Untitled Texas Attorney General Opinion ( 1958 )

Hon. William A. Harrison Opinion No. WW-360
Commissioner of Insurance
International Life Building Re: Required minimum capi-
Austin, Texas tal and surplus of a life insur-
ance company issuing stock on
.Dear Sir: a no-par value basis.
You have requested an opinion of this office concerning the capital
and surplus requirements of life insurance companies issuing no-par value
stock pursuant to the provisions of Article 3.02a of the Texas Insurance
Code.. Your questions are as follows:
1. What is the required minimum capital, as that term is
used and understood in insurance and corporate laws, of
a life insurance company which divides and issues all of
its shares on a no-par value basis?
2. What is the required minimum surplus, if any, of a life
insurance company which divides and issues its shares on
a no-par value basis ?
3. If.in answer to Question No. 1, you have stated that the
minimum capital of a no-par life insurance company is
$250,000, is there any requirement that such no-par com-
pany have additional funds as surplus, and if so. how much
is required ?
4. If a life insurance company divides and issues all of its
shares on a no-par value basis, and does not designate a
definite stated capital in its articles of incorporation, what
figure or amount’of money should we consider and use as
the capital for such no-par company? Is the capital of
such a no-par company the total vabJe of every dollar re-
ceived for the issued no-par shares, or is the capital some
other figure, such as the minimum capital, if any, contained
in your answer to Question No, 1 above?
Section 5 of Article 3.02 of the Texas Insurance Code as amended in
1955 provides that the ,“capital stock”. of a life insurance company organized
thereunder should not be less than $100.000.00. all of which capital stock
must be fully subscribed and paid up at the time the articles of incorpora-
tion are ~filed and that such company should in addition thereto have not less
than $100.000.00 surplus, It is thereafter provided that~ *such minimum
capital and surplus shall, at the time of incorporation, consist only of [&he
Hon. William A. Harrison, page 2 (WW-360)
types of property described). . .Mter the granting of charter, the surplus
may be invested as otherwise provided in this Code. Notwithstanding
any other provision6 of this Code, such minimum capital shall at all times
be maintained in cash or in the classes of investments described in this
article. *
Section 2 of Article 3.02 as amended in 1955, is in part as follows:
“Section 2. From and after the effective date of this
Act the capital and surplus requirements of paragraph five
of Sectron 1 of Article 3.02 of thrs Code shall be the minimum
capital and surplus requirements for any company whrch is
\ subJect to the provisions of Chapter 3 of this Code as amended;
. . .
Section 9 of Article 3.39 as added in 1955 is in part as follows:
“9. Notwithstanding other provisions of this Article 3.39
of this Code, the capital and surplus of a company hereafter
organized under Article 3.02 of this Code . . . shall, at then
time of incorporation, consist only of (types of property de-
scribed); and the minimum capital of a company hereafter or-
ganized under said Article 3.02 . . . shall at all times be main-
tained in cash or in the same classes of investment. After the
granting. of charter the surplus in excess of such one hundred
thousand ($100,000) dollars may be invested as otherwise pro-
vided’in this Code for stock companies.”
Article 3.60 of the Texas Insurance Code as amended in 1955 limits
the permissible impairment of the’capital stock of a life insurance company
There is no comparable provision in the Code requiring a company to
maintain the minimum surplus added into the law in 1955. so we conclude
that after the incorporation a life insurance company is not required to
maintain such minimum surplus.
The provisions of Article 3.02a as added in 1955 are as follows:
‘(a) The stock of any life, health or accident insurance com-
pany organized or operating under the provisions of this chapter
may be divided or converted into shares of either par value or
no-par value, or both, all of which shall be fully paid and non-
assessable. If divided or converted into share6 of par value,
each share shall be for not less than One ($l,OO) Dollar nor
more than One Hundred ($100.00) Dollars. If divided or con-
verted into shares of no-par value, every such share shall be
equal in all respects to every other such share. At the time Of
filing of original charter or any amendment of an existing charter
authorizing the issuance of stock with no-par value, the company
shall file a statement under oath with the Board of Insurance
Commissioners setting forth the number of shares without par
I-. ._, . . j
I-Ion* William A. Harrison, page 3- (WW-360) .
value Subscribed and the actual consideration received by
the company for such shares. Provided, however, that the
stockholders of any such company authorizing the issuance
of its stock without nominal or par value, shall be required
in good faith to subscribe and pay for at least fifty (50%)
percent of the authorized shares to be issued wrthout nominal
or par value. before said corporation shall be chartered or
have its charter amended so as to authorize the issuance of
shares without nominal or par value; and provided further,
that in no event shall the amount so paid be less than Two
Hundred Fifty Thousand ($250.000.00) Dollars.”
Prior to 1955, life insurance companies were authorized to issue _
no-par stock under the terms of Article 2.07 of the Texas Insurance
Code. So far as material here, there is no substantial distinction be-
tween Article 3.02a and Article 2.07 as it applied to life insurance corn- 1
parries prior to the 1955 Act.
All of the text writers draw a distinctron between the term
&p&al” and the term “capital stock”. The term “capital stock” signi-
fies primarily the number of shares authorized to be subscribed, and
which have actually been subscribed, multiplied by the face or par value
of each such share. The capital stock of a corporatidn is thus a fixed
quantity regardless of gains or losses and unaffected by fluctuation in
the value of the corporate assets or the shares themselves. While the
capital of the. corporation may for some purposes be considered in
law as the equivalent of “capital stock”, the term “capital” is ordinarily
used to designate the assets of the corporation, regardless of their
source, utilized for the conduct of the corporate business and for the
purpose of deriving gains and profits. 10 Tex.Jur. 669. In spite of the
distinction normally drawn between the terms “capital stock” and the
term “capital”, the Legislature has apparently not intended such a dis-
tinction to apply since it has used the terms intercha.ngeably in the
passages here under discussion.
It is apparent that in the case of a company issuing no-par stock,
the definition normally given to the term “capilal stock” cannot be applied
as this term IS defined to be the number of sharesauthorized and sub-
scribed and multiplied by the face or par value of such shares.
In the case of AmericarrRefining Company v. Staples, 2b0 S.W. 614,
affirmed 269 S.W. 420. the Court of Civil Appeals defined the term
‘authorized capital stock” as it applied to a-no-par corporation in connec-
tion with a franchise ~tax imposed on foreign corporations. The court held
that the “capital stock” of such a corporation consisted of the aggregate
amount of the contributions of its shareholders to the corporate entity.
The Court suggested on page 617 of its opinion that the principle of “stating
capital” may be utilized so as to allocate a portion of the consideration
received to capital with the excess applying to surplus; ,This later propo-
sition is supported by Dean Hildebrand who states that a corporation may
Hon. William A. Harrison, page 4 (WW-360)
fix how much of the purchase price received from the sale of no-par
stock is to be capital and how much paid-in surplus. 2 Hildebrand Texas
Corporations. 351..
While the authorities in Texas are sparse, we believe the proper
rule to be, in view of the above and further there being nothing inconsls-
tent with such rule, that the total c.onsideration received by a corporation
from its stockholders for the sale of its no-par stock constitutes ‘capital”
of such a company but that such a corporation may fix or state the portion
of the consideration received which shall be its capital (or "stated capi-
tal”) with the amount received in exces6 being “surplus”. Our view is
further fortified by the recognition of these principles by the Legislature
in the Business Corporation Act passed in 1955 which expressly makes
the rules applicable to corporation6 governed thereby.
Article 3.02a doe6 not specify “minimum capital” or “minimum
surplus” for a company issuing no-par stock and there is no express
provision that the minimum capital and surplus requirement6 of Article
3.02 are to be considered applicable. Article 3.02a require6 that the’
stockholders of a life insurance company issuing no-par stock subscribe
and pay for at least 50% of the authorized 6h6reS of no-par stock before
such corporation be chartered or have its charter amended so as to
- ar stock and that in no event should the
~?``~ot$?~?~ ztz $250.000.00. The $250.000.00 minimum
required to be paid before incorporation or amendment could not be
said to be the “minimum capital” of such a company as the minimum
amount required to be paid under the terms of Article 3.02a may
exceed $250.000.00. If a life insurance company authorrzes l,OOO,OOO
shares of no-par stock to be sold for $1.00 per share. the minimum
amount required to be paid in before the amendment or original incorpo-
ration could be effective would be $500.000.00 since the stockholders
must in good faith subscribe and pay for at least 50% of the authorized
shares,
We believe that the Legislature intended in the enactment of Senate
Bill 15 in the 1955 Legislature tit requirements as to minimum capita:
and surplus should apply uniformly to all stock life insurance companir
In Section 2 of Article 3.02 hereinabove set forth, it is stated that “the
capital and surplus requirements of paragraph 5 of Section 1 of Article
3.02 of this Code shall be the minimum capital and surplus requiremen
for any company which is subject to the provisions of Chapter 3 of this
Code as amended.”
In this connection it should be pointed out that the amendments tc
Article 3.02, to Article 3.39 adding section 9. and the provisions enact-
ing Article 3.02a were all contained in the same legislation, Senate Bil
15,Acts 1955, 54th Legislatures, page 916. For this and the other reaso
hereinabove given we hold that a life insurance company which issues
no-par stock is subject to the same minimum capital and minimum SUI
plus as a life insurance company issuing only par value stock.
Han, William A. Harrison, page .5 (WWL360),,::. .’
.-
To the extent that OpiniOn NO. .O-5792 may be ,construed to hold
that the ininimtim capital of ‘a life insurance company issuing no-par
stock is $250;000.00, it is bverruled. .. ’
In response to your first question, we hold that the required
minimum capital of a life insurance company issuing no-par stock
is $100.000.00 as required by the terms of Article 3.02 of the Texas
Insurance C,ode as amended,
In response to your second question, we hold that the required
minimum surplus of such a life insurance company at the time of its
incorporation is ,$100,000.00.
Since we have not stated that the minimum capital of a no-par
company is $250,000, we do not answer your third question.
In response to your fourth question, the capital of a norpar ~life
insurance company which does not designate a stated capital is the to-
tal consideration received by the corporation from its stockholders. .’
for.its stock.
We would again point out that before a no-par life insurance
company may be chartered or before a life insurance company may.
have its charter amended 60 as to authorize the issuance of no-par.
shares, the stockholders of such company must have in good faith
subscribed and paid for at least 50% of the authorized shares to. be
issued without par value, which amount 60 paid may not be less
than $250,000.00. Therefore, at the time of incorporationor ,at the
time of such a charter amendment, such a company must have funds
over and above the minimum capital of $100,000,00 and minimum
surplus of $100.000.00, which additional funds in the aggregate with
the minimum capital and surplus will equal the consideration fixed
to be paid for 50% of the authorized no-par shares, which.aggregate
amount may not be less than $250,000,00. Such additional funds may
be assigned to either capital or surplus.
SUMMARY
The required minimum capital of a life insurance
company issuing no-par stock pursuant to Article 3.02a
is $100.000.00 and its required minimum surplus is
$100.000.00; provided, however, that at the time such a
company is incorporated, or before its charter may be
amended so as to authorize the issuance of no-par shares,
the stockholders of such a company must have in good faith
subscribed and paid for 50% of the authorized no-par shares,
which amount so paid may not be less than $250.000.00.
The funds in excess of the minimum capital and surplus neces-
sary to aggregate the consideration fixed to be paid for 50%
of the authorized no-par shares may be allocated to either
capital or surplus.
Hon. William A. Harrison, page 6 (WW-360). c,.:i- ‘,
The capital of a no-par life insurance company which
does not designate a stated capital is the total~consideta-
tion received by the corporation from its stockholders for
its stock.
Yours very truly,
WILL WILSON
Attorney General of Texas
% Fred B. Werkenthin
Assistant
APPROVED:
..
OPINION COMMITTEE:
Geo. P. Blackburn, Chairman
Morgan’ Nesbitt
John Minton
Wayland Rivers
REVIEWED FOR THE ATTORNEY GENERAL
._
BY:- W. V. Geppert
I