Untitled Texas Attorney General Opinion ( 1944 )

Honorable Sidney Latham secretary of state Austin, Texas Dear Sir: Ilttention: Mr. Rcrnco ?. Sessions Opinion No. O-5946 Re: Can a permit be issued for the sale of the increased capital stock under the same provisions of the law providing for the sale of pre-organization aertifioates or receipts (Sectioa 7, Art- icle 600a, Vernon's Texan Statutes)? Your request for an opinion on the above matter hes been re- ceived and carefully considered. We quote your request a8 follows: "The writer is in receipt of the following request involving an interpretation of the Texas Securities Act, particularly Section 7: "'The client of mine, a corporation, desires to increase its capital stook by the issuance of preferred stock of the par value of 8100 per share. Its present capital stock, v.hichvdll not he changed or disturbed, has 8 $10 par value. The proposal is to increase the oapital steak by providing for the issuance of $100 preferred stock, and to sell the 8100 preferred stock at $%I0 per share. The privileges at- tached to the preferred will be such as to make it what my cljents believe to be an attractive investment. The proposal is for the stockholders to authorize the increase jn the capital stock, snd the directors to certify the increase as provided by statute. An appllcatioa would then he filed with you for a permit to sell this stock under the provisions of the Securities .!.ct, which provides for a pre-organization sale of certifl,cstesor reOeipts. "'Without asking you to pass upon any fact questions ir- valved, as those must necessarily be determined when you have all the facts before you, I would Like to know your position as a matter of law on the following: Honorable Sidney Latham - page 2 O-5946 S'l. Can a permit be issued for the sale of the increased capital stock under the seme provisions of the law providing for the sale of preorganization certif- icates or receipts (Section 7 of Article 600-a- Vernon's Texas Statutes)? "'2. Is there any legal reason why $100 par value stook should not be sold at $300 per share?' "The writer has been unable to fine any opinion rendered by your department or any court decisions bearing on this question, and I, therefore, respectfully request that your offioe favor us with an opin- ion in this matter." '; Seotion 7 of Article 600 a reads as follcwsr 'Sec. 7. In the event any dealer as defined herein shall sell or Offer for Sale any preorganieation certificate or receipts, or shall in any manner solicit subscriptions to or in any prOpoSed corporation, trust or joint stock company proposed to be fonaed, the Secretary of State may require, if he deems it necessary to protect the interest of prospective subscribers or certificate holders, the dealer SC offering such securities for sale to deposit all moneys and funds received from the sale thereof, except such amounts thereof as the Secretary of State may have under this Act allowed as preorganization expenses and ccmmis- sions for the sale of such security, to be deposited in a trust account in some bank or trust company doing business in the State of Texas, until such time as such proposed ocmpany shall have sold the minimum amount of capital to authoriee it to begin business in Texas, at which time the hank or trust company shall transfer suoh funds to the pro- posed corporation and its executive officers for the purpose of permit- ting it to undertake its business. In the event such prOpOSed company as herein defined shall fail within two (2) years to sell the minimum amount of capital necessary for the beginning of business in Texas, the bank or trust company shall return to the subscribers that portion of the funds that had been deposited under such preorganization agrae- ment. At the time of making the deposits, as herein provided for, the dealer or issuer shall furnish to such bank or trust company the names of the persons purchasing or sub scribing for such securities, and the amount of money paid in by each. "The total expenses, Including organization expenses and all com- missions paid to salesmen of any proposed oCeQany, as heroin defined, shall not exceed twenty (20) per cent of the total amount of capital sought to be employed in such proposed company." In our opinion, the above quoted law applies only to the sale of preorganization certificates and receipts and subscriptions to or in Honorable Sidney Latham - page 3 O-5946 proposed corporations, trust or joint stock companies, and that 8 permit can not be issued for the sale of increased capital stock thereunder, Therefore, question No. 1 is answered in the negative, Question No. 2 is also answered in the negative, but this holding is qualified by the statement that, in our opinion, the sale of stock for #300.00 per share the pr value of xhiah is only $lOO per share nould be subject to The Seaurities Act (Artide 600a). Trusting that this satisfactorily anmers your icquiry, -seam Yours very truly A'TTORIEYGSNERAL OF TEXAS ByS/JBS.w. Bassett Jas. W. Bassett Assistant APPROVED APRIL 6. 1944 s/Gee. P. Blackburn ACTIKG ATTORNEY GENEXAL OF TEXAS Approved Opinion Comittee By BlRBChairman