THE ,~TJ?O’RNEY GENERAL OF TEXAS

Hon. William A. Harrison OpinionNo. ~~-830 Commissionerof Insurance State Department of InsuranceRe: Whether or not a charter Austin, Texas amendmentwhich will result in an insurance company issuing fractional shares of stock can be Dear Mr. Harrison: approved.

**YOU** have requested our opinion on the legality of a charter amendmentpresented to your officewhereby a Casualty stock companywith par stock of the value of $2.50per share, proposes to amend its charter to effect a stock split by changing the par value to $1.50per share. The capital of the company is unchanged by the amendment but the conversion of the stock'spar value results in its capitalbeing divided into 1,918,966 2/3 shares. You ask whether or not this charteramendment should be approved since the amendmentwill result in a fractlonal share of stockbeing issued.

It Is our opinion that the proposed amendmentmay be approved.

Your requestwas occasionedby an Attorney General's opinion dated December 21, 1926,which is to the effectthat an insurancecompany cannot issue fractional shares of stock.

We do not find anything In the InsuranceCode speclfitallyprohibiting the issuance of fractional shares. The formerAttorney General's opinionpointed out a statutoryprovision that each stockholder shallbe entitled to one vote for each share of stock fullypaid up appearing in his name on the books of the company and reasoned that it would be impossible for this language to have application in case certificates could be issued for fractional shares. A similar provision appears in the present InsuranceCode in Article 3.04, section 4.

Turning to the Business CorporationAct, Art. 2.29 likewiseprovides that each outstanding share shall be entitled to one vote at a meeting of shareholders. Nevertheless,Art. 2.20 apeclficallyauthorizes ,theissuanceHon. William A. Harrison,page 2 (W-830)

of fractional shares and provides further that a certificate for a fractional share shall entitle the holder to exercise voting rights, to receive dividends thereon, and to particlpate in any of the assets of the corporation In the event of liquidation. AlSO, Art. 1333 of Title 32, R.C.S., formerly the exclusive general corporate law,provides that when a corporation shall reduce its capital stock, and by reason thereof fractional shares shall be issued or held by any stockholders,the holder of any such fractional share shallbe entitled to vote the same at any meeting of the stockholders in accordancewith proportionate or ratable value of such shares.

These provisions of our corporate statutes show that a legislativeadmonition that each fullypaid up share of stockmust entitle its owner to one vote does not preclude the existence of fractional shares. This being the case we do not believe that a provision in the Insurance Code that each stockholder is entitled to one vote for each share of stockheld was intended to prohibit the Issuance of fractional sharesby insurance companies,but was simply intended as a protection for the stockholder,and to secure for him the right to vote in stockholders meetings.

Therefore, the reasoning of the previous opinion we believe to be erroneous and it is consequently overruled. By this opinionwe do not hold that thoseprovisions of the Business CorporationAct relating to fractional shares apply to insurance companies. To do so is not necessary to this opinion. They are mentioned solelyby way of analogy. We thereforehold that the charter amendment about which you inquiremay be approved.

Your letter also requests our opinion on an additlonal charter amendment,but you have since advised that further informationwill be submitted in connectionwith that proposal. We will accordinglydispose of that question in a subsequent opinion.Hon. William A. Harrision,page 3 (~-830)

SUMMARY
A casualty stock companywith par stockmay issue a certificate for a fractional share. Very truly yours WILL WILSON Attorney General of Texas
By: Assistant APPROVED: OPINION COMMITTEE
W. V. Geppert, Chairman Raymond V. Loftin, Jr. C. K. Richards Fred Werkenthin
REVIEWED FOR THE ATTORNEY GENERAL By: Leonard Passmore