Request By:
William M. Deep, Esquire
KING, DEEP AND BRANAMAN
P.O. Box 298
Ohio Valley National Bank Bldg.
Henderson, Kentucky 42420
Opinion
Opinion By: Robert F. Stephens, Attorney General; By: Reid C. James, Assistant Attorney General
This is in response to your request for an opinion of this office relative to the question of whether a foreign interest may acquire and incorporate farm land in Kentucky. Specifically you inquire,
1) Whether or not a foreign corporation can purchase farm land in the State of Kentucky, which at this time he intends to use solely as farm land, and
2) If a Kentucky corporation is formed by a Kentucky resident as an incorporator, although the majority of the stock is acquired by the foreign interest, would this be legal as holding personalty?
An alien may hold real property in this Commonwealth for eight years, at the end of which such property may escheat to the state. However should the alien become a citizen of the United States during this period the right of the state to escheat such property would be terminated. KRS 381.300.
If the alien chooses to reside in the state and acquires real estate for the purpose of residence, occupation, or to conduct a business or trade he may hold such property for a term not in excess of twenty-one years. KRS 381.320.
It is therefore our opinion that while an alien may purchase real property in Kentucky for farming purposes, such property is subject to escheat by the state after eight or twenty-one years depending upon the circumstances involved.
The answer to your second question offers a more hopeful situation for the foreign investor. The Kentucky Business Corporation Act, KRS Chapter 271 A, does not appear to restrict the right of aliens to own stock in corporations incorporated under this act. The general rule is,
In the absence of charter or statutory restrictions, a person who is otherwise capable of entering into a binding contract is not rendered incompetent to subscribe for stock in a corporation by the fact that he is a non-resident of the state, or an alien. But a state has the right to debar aliens from holding stock in its corporations, or to admit them to that privilege on such terms as it may prescribe. And generally the statutes require that a certain number of the corporators shall be residents of the state, and such a provision is mandatory. 4 Fletcher Cyc. Corp. (Perm. Ed.) Section 1395 (Footnotes omitted).
It is to be noted that no requirement that a certain number of the incorporators be residents of this state, as suggested above, is discerned in KRS Chapter 271 A. However, it would be advisable to carefully examine the particular statutes under which the corporation is formed for restrictions.
By establishing a corporation the foreign interest would hold personalty, the stock, instead of realty. The escheat provisions of KRS 381.300 and KRS 381.320 would therefore not be applicable. In this jurisdiction a corporation is a legal entity distinct from its shareholders. See Lowry Watkins Mortgage Co. v. Turley-Bullington Mortgage Co., 248 Ky. 285, 58 S.W.2d 591 (1933). This distinction is maintained in the absence of special circumstances, such as fraud. See May v. Sullivan, 300 Ky. 321, 188 S.W.2d 469 (1945).
Based upon this distinction we are of the opinion that the property of a corporation, the shares of which are owned partially or wholly by a non-resident alien, are not subject to the escheat provisions noted above and may be properly held by the foreign interest.