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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 .ofwhen 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 ,thcTexas .: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 ,ofinsurance~companias.~: ,Dqapite’thia contentioa,~.wehold that a litaral 

### readingofthe 1959amendment to **9,14A evidencea**  a **clear legis-**  : !.~ lativa .intent-tobring~a&iwurance ;companies. regardless ofwhen organisad or..admittedto:~Texaa,uader ona set .ofcorporate laws ~8upplemeataIto 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)iunless eaid corporations .so~ chose to be governed .theraby and

.. -; adopted the.:Actthrough ~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 

## exemptthose corporatiolu. sot out ia sectiotx~ oc9.14., k&t&tho~~;.~Se&ioni B,:.C, D and ME of 9.14rll 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.Opinioathat 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 September 6, 1955). P All your remaining questions turn on tha issue ofwhether tba provfsion ofArticle 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 .ofthe Ineurance Code. The crit&al sentence of Article 2.178 in issue here is quoted as follows:

S‘

. . .Within a period ofxixty (60) days wafter-the issuance of l

ny~ shares without par:value. the board of directors ~mayallocate 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 ~companyissuing 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 fingood.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 ofat 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 ofthe Act. This result would also defeat the’express **minimum** of $250,000.00 permitted to no-par life insurance 

### companies by 

### Article 3.028 

### oftheCode. 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 immade 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~aguarantee fund, the impairment ‘ofwhich is strictly regulated by the Insurance Code, whereas theeapjkl~of a business corporation can be,spent and even gieatly impaired 7as kg as:.b e corporate debts are regularly paid as they mature. Them- very fund.tioaand 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 2.17Bwould virtually defeat the.growth of no-par life insurance’companies

‘and thereby fruatrak .theprovisions 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 ofthe 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** ,i8inconsisknt 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 ~theInsurance 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 JohnReeves ‘0

n Houghton Brownlee Charles Cabaniss

REVIEWEDFOR THEATTORNEYGENERAL ~ BY: Leonard Passmore