Request By:
Sheldon G. Gilman, Esq.
Handmaker, Weber & Meyer
Citizens Plaza
Louisville, Kentucky 40202
Opinion
Opinion By: Robert F. Stephens, Esq, Attorney General; Mark F. Armstrong, Esq., Assistant Attorney General
We are in receipt of your letter in which you ask whether a business association qualified to incorporate under KRS Chapter 274 may incorporate under the name by which business was transacted prior to incorporation despite the fact that the prior name does not appear to comply with the requirements of KRS 274.075:
The applicable statute, KRS 274.075, provides as follows:
The corporate name of a corporation organized under this chapter shall consist of only the last names of two or more of its shareholders, or the name by which it has been doing business, and the word 'chartered' or 'professional service corporation' or the abbreviation 'P.S.C.' unless there is only one stockholder, in which event the corporate name shall consist of the stockholder's name and one of the aforementioned suffixes. However, a professional service corporation may render professional services and exercise its authorized powers under a name which is identical to its corporate name except that the word 'chartered' or 'professional service corporation' or the abbreviation 'P.S.C.' is omitted, provided that the corporation has first registered the name to be so used in the manner provided by law in KRS 365.015. Provided, further, that nothing contained in this section shall be construed to authorize advertising of professional services in any manner contrary to the ethical standards of the profession involved, and such standards may be enforced under KRS 274.065, by appropriate regulation of the governing board thereof." (Emphasis supplied.)
It is at least arguable that the phrase, "the name by which is has been doing business, " (hereinafter referred to as the "prior business name" ) permits the corporation to incorporate under its prior business name. In the attached letter to Ms. Rose Ann Willenbrink, we interpreted the prior business name provision to apply when one of the shareholders of an ongoing corporation dies and the corporation desires to continue business under its corporate name which included the name of the deceased shareholder. We did not issue the Willenbrink letter as a formal opinion. We now adopt its conclusion and incorporate it in this opinion.
It is true that if the legislature intended to permit the use of a prior business name as the corporate name, that intent must be effectuated,
Wesley v. Bd. of Education, Ky., 403 S.W.2d 28 (1966). The difficulty, as we perceive it, is not effectuating the legislative intent but making a proper determination of that "nebulous will-o'-the-wisp,"
Gateway Construction Co. v. Wallbaum, Ky., 356 S.W.2d 247, 249 (1962). In other words, the statute could have been intended to permit incorporation under a prior business name which does not otherwise conform with the direction that the corporate name consist of the last names of two or more of its shareholders. In the alternative, the legislature could have intended to limit the prior business name provision to the situation set forth in the Willenbrink letter.
We begin with the statute itself: "The corporate name of a corporation organized under this chapter. . . ." The plain wording indicates that corporate name requirements apply to the corporate name to be adopted at the time of incorporation as well as the time during which the corporation is in existence; i.e., at the time of incorporation and the post-incorporation period. There is no indication that KRS 274.075 is limited to the time of incorporation, compare KRS 271A.270 and 271A.040.
The next portion of the statute provides, "The corporate name . . . shall consist of the last names of two or more of its shareholders, or the name by which it has been doing business . . . unless there is only one shareholder in which event the corporate name shall consist of the shareholder's name. . . ." Because a corporation cannot have a shareholder prior to its incorporation and the issuance of stock, compare KRS 271A.285, one could argue that KRS 274.075 only applies during the post-incorporation period. We reject this argument for two reasons.
First, in a professional service corporation, each incorporator must also be a shareholder, see KRS 274.015. Further, in KRS 274.015 and 274.025, the term, "shareholder, " is used interchangeably with the term, "incorporator, " and not in its technical sense of a person holding stock, see KRS 271A.010(5). Accordingly, we do not give the term, "shareholder, " any especially limited meaning which would, in turn, limit the statute, cf.
Higginbothom v. Higginbothom, 177 Ky. 271, 197 S.W. 627 (1917). (The word, "heir," is not given a restricted meaning in a statute.)
Second, if the word, "shareholder, " limits the statute to the post-incorporation period, the corporation could incorporate under any name. However, once the corporate shares were issued, the articles of incorporation would have to be amended to comply with the statute. It is not reasonable to interpret the statute as giving the right to use any name at incorporation and thence restricting the right immediately afterwards. We are compelled to avoid this unreasonable result,
George v. Scent, Ky., 346 S.W.2d 784 (1961).
In interpreting KRS 274.075 as being applicable in toto at the time of incorporation as well as the post-incorporation period, a problem does arise. The word, "it," in the phrase, "the name by which it has been doing business, " refers to the corporation. A corporation does not exist prior to its incorporation, see KRS 271A. 280. A fortiori, the corporation cannot have been doing business under any name prior to its incorporation. Thus, a tentative interpretation is that the prior business name provision does not apply to the time of incorporation but only to the corporation's post-incorporation period, compare Willenbrink letter. This interpretation is the result of looking for the antecedent of the word, "it." There is no bar to reconstructing the structure of the sentence to effectuate a manifest legislative intent,
Commonwealth v. Trousdale, 297 Ky. 724, 181 S.W.2d 254 (1944). However, as we mentioned earlier, the problem here stems primarily from the fact that an apparent legislative intent does not manifest itself.
Thus, before we restructure the prior business name provision to make it applicable to the time of incorporation, we must find a legislative intent to justify such a restructuring. In this regard, the Court has reminded us that the rules of statutory construction are for the purpose of assisting in the determination of legislative intent,
Barnes v. Anderson National Bank, 293 Ky. 592, 169 S.W.2d 833 (1943). One of these rules is, of course, to favor an interpretation which avoids unreasonable results,
George v. Scent, supra.
Such an unreasonable result obtains when the prior business name provision is made applicable to the time of incorporation because it conflicts with the provision relating to the required corporate name when there is only one shareholder; namely, "unless there is only one shareholder, in which event the corporate name shall consist of the shareholder's name. . . ." The sole shareholder name provision is in the nature of a proviso and is ordinarily construed to the clause immediately preceding it,
Newport Benev. Burial Ass'n v. Clay, 170 Ky. 633, 186 S.W. 658 (1916). If this rule is applied, the statute would be interpreted to permit the prior business name unless there is only one shareholder. We fail to see any rational connection between the number of shareholders and the retention of a prior business name.
Of course, the statute could be rearranged so that the sole shareholder name proviso modifies the provision specifying the name to be used when there are two or more shareholders. Thus, the statute would be interpreted to require the corporation to use the last names of two or more of its shareholders but the full name of its sole shareholder. This is how the statute read before the amendment in 1976 which added the prior business name provision.
If the statute were so rearranged through interpretation, we are still faced with the problem of finding a reason for interpreting the prior business name provision to the time of incorporation when by its plain language it does not readily lend itself to such an interpretation. In other words, the provisions governing the name required when there is more than one shareholder and the name required when there is only one shareholder appear to be applicable at the time of incorporation as well as the post-incorporation period. The prior business name provision appears applicable only to the post-incorporation period, compare Willenbrink letter, because its application to the time of incorporation becomes inherently self-contradictory; i.e., a corporation can have no business prior to its incorporation. On the other hand, if the emphasis is placed upon the name of the business which is to be incorporated rather than the corporation per se, the prior business name provision could apply to the time of incorporation.
Thus, some argument for the applicability of the prior business name provision can be maintained on both sides of the question. We resolve the issue in this manner. The Court has emphasized the need to follow the plain wording of a statute in its interpretation, see e. g.,
Holsclaw v. Stephens, Ky., 507 S.W.2d 462 (1973);
Roberts v. Hickman County Fiscal Court, Ky., 481 S.W.2d 279 (1972) and
Gateway Construction Co. v. Wallbaum, supra. The prior business name provision plainly applies to the post-incorporation period of the corporation's existence, see Willenbrink letter. The provision becomes self-contradictory when it is applied to the time of incorporation because a corporation cannot conduct business prior to its incorporation. Thus, to avoid raising a conflict,
Bischoff v. Hennessy, Ky., 251 S.W.2d 582 (1952), or restructuring the provision in the absence of a clear legislative intent, we are of the opinion that the prior business name provision is limited to the post-incorporation period. In this manner, the provision is given effect as it is written, Holsclaw supra; Roberts, supra; and Gateway Construction Co., supra.
Summary: We are of the opinion that the prior business name provision of KRS 274.075 may not be utilized to incorporate a professional service corporation under a name which does not include the last names of two or more of the incorporator-shareholders or the name of the sole incorporator-shareholder as provided by KRS 274.075. We are of the opinion that the prior business name provision may be used only in the post-incorporation period in situations similar to that presented in the Willenbrink letter. Our opinion extends no further than the expression of it as set forth in this Summary.