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
