### THE 

# ATTORNEYGENERAL ofi' TEXAS

WI& WJLSON AT-roRNEY GENERAL Ausniu 11. ‘I-EXAS 

### April 24, 1959
Mr. William A. Harrison Opinion No. WW-601 Commissioner of Insurance International Life Building Austin, Texas Rt:


### Dear Sir: Whether or notcommissions paid to directors onthe sale ofcapital stock is prohibited by Article 3.67 ofthe Insurance Code. Youhave requested the opinion ofthis office onthe question of “whether thetaking ofa commission by an officer or dirtctor ofa life insurance company 

### operating under the provisions ofChapter 3, Texas Insurance Code, on sales oforiginal issue capital stock of 

### such company made personally by such officer or director violates tht 

### provisions of Article 3.67, Texas Insurance Code.”

Article 3.67 reads as follows:

“No director or officer’of any **insurance** 

### company transacting business inor organiaed under the laws of this State, shall rtceive any money 

### orvaluable thing for negotiating, procuring, recommending or aiding in any purchase or sale by such company ofanyproperty, or any loan from such company, nor be pecuniarily interested, either as principal, co-principal, agent or beneficiary in any such purchase, sale or loan. Nothing in this article shall prewnt a life insurance corporation from making 

### a loan 

### upona policy held therein, by the **borrower,** 

### not **in** 

### txcess **of the**  

### rettrvtvalue thtreof.’

. Itis our opinion thatthetaking of a commission by a director for sales of original iasut capital stock falls with&the prohibition **of Article**  **3.67.**



### The argument has been made that inasmuch am

### stock does notbecome property 

### until**after** 

### thepurchase ha6 beeh **madt** and-a 

### stock certfficab 

### issued, a commirsion ontht 

### salt would notbe a violation of**Article** 

### $67. **Ao** 

### stated in Volume 11,~ Flttchtr Cyclopedia ofCorporations, page : “Stock ca? 

### be created only by contract. whether itbe inthe simple form of a **subcription, or**  

### in any 

### other mode. There must be an agreement totake 

### thtstock, andnothing short 

### ofthis 

### cancrqate ft. Thie imparts to thestock thequality ‘ofproperty which bforo it 

### did not 

### poaa*se.sMr. William, A. Harrison,, page 2 

### (WW-601)

It should be remembered, however, that Article 3.67 by its own terms not only prohibits the taking of a commission for the sale itself but for “negotiating, procuring, recommending or aiding” in such sale. It is obvious that the “agreement to take the stock” will 

### have been preceded by negotiations, no matter how limited 

### or cursory, htncc any commission received as a result of such a sale would necessarily include compensation for the negotiations leading to its consummation. It is equally obvious that the commission is in fact paid for the person’s activities in negotiating, recommending, procuring and 

### aiding in,the obtaiping ofthe subscription agree-. mtnt. It has also been argued that if Article 3.67 is construed to prohibit a director or an officer of an insurance company of the kind in question from receiving a commission on ‘the sale of original issue capital stock of such company, the same article by the same reasoning would prohibit the director from being pecuniarily interested as principal in the purchase of any such property sold by such company and hence would be prohibited from purchasing stock in the company even though such director is required by Article 3.04, Section 4, to be a stockholder. This, of course, would be a ridiculous result but, in view of Article 3.14, one that does not follow. This article, also’passed in 1909, expressly exempts the directors’ dealings with the insurance company as a shareholder from the general prohibitions relating to directors’ activitie’s. It provides:

“Any director, member Of a committee, or officer, or any clerk of a ‘d,omestic’ company, who is charged with the duty of handling or investing its funds, shall not deposit or invest such, ~~~,~~~.~.erneegt,,~~~~he cprpo.r,,ate name of such company; .&all not-b~$&&w&o~!fC(fYd&of such company; shall not be itiYev&te$tin”any ivatf’i~~‘&@loi&, pledge, securiv or property of such 

### company, except as stockholder; sha not take or receive to his own use any fee, brokerage, commission, gift or other consideration for, or on account of, a loan made by or on behalf of such company.” $I

‘The conclusion we have reached is in accbrdance with an Attorney General opinion dated August 3,, 1911, to the Commissioner of Insurance and Banking which hei&thj&a co&so), whereby the pr,eside,n$of an insurance company,was to’receive a 25%.commission~ for the sale of unsold capital,stock was unlawful. by,,virtue of,&is article.,

We do not pass upon any penal laws covering this or similar fact situations since the rules for con,struing civil and penal statutes are different.
..,

. .

.

### MI-. William A. Harrison, page 3 (WW-601)

SUMMARY C.ommissions paid todirectors onthe sale ofcapital stock are prohibited by Article 3.67 ofthe Insurance Code. Very truly yours,

APPROVED: OPINION COMMITTEE: Geo. P. Blackburn, Chairman William K. Hemphill Tom I. McFarling JohnReeves WILL WILSON 9 Att

BY



### REVIEWFP FOR TW AT.WRNEY,.G~NE;RAL . BY:
‘korgan Nesbitt