              THEATI‘ORNEYGENEEAL
                            OF’mXAS



                              February   20, 1959


Honorable William W. King             Opinion No.
Securities  Commlsalon~
State Securities Board               lb:    Nhother the *ilicreasT~ of
Austin, Texas                        capital    stock of a corporation”,
                                     Article    581, V.C.S.;   the Secu-
                                     rities   Act, Subdlviaibn     (0).of
                                     Section 5, refer0 to an ihcr66iee
                                     of authorlced’shares      zif a&pita1
                                     8tbck,, or tii an’ inOreaae of
                                     shares of capital     stock oufstand-
                                     ix@ by the iaauance of ahartis
                                     already authorized,     and related
                                     questions.
Dear Hr. King:
           We quote”from your letter requesting      our opinion     on the
above   mentioned xMtera,  in part as follova:
            “Article  581, v.c.s.,  the Securities   Act, In’ Sub-
    M3ctlon (e) of Section 5, sets tit as &ii exempt trans-
    hction:      ‘The sale of an increase of chpltal     stock bf
    a corporation    only to Its stockholders    and without pag-
    ment of any commission or expenae to any officer,
    employee, broker or agent.’
            “We have several question8 which involve inter-
    pretation   of the noted subsection.    Flrst;does     ‘in-
    crease of capital   stock of a corporation’     within the
    meaning of this section refer to an Increase of
    authorized &ares of capital     stock, or does it refer
    to an increase of shares of,capltal     stock outstanding
    by the issuance of shares already authoriaed?
            “Secondly,   &ssuming that ~pre-emptive rights of
    the’ stockholders    are not denied or limited by the coc-
    poratlon4s     charter   can a corporation  avail itself
    of the’Section     5 (ef exemption if an offering   of com-
    mon shares Is not made to each stockholder       in propiw-
    tion to his holdings of common stock in the corporation?”
           “Where the full authorle-&I amount of stock Is not ori-
ginally issued,~ hddltional stock may be issuiid from time to~tlm
up to the limit authorized,  for this la not an increase of stock.”
Hon. Wllliam   M. King,    page 2     (WW-552)


18 Corpus Juris   Secundum, Section          268.
            It mat be noted that in Siibsectibn (e) of S@ctlon 5,
the Texas SectiPltiBs Act, th& Legislature      used”the~ phrase,
“lncreaiie of caDita1, stock” and not “sale of capital       stock”
which Would Indicate the iiitention     of:‘the LegislStur& to iti-
blude’ only an aotual increase of the amount of caijltal' stock
authorieed~in’this   exeMption.     We think’ that tAti language of
this aubsbction’ I’@ al‘ciar and iinambiguoua and .t.hat the Only-
proper meaiilng that’ can b& drawn from It la that the sub&&&ion
refers tb ah Increase of authorleed stir&b of capital         stock
through an amendment to the corporate charter.
           Therefore,  in answer to th'is first question,       we hold -'
that Subsection   (e) of,Section     5 of the’ Securities   Act pelmitti an
exempttdn from regi’etration     bg”a,corpor&tlofi   of stock cofitititut-
ing an aatual increase of the authdrized shares of the capital
of the corporation.
            In answer to y&r Question No. 2, we hold that there
is nothing specifically     or ilhpliedly in this subsectiqn   that
would require the breemptlve rights of the stockhoIder“to          be
Qbbservedin order to qualify such an increase of capital         stock
foti”this exemption.    The pre’emptive   rights oi a ato&kholder are
a mati%r.~ifi which fhe"stockholders    thelpselves are peculiarly    in-
terested,  and not a matter for the concern of ‘th& Security Com-
missioner of Texas.
          Having ansirered your,second’~question in the affirmative,
there Is no need to answer the third and fourth puestlons set a.xt
in your letter.   Ytir fifth questlon ia quoted a8 follows:
           ‘Where stockholders’    pre-emptive~ rights are
    expressly   limited br denied %n a cbrpoi!ation’s   charter,
    could the sale of an’iniirease    of capital  stock of suhh
    corporation    be mede to any single atockhbldbr br to a
    few individual    stockholders as an exempt transaction
    under the above noted subsection?”
             Our ri3asonings specifically     set out in answer to your
   estion No. 2 apply here and we therefore         hold that SubsectIon
? e) of  Section  5  gf the  Securities   Act  does  not permit the
SYctiritieei Commi$iioner to be concerned with the denial or obser-
v.%nde by a corkratiijn     of its stockhbldei+s'    pre-emptive ri&hts"
in order to qualifjr an ,increaae bf capital        stock by the corpora-
tion under this section.
                                 SUNNANY
           Subsection     (e)   of Section    5 of the Securi-
Hon. William   X. Xlng,   page 3    (w-552)



            ties Act of Texas authorlees      an exemptlbn
            to be given tb the issuance by a corporhtion
            of stock actually    cbnatituting^ an increa’iie
            in the authorieed capital      of aaid corpbra-
            tion.   Aiid the question   cif whether or not
            individual   stockholders   are given pro';emp-
            tive rights or aenied~‘such rights does not’
            affect  the exemption afforded by this section.
                                   Very truly   yours,
                                   WIUWIIBON.
                                   Attorney General      of Texas


                                   By s/Rich&r-d A. Well&
                                        RQhard A. Wells
                                        Assistant

RAW:jg:wc

APPROVED:
OPINION COMMITTEE:
Geo. P. Blackburn,   Chairman
C.X. Richards
Robei+t T.~Lewis
Leonard Passmore
REVIEWIP)FOR TRE ATTORNEY
                        GENBRAL
                              BY:
\W. V. Geppert
