (writ dismissed); A. J. Anderson Co. v. CitIzsns
riote1 CO.) Tex. Civ. App., 8 S. w’. (26) 702, (writ refused);
ati 8. J. &demon Co. 0. KinsOlVing, (Tax. CiV. APP.) 262 .
S. vi 150, dit or error dismissed ror want br 5urisai0ti0d,
op f& the bensflt of oertain charitable, raligiOU8 Or OlOemOsY-
nary activities or industirial olubs Or aasoolations. Under
said article, such oorpmatlons .my do uire stook ti another
corporation “to accomplish the l&t 3!iikhiina~~ or its
i
‘onorabls Clsudr Isbell, Fage 5
craYtion,R end the power to acquire suoh stock is implied, if
such acquisition is s ressonable or necessary mesns of eifeo-
tuating the oorporate object; thus, a oorporatlon may take
stock in satlsraotlon or s debt (Holmes & Orlws Zrg. CO. I.
Holmes & ‘;r’esssl Metal co., 27 N. r:. 831, 127 N. Y. 252), as
oollateral seourity ror an existing debt (Citizens State
Bank of Noble6vllle V. Hewkins, C. C. A Ind., 71 F. 3691,
or in satisfaotion of a disputed claim [i’iret Netlonal Pank
or Charlotte v. National Exchange Bank or Baltimore, 92 U. s.
122, 23 L. Ed. 679)i It is cpparent that the subaoriptlon
for the aapital steak of a domestic corporatlaa by another
corporation, under the facts stated, doss not oanstltuts anp
or the raregoing purposes. Alao, the power to *aoquircP
stock in another company is to be ai8tingthwa rrom power
to be a *purohaoor* Q *aubsoribern or capital stock ln
another uorposatlm, and statutory power to uacquirrn hook
in anotha oorporatla doss not carry with it the power to
eubrorlbe for NW stook in anothar c-any. (Robotham v’. Pru-
aontlal fns. co., 64 N. J. Fa. 673, 53 Atl. 842.) It 1s ~011
asttlad that, exoapt where it is othrwlsa providdd by ltatutr,
a oorporatlcm aannot beuoms an original subearlbsr tor stook
in anothar corporation. (Soa FLatchar, Cyolopeddia Corpora-
tions, voli 2, Se0. lll9, p. 2071, and oaaoa Oit@d thrroin).
A mere banrilt to the purohaaer dora
lawful; (Rowan v. Taxas Orchard Davslopmenk Co
App.) 1.81 8. Y.. 871 (writ dsnlsd))*
any statutory authority, oxpressed or lmpliad, whereby suah
subac~lptlon for the orlglnal oapital hook o? I dommtfa
corporatim by a foralga corporation doing bumlnrm in Texas
wo@d be wl&hln the *purposea otherwiaa permitted by law*
rersrrsd to in Artlolr 1349., Although the purpose OS tha
subeorlblng foreign oorporation and the proposed domoatlo
oorporatlon are the same, k0m aa the lack oi power or a
oorpoxatfcn to purohase @hares of stook in another company
1s concerned, it ie immaterial that’ths car orations are
engaged in similar business. (Prople v. Ch15oa,go Gas Trust
co., 130 Ill. 268, 8 L. R. A. 497, 22 N. t. $98; Buaksye
Marble dc Freeatone CO. v., Harvey 92 Term. 115, 20 5. 7. 427;
Flatchar, Cyolopedle Corporations, Vol. 2, Section 1118,
pp. 2070-2071)
In the absenoe of laglelatlve sanction, either ex-
pressed or hpii5a and in view of the authorities cited hsrs-
in, it la OUT opdon that a rorelgn oorporetLti vlth a permit
793
Honorable Clsctde Inbell, ?age 6
,to do business in Texas would not be authorized to aubecrlbe
and pay for all the qualifying eheree of stock of a proposed
domeatlc oorporatlon, end that the Seorrtnry of State should
not approve the oharter of said proposed domeatlo aorporatlon,
2. In view of the mamona above glron, our answers
to Uueetlon 1 would be no dltf went If the purpoaerr of the
subaorlblng foreign oorporatlon and the propoasd domestlo
oorporatlai uora different. The rule applloable to the pur-
ohass of stoak by one corporation In another la the eusme,
regardlera of whether laoh oorporatloa la oraatrd for the
8ame or ror dirrerenti purports. (Platoher, Cyolopedla
Corporrtlono, Vol. 1, Sea; 1118, p. 2071).
Y. Our answer to’ Question 1 would be no dlfrerant
If the subrorlblng foreign oorporatlon did not hata a permit
to do busInrs8 in Texaa. The oourts have gmerally held that
a toreign oorporatlm oannot exerolre &roster ponr8 than
the looal lewvt allow to elmllar daaestlo oorporatlons. (SO0
Flstoher, Cyolopbdla Cor oratlonn, Vol. 2, Sea. ll25, p. 2081).
The llmltatlons and proh f bltlonr o? A.rtIole 1349, V. A. C. S.,
apply to domeetlo oorporatlona; and iOr Ithe aama roaronr herr-
torore dlsouasfl In 9,uestIon 1, it Is our opinion that a
drmsatlo oorporation would not be authoxI@ad,under the facts
given, to ~ubscrlbs for all of the oapltal #took In anothm
domeatic oorpo?atIon.
In then oaae of Color v. Taooma Rallwey and Power Co.,
65 N. J. I?q* 347 103 hm. St. Rep., 786, 54 Atl. 4.l3, the oourt
of New Jsresy ha i d, in view of reoogaimd prlnoiplelr of oomlty
end pub110 polloy, that a New JereQy oorporatlan oould not own
stock In a iVaahln&ton oorporation, when under the laws of
Waehlngton, a domeatlo oorpoxatim oould not own atook in
another domestio oorporation, rrgardlees of the poware of the
foreign (I?. J.) aorporation ln Its orn etate. This oaae In-
volved an arrangement by whlah the New Jersey Company (appar-
ently wlthout a permit to do businesr In WeeshIngton) was to
traneier all its property and rranohiass, rxoept the frenahlse
of’ being a oorporatlar, to a oorporatim In the State of
Xashlngton, end reorlve therefor twenty thousand ahara oi
paid up stock In the latter company of the par va,lue of one
hundred dollars each, b&sides certain assumptions and guaranties.
Ke quote from the opinion of the court an f oU.owt3r
Honorable Claude Isball, Page 7
Yha oourtr oi Waahlngton have daolded that
oae oorporatlon oanuot subaorlba for, purahase,
hold or vote upon the shares of a took of another
oorporatlcn wIthout loglalatlv~ sanatlon, and
that the leglalature of the state hae never aano-
timed such aotar Danny Hotel CO. v. Sohram,
6 Wash. 134, 36 m. St.. rep. 130, 32 pao. x002;
Parsons v. Taooaa Smelting ato. Do., 25 Wash.
492; 65 Pao. 765. This dootrlne rests al&-,
gather on oonaldaratlona of public pollog.
But it Is said that the polloy, 80 daolarad,
extends only to doarrtlo oorporatlana, and
whether it a+ould embraoa torqlm oorporationa
la a matter to be daoldad by the oaurta of
that stats alone. I do not tmdrratand that tha
p?lloy la 80 r4atrlot4d. On4 of its objeota la
tb parent an4 oorporatlon fr~om latatfrrin~
with the oontrol of another. This wan the
purpose to be labberrtad by the daolafon in
Parsons 1. Taooma Smaltin(l ate. Co., jwrt
olted, where although the title of the atoak-
holding oompany was not aaaalla6, Ita right
to vote upon the stook wq denied. It Is true
that the stookholding oompnny was a domqatlo
oorporatlm, but the denial or Its ri&t to
vote could not be based on ,that oIroua#tanoa,
pretatlon, not an extenalon, of’ the dootrlea.
“But Ii’ it be an extension, the extanalan
le made by the constitution ot Washington, which
provides (artlola 12, paragraph 7) that ‘ne oor-
poratlon organized outside the llmlta of this
state shell be allowed to tranaaot business within
the state on more favorable oondltlona than are
preaoribed by law to similar oorporations organlaed
under the laws of this state.'
795
Honorable Claude Isball, Page 8
*. . , . Zf thla Hew forsoy oorporatIon Out
legally do what 1s thus pohlblkd to a Washington
aorporatlon, than the foraiga oorporatlon la allowad
to trmaaot bualnaas in Washingtan aa oondItIona
more favorable than those praaarlbati far lta domaa-
tlo oorporatloaa. The oanatltutlun ~farblda this.”
(uudoraoming ours)
& vlaw of the llmllarlty sf the lltuation ln Tnam
and Waahlngtaa, partloularly rith rafaronor to tha abraaoa ho?
partloular nature); ln view of raoo lwd pub110 ~0110~~ am3
ln view of the above oitad authorit r as, i,t la our oplnlcra that
the Saarataap of State should not a pore and flla a 0Wtat
of a domaatlo oorporation; wham a 9 or the qu@ftln&! UaWaa
of oapltal atook ara aubaorIbad and paid for by a aorpo@atlan
wlthout~a parinlt to do bualnaaa ln Taras.
4. zh vlaw of our holdlag that uudrr tho faota
etatod, a foreign oorporatlm (w&@houta permit ta do biaminrar
in Texas) would not be parmlttad to lubaorlba for all of thr
qualifying shores of oap%tal stoat of a dbmoetio oorpnr~tion,
as haratofora stated, Inrofar as the laok of authozl$~ is
oonooamd, It la immatarlal uðer @ia pmpmaa of the
foralga eubaorlblng oorporatlai a& tha propcrrad damratio
oorporatlap are the maa or dlffaront. ~Tharaioro, our anawar
to Qtmatlca 2 would bo ao dlffaiant if. t&S purpcia~r of the
foreign o~orporatlon (without a peralt to do buaInaaa ln Texas)
awl tha proposed domaatlo oorporatlm wars dlffyaat.
We trust the faregoing ~atiafaot~r’ily anawara row!
Lnquirloa.
Toura vary truly