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 not commissions paid 

to directors on the sale of capital 

stock is prohibited by Article 

3.67 of the Insurance Code. 

You have requested the opinion of this office on the question of 

“whether the taking of a commission by an officer or dirtctor of a life 

insurance company operating under the provisions of Chapter 3, Texas 

Insurance Code, on sales of original 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 or valuable thing for 

negotiating, procuring, recommending or aiding in any 

purchase or sale by such company of any property, 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 upon a policy held therein, by the 

borrower, not in txcess of the rettrvt value thtreof.’ . 

It is our opinion that the taking 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 not become property until after the purchase ha6 beeh madt and-a stock certfficab issued, a commirsion on tht salt would not be a violation of Article 

$67. Ao stated in Volume 11,~ Flttchtr Cyclopedia of Corporations, page 

: 

“Stock ca? be created only by contract. whether 

it be in the simple form of a subcription, or in any other 

mode. There must be an agreement to take tht stock, 

and nothing short of this can crqate ft. Thie imparts to 

the stock the quality ‘of property which bforo it did not 

poaa*se.s 
Mr. 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 of the 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 to directors on the 

sale of capital stock are prohibited by 

Article 3.67 of the Insurance Code. 

Very truly yours, 

APPROVED: 

OPINION COMMITTEE: 

Geo. P. Blackburn, Chairman 

William K. Hemphill 

Tom I. McFarling 

John Reeves 

WILL WILSON 9 

Att 

BY 

REVIEWFP FOR TW AT.WRNEY,.G~NE;RAL . 

BY: 

‘korgan Nesbitt