, r \ 1 

Opinion No. WW-905 

- ; ~,:, ~.,~;.: 

Re: ,Whother or not the kcas 

Business Corporatiw Act 

,is sow or will hocoms rgpIl- 

‘cab& totruururc~ compubs 

pubjsct to Art. 5.69 M thr 

Taxas -hrrurwco Cod., ia 

visw of ?I;& 144, Mch kg. 

jrovisions of this Act ‘shall apply to ~#o they 

.ore’wt inconsistent wiw,,the pro&ions of ~SuCh l pacial 

statutes.” (Underlinad portions added by Acts 1959, 56th 

Leg., p. 224, ch. 132; &LB. 144) 
* 

Hon. William A. Harrison, page 2 (WW,-905) 

Article 3.69 gwerning life insurance companies provides: 

“The laws governing corpo’rationr in general shall 

&ply to and govern insurance companies organiaed or *eratirq under this ,Chapter 3 in so far as same are not iacoa- . 

sistent with the provisions of this +apter.” 

‘L. 

Your first question is as follows: : 

*. 

“In view of the ameadmenk of the Texas ‘Business 

I;, i~:~ ,. .,.~Y Corporation Act effected by H.B. 144, I request your opinion 

as to whether or not tbe Texas Business Corporatioa Act ir 

POWAI~ wilI thereafter become applicable to all iasuraaca 

compaaies subject to Art. 3.69 .of the Texas Insarance Code, 

,. 5.. .~. regardleas .of when domestic iaaurance companies were,~~ 

organiaed and foreign insurance companies were admitted 

!. to Texas. I further sequest your Spinion as to the. date upon 

.‘ej ;. ~. : :; which ,thc Texas .:Business .Corporatlon tact bectin#: or will 

‘become applicable to such companies.” 

L; ..; :.~:c.:.~. ~~ ‘-Thsr:e his. some Jargument advanaed,khat s*e general business corpora- 

~:~tiow existing onthe effective date of Cha:.Act war6 not to be governed thereby, 

the same is .true ,of insurance~companias.~: ,Dqapite’thia contentioa,~.we hold 

that a litaral reading of the 1959 amendment to 9,14A evidencea a clear legis- 

: !.~ lativa .intent-to bring~a&iwurance ;companies. regardless of when organisad 

or..admittedto:~Texaa,uader ona set .of corporate laws ~8upplemeataI to the 

:.: %~ .-:Cti.:as of the-effective .dah of iuchame~ment.. This Act passed in 1955 

,..,~ ~-was. notto. then become genera,lly..applicable to existing corporatiow (&c. 

.: B of 9.14)i unless eaid corporations .so~ chose to be governed .theraby and .. 

-; adopted the.:Act through ~the procedure set .out in AtticIs 9.14.%e~titi C. 

Unless-soulopted. ~the Act, .by~~Section~D of this Article was pokpoaed five 

years as to existing corporations. But under the provisions of fkction E 

of 9.143 ,+:Act became. automatically-affective at the expiration of this 

time limitatiom as~~to those corporathus not having .previously adopted it. 

Both %&ions 9 and :E specifically exempt those corporatiolu. sot out ia 

sectiotx~ oc9.14., 

k&t&tho~~;.~Se&ioni B,:.C, D and ME of 9.14 rll contemplate the ability of thc’koiporations discussed therein to adopt the .provioione of the Act, 

which~insur~snce companiea~auaot,~do.~ Therefore, it is our .Opinioa that 

these e&ctidno itire ;hot ~inbnded, m:,a@y, toinsurance ~companies. 

Aa previously~atated.::ithas-been held by this office,&& the provisions 

of the Texas:Business :CorporationAct supplement the Insurance Code iaoofar as’~domestic inaurance~ companies ‘orgad oftar and foreign insurance ,companies. admitted to Texan aftar the affective date of the Act and we 

now hold that as of the,effective date of the amendment to Article 9.14A 

(August ~11, 1959). the provisions of tie AC+, where not inconaistsnt, supplsment the Code insofar as domestic life’insuranco companies orgmised 
/ 

\ i, 

Hon. William A. Harrison, page 3 (WW-905) 

before and foreign life insurance corn anies admitted to Texas before tbe 

effective date of the Corporation Act P September 6, 1955). 

All your remaining questions turn on tha issue of whether tba provfsion of Article 2.17B of the Act, limiting the allocation of capital funds to 

.surplus, applies to life incurance companies &suing no-par value stock, 

governed by Article 3.69 of the Insurance Code. 

While there is no express language in &n Insurance Code dealing with 

the percentage of capital allocable to surplus ,such as is found ia 2.178 of 

the Acti the question is whether -or not such limitation as presented by 2.178 

of the Act is inconsistent with the provisiona .of the Ineurance Code. The 

crit&al sentence of Article 2.178 in issue here is quoted as follows: 

S‘ 

. . .Within a period of xixty (60) days wafter-the 

issuance of l ny~ shares without par:value. the board of 

directors ~may allocate to capital surplus not more than 

twenty-five per cent (25%) of the consideration received 

for the issuance of~such shares. :.*’ .‘I ~.~ 

._ 

.; Attorney General’s Opinion WWd360. is&red February 10. 1948; concerning the required minicimm capital and surplus of a life insurance company 

.rssuing:stock-on a.no-par~value basis, held that: : 

“The required minimum capital of a life insurance 

~company issuing no-par stock pursuant to Article 3.02a is 

$lOO,OOO.OO and its required minimum surplus is $lOO,OOO.OO; .i 

.~ provided, .however, that at the,time such a company is incotporated,~ or before its charter may be amended so as to 

-‘::,~autborize :tbe $ssuance of no-par:ehares. ti stockholders. 

of such a.eompany must have fin good.faitb subscribed and 

;~,~paid for 50% of the authoriaed no-par shares, which amount 

:ao.paid may not be .leos than $250,000.00.‘. ,” 

The application af2J7B of the.Act to life iwurawo c&npades iam& 

no-par value stock.would require a proposed company to begin business with 

a minimum of at least $400,000.00 in order for the $lOO,OOO.OO minimum surplus required by tha Code to constituts not more than 25s of the proceeds 

from the sale of no-parvalue stock aa required by this provision of the Act. 

This result would also defeat the’express minimum of $250,000.00 permitted 

to no-par life insurance companies by Article 3.028 of the Code. This anomaly arises from the distinctive treatment the kgislatbre hen given to the 

~capital structure of insurance companies. The requirement of a minimum 

. surplue IS unique and no similar requirement im made for general business 

corporations. Inour view, the rehriction of 2.17B simply does not take 

into account or even contemplate’s required minimum surplne and hence 

is inconsistent with the Insurance Code. 

Furthermore, the reason for rsetricting ths portion of ths proceeds 
\ . 

.i. -+ 

Hon. William A. Harrison, page 4 (WW-905) 

from the eale of no-par stock which may be placed in the surplus of a business 

corporationis not present in the case of a life inclurance company. The capital of life insurance companies is in the nature of ~a guarantee fund, the 

impairment ‘of which is strictly regulated by the Insurance Code, whereas 

the eapjkl~of a business corporation can be, spent and even gieatly impaired 

7 as kg as: .b e corporate debts are regularly paid as they mature. Them- very 

fund.tioa and nature of surplus in the two organiaations is diverse. The exknt 

to which a iire insurance company can grow and add new business is go&ned 

largely by:the amount of its surplu8 funds available. .The restriction imposed 

,by 2.17B would virtually defeat the. growth of no-par life insurance’companies 

‘and thereby fruatrak .the provisions of the Insurance Code authoriaing their 

creation. ~.I 

We, therefore, hold thti’the restriction on the percentage of capital 

funds allocable, to,surplua in Article t.17B of the Texas Business Corporation 

Act is inconeisknt.witb the provisions of the Texas Insurance Code and, tberefore, is not applitiable to life-insurance companies issuing no-par value stock. 

Since w&-have answered the basic question in your requeot by holdipg 

that the reetriction on the percenkge of capital funds allocable to surplus in 

2i17B of the Act ,i8 inconsisknt with provisions of the Insurance Code govsrn- 

.4&g-no-par life itisurance comPanies, there is~ no necessity to consider specifically each que8tion in your request concerning the time, mann8r and limitation of the effect of 2.17B on life insurance companies. 

SUMMARY 

The Texas Business ,CorporationAct supplement8 the 

provisiona-of tbe’Texas Insurance Code dealing with <Us iniurawe companies. where not inconsisted tb&ewith. However, 

the rastric.tion on theqercentage of capitnl~fds allouabl8 to 

,surplus,imArticle 2.17B of the Texas, Business Corporation 

Act is inconniaknt withkel;section8 ti ~the Insurance Code _ 

dealing with life iuaurance companies issuing no-par value 

stock ~;,.~rafora..~~ie~not.applicable thereto. 

‘Very truly your‘, 

WILL WILSON 

Attorney GensralofifI’saxat 

: 

Richard A. Wells 

Assistant Attorney General 
. ; 

Hon. William A. Harrison, page 5 (WW905) 

APPROVED: 

OPINION COh+TTEE: 

1 

C. K. Richards,.:Chairman 

Milton Richards 

John Reeves ‘0 n 

Houghton Brownlee 

Charles Cabaniss 

REVIEWEDFOR THEATTORNEYGENERAL ~ 

BY: 

Leonard Passmore