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                                             Opinion No. WW-905
                                               - ; ~,:, ~.,~;.:
                                             Re: ,Whother or not the kcas
                                                  Business Corporatiw Act
                                                 ,is sow or will hocoms rgpIl-
                                                  ‘cab& totruururc~ compubs
                                                    pubjsct to Art. 5.69 M thr
                                                   Taxas -hrrurwco Cod., ia
                                                   visw of ?I;& 144, Mch kg.




          jrovisions of this Act ‘shall apply to ~#o            they
    .ore’wt inconsistent wiw,,the pro&ions       of ~SuChl
                                                         pacial
     statutes.” (Underlinad portions added by Acts 1959, 56th
     Leg., p. 224, ch. 132; &LB. 144)
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        Hon. William     A. Harrison,    page 2   (WW,-905)



               Article   3.69 gwerning    life insurance companies provides:

                             “The laws governing corpo’rationr in general shall
                     &ply to and govern insurance companies organiaed or *er-
                     atirq under this ,Chapter 3 in so far as same are not iacoa-   .
                     sistent with the provisions of this +apter.”
                                                         ‘L.
                     Your first question is as follows:    :
                                  *.
                             “In view of the ameadmenk of the Texas ‘Business
I;,     i~:~
           ,. .,.~Y Corporation Act effected by H.B. 144, I request your opinion
                    as to whether or not tbe Texas Business Corporatioa Act ir
                    POWAI~ wilI thereafter become applicable to all iasuraaca
                    compaaies subject to Art. 3.69 .of the Texas Insarance Code,
,.     5..      .~. regardleas .of when domestic iaaurance companies were,~~
                     organiaed and foreign insurance companies were admitted
                 !. to Texas. I further sequest your Spinion as to the. date upon
      .‘ej ;.~. : :;which ,thcTexas .:Business .Corporatlon tact bectin#: or will
                   ‘become applicable to such companies.”

      L;..;:.~:c.:.~.
                 ~~
                  ‘-Thsr:e his.some Jargument advanaed,khat s*e      general business corpora-
          ~:~tiowexisting onthe effective date of Cha:.Act war6 not to be governed thereby,
           the same is .true ,of insurance~companias.~: ,Dqapite’thia contentioa,~.we hold
           that a litaral reading of the 1959 amendment to 9,14A evidencea a clear legis-
:       !.~lativa .intent-to bring~a&iwurance      ;companies. regardless of when organisad
           or..admittedto:~Texaa,uader       ona set .of corporate laws ~8upplemeataI to the
   :.:%~
       .-: Cti.:as    of the-effective .dah of iuchame~ment..       This Act passed in 1955
  ,..,~ ~-was.notto. then become genera,lly..applicable to existing corporatiow        (&c.
        .: B of 9.14)i unless eaid corporations .so~chose to be governed .theraby and ..
         -;adopted the.:Act through ~theprocedure set .out in AtticIs 9.14.%e~titi      C.
           Unless-soulopted.      ~theAct, .by~~Section~Dof this Article was pokpoaed five
           years as to existing corporations.       But under the provisions of fkction E
           of 9.143,+:Act      became. automatically-affective at the expiration of this
           time limitatiom as~~tothose corporathus not having .previously adopted it.
           Both %&ions 9 and :E specifically exempt those corporatiolu. sot out ia
           sectiotx~ oc9.14.,

               k&t&tho~~;.~Se&ioni     B,:.C, D and MEof 9.14 rll contemplate the abil-
        ity of thc’koiporations discussed therein to adopt the .provioione of the Act,
        which~insur~snce companiea~auaot,~do.~ Therefore, it is our .Opinioa that
        these e&ctidnoitire ;hot ~inbnded, m:,a@y, toinsurance ~companies.

               Aa previously~atated.::ithas-been  held by this office,&& the provisions
        of the Texas:Business :CorporationAct supplement the Insurance Code ia-
        oofar as’~domestic inaurance~ companies ‘orgad        oftar and foreign insur-
        ance ,companies. admitted to Texan aftarthe affective date of the Act and we
        now hold that as of the,effective date of the amendment to Article 9.14A
        (August ~11,1959). the provisions of tie AC+, where not inconaistsnt, suppls-
        ment the Code insofar as domestic life’insuranco     companies orgmised
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Hon. William   A. Harrison,   page 3   (WW-905)



before and foreign life insurance corn anies admitted to Texas before tbe
effective date of the Corporation Act PSeptember 6, 1955).

       All your remaining questions turn on tha issue of whether tba provf-
sion of Article 2.17B of the Act, limiting the allocation of capital funds to
.surplus, applies to life incurance companies &suing no-par value stock,
 governed by Article 3.69 of the Insurance Code.

       While there is no express language in &n Insurance Code dealing with
the percentage of capital allocable to surplus ,such as is found ia 2.178 of
the Acti the question is whether -or not such limitation as presented by 2.178
of the Act is inconsistent with the provisiona .of the Ineurance Code. The
crit&al sentence of Article 2.178 in issue here is quoted as follows:
               S‘
                . . .Within a period of xixty (60) days wafter-the
      issuance of lny~shares without par:value. the board of
      directors ~may allocate to capital surplus not more than
      twenty-five per cent (25%) of the consideration received
      for the issuance of~such shares. :.*’     .‘I ~.~
                                                 ._
      .; Attorney General’s Opinion WWd360. is&red February 10. 1948; concern-
  ing the required minicimm capital and surplus of a life insurance company
:.rssuing:stock-on a.no-par~value basis, held that:

                “The required minimum capital of a life insurance
       ~company issuing no-par stock pursuant to Article 3.02a is
        $lOO,OOO.OOand its required minimum surplus is $lOO,OOO.OO;             .i
    .~ provided, .however, that at the,time such a company is incot-
        porated,~ or before its charter may be amended so as to
   -‘::,~autborize :tbe $ssuance of no-par:ehares. ti stockholders.
        of such a.eompany must have fin good.faitb subscribed and
     ;~,~paidfor 50% of the authoriaed no-par shares, which amount
       :ao.paid may not be .leos than $250,000.00.‘. ,”

       The application af2J7B of the.Act to life iwurawo c&npades iam&
no-par value stock.would require a proposed company to begin business with
a minimum of at least $400,000.00 in order for the $lOO,OOO.OOminimum sur-
plus required by tha Code to constituts not more than 25s of the proceeds
from the sale of no-parvalue    stock aa required by this provision of the Act.
This result would also defeat the’express minimum of $250,000.00 permitted
to no-par life insurance companies by Article 3.028 of the Code. This ano-
maly arises from the distinctive treatment the kgislatbre     hen given to the
~capital structure of insurance companies. The requirement of a minimum
          .
surplue IS unique and no similar requirement im made for general business
corporations.    Inour view, the rehriction of 2.17B simply does not take
into account or even contemplate’s required minimum surplne and hence
is inconsistent with the Insurance Code.

      Furthermore,   the reason for rsetricting   ths portion of ths proceeds
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        Hon. William    A. Harrison,   page 4   (WW-905)



      from the eale of no-par stock which may be placed in the surplus of a business
      corporationis    not present in the case of a life inclurance company. The capi-
      tal of life insurance companies is in the nature of ~a guarantee fund, the
      impairment ‘of which is strictly regulated by the Insurance Code, whereas
      the eapjkl~of a business corporation can be, spent and even gieatly impaired
    7as kg as:.b e corporate debts are regularly paid as they mature. Them-very
      fund.tioa and nature of surplus in the two organiaations is diverse.   The exknt
      to which a iire insurance company can grow and add new business is go&ned
      largely by:the amount of its surplu8 funds available. .The restriction imposed
    ,by 2.17B would virtually defeat the. growth of no-par life insurance’companies
     ‘and thereby fruatrak .the provisions of the Insurance Code authoriaing their
      creation. ~.I

               We, therefore, hold thti’the restriction on the percentage of capital
        funds allocable, to,surplua in Article t.17B of the Texas Business Corporation
        Act is inconeisknt.witb the provisions of the Texas Insurance Code and, tbere-
        fore, is not applitiable to life-insurance companies issuing no-par value stock.

             Since w&-have answered the basic question in your requeot by holdipg
      that the reetriction on the percenkge of capital funds allocable to surplus in
      2i17B of the Act ,i8 inconsisknt with provisions of the Insurance Code govsrn-
    .4&g-no-par life itisurance comPanies, there is~no necessity to consider speci-
      fically each que8tion   in your request concerning the time, mann8r and limi-
      tation of the effect of 2.17B on life insurance companies.

                                            SUMMARY

                      The Texas Business ,CorporationAct supplement8 the
              provisiona-of tbe’Texas Insurance Code dealing with <Us iniur-
              awe companies. where not inconsisted tb&ewith.        However,
              the rastric.tion on theqercentage of capitnl~fds   allouabl8 to
              ,surplus,imArticle 2.17B of the Texas, Business Corporation
              Act is inconniaknt withkel;section8   ti ~theInsurance Code     _
              dealing with life iuaurance companies issuing no-par value
              stock   ~;,.~rafora..~~ie~not.applicable     thereto.

                                                  ‘Very truly your‘,

                                                  WILL WILSON
                                                  Attorney GensralofifI’saxat


    :
                                                     Richard A. Wells
                                                     Assistant Attorney General
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    Hon. William A. Harrison,   page 5   (WW905)



    APPROVED:

    OPINION COh+TTEE:
                     1
    C. K. Richards,.:Chairman
    Milton Richards ‘0n
    John Reeves
    Houghton Brownlee
    Charles Cabaniss


    REVIEWEDFOR   THEATTORNEYGENERAL                   ~
    BY:
              Leonard Passmore
