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


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