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# THEATTORNEY GENE-L OF TEXAS

November 16, 1960

Honorable William A. Harrison Commissioner ofInsurance State Board ofInsurance International Life Building Austin, Texas Opinion No. WW-958 Re: May aforeign stock life, health or accident insurance company, with par value stock, having a par value ofless than one dollar per share or more than one hunDear Mr. Harrison: dred dollars per share be granted a Certificate ofAuthority to transact the business ofinsurance in this State, and related questions. You request an opinion from this office and we quote from your letter as follows: “A foreign stock life insurance company with shares of

stock ofthe par value offifty (5OC)cents per share has filed application for a Certificate ofAuthority to do business in this State. Article 3.OZa, Texas Insurance Code, provides that the par value ofeach share of stock ofalife, health or accident company organized or operating under the provisions of Chapter 3 ‘shall be for not less than One ($1.00) Dollar nor more than One Hundred ($100. 00) Dollars. ’ Therefore, a question has arisen as towhether or nutthis company can be admitted to do business in this State. Inconsidering this point, itwas called to our attention that there are at least four (4) such type companies presently doing business in this State whose shares of stock have been established at apar value ofless than one ($1.00) dollar by charter amendments subsequently to the date oftheir admission todo business in this State. At the time that such companies were initially authorized to conduct business in this State the par value oftheir shares was one ($1.00) dollar or more.

“In view ofthe above situations, it is urgent that we have youropinion at the earliest date possible concerning the following questions:

I’(1) May aforeign stock life, health or accident insur -- .

Hon. William A. Harrison, page 2 (WW-958)

ante company, with par value stock, having a par value ofless than one ($1.00) dollar per share or more than one hundred ($100.00) dollars per share be granted a Certificate ofAuthority to transact the business ofinsurance inthis State?

r’(2) Ifaforeign stock life, health or accident insurance company, doing business inthis State, amends its charter converting its shares into shares ofpar value less than one ($1.00) dollar or more than one hundred ($100. 00) dollars, should the Certificate ofAuthority of such company to transact the business ofinsurance inthis State be suspended or revoked for non-compliance with the provisions ofthe laws ofthis State? ” Your first question is answered inthe affirmative. Prior tothe adoption ofthe Insurance Code in 1951, what is now Article 2. 07 ofthe Code was the only statute dealing specifically with the value of shares of stock in an insurance company organized in Texas. At that time itwas Article 4704, Vernon’s Civil Statutes, 1925.

When the insurance laws ofthe State were codified, Chapter 3, thereof, entitled “Life, Health &Accident Insurance, ‘Icontained various subchapters. Subchapter A is entitled Domestic Companies while Bis entitled Foreign Companies.

Contained inSubchapter A is Article 3.02a which reads inpart as follows:

“(a) The stock ofany life, health or accident insurance company organized or operating under the provisions of this chapter may be divided or converted into shares of either par value or no-par value, or both, all ofwhich shall be fully paid and non-assessable. Ifdivided or converted into shares ofpar value, each share shall be for not less than One ($1.00) Dollar nor more than One Hundred ($100. 00) Dollars

. . .” This provision, included as itwas under the domestic companies’ subchapter, was not enacted until 1955 atwhich time the Code was already in existence and the division of “domestic” and “foreign” regulating statutes already established. While the Legislature could have easily expressed its intention that the minimum par value restriction should apply to foreignc

Hon. William A. Harrison, page 3 (WW-958)

companies as well, it did not choose to amend the subchapter ofthe Code regulating foreign companies, i.e., Subchapter B.

Generally, where the Legislature intended that certain provisions ofthe Code would apply to both foreign and domestic companies such has been included inboth Subchapters A and B. Subchapter A, dealing with domestic companies, contains several requirements which are also contained in B, relating to foreign companies. For instance, Subchapter A, Art. 3.04, Sec. 1,3requires ofdomestic companies:

“An affidavit made by two (2) or more ofits incorporators that all ofthe stock has been subscribed ingood faith and fully paid for, as required by law, in the amount ofnot less than One Hundred Thousand Dollars ($100,000) capital and that such company is possessed ofat least One Hundred Thousand Dollars ($100, 000) surplus, as required by law, in addition to its capital.

. ~” That requirement, insofar as it relates to capital and surplus, is also contained in Subchapter B, Art. 3.22:

“No such foreign stock insurance company shall be licensed by the Board ofInsurance Commissioners or shall transact any such business ofinsurance’in this State unless such company is possessed ofnot less than the minimum capital and surplus required by this chapter ofa similar domestic company in similar circumstances, including the same character ofinvestments for its minimum capital and surplus.

. .” Likewise “A: byway ofArticle 3.02, deals with domestic companies and the requirements for incorporating same, while “B” regulates the same subject matter as to foreign companies through Articles 3.20 and 3.2 1.

Inlight ofthe foregoing, the requirement in Subchapter A that shares ofpar value stock shall be not less than $1.00nor more than $100. 00 does not necessarily become applicable toforeign companies, especially when Subchapter B contains no express requirement ofpar value stock minimum or maximum for foreign companies.

In 1959, the Legislature amended Article 21.43 ofthe Insurance Code to read inpart as follows:Hon. William A. Harrison, page 4 (WW-958)

“No foreign or alien insurance corporation shall be denied permission todo business within this state for the reason that all ofits authorized capital stock has not been fully subscribed and paid for; provided

‘I(1) that at least the minimum dollar amount of capital stock of such corporation required by the laws of this state (which may be less than all ofits authorized capital stock) has been subscribed and paid for; and

“(2) that it has at least the minimum dollar amount of surplus required by the laws ofthis state for the kinds of business such corporations seek towrite; and

“(3) that such corporation has fully complied with all laws ofits domiciliary state relating to authorization and issuance ofcapital stock. ” Again, nomention ofminimum or maximum par value for foreign companies is made, but rather Section (3) above implies that such matters shall be controlled by the “laws ofits domiciliary state. ”

As far as can be determined, no Texas court has been called upon to decide the question. Consequently, we have examined the decisions of foreign jurisdictions for guidance and direction. In8ALR2d 1196, there is contained the most concise statement of existing authority:

“It is nowwell settled that, inthe absence ofunmistakable language to the contrary, an intention to exclude a foreign corp”ration from doing business ina state will not be inferred merely because noprovision is made by the law thereof for the organization ofdomestic corporations similar in stock structure, as based upon an issue or issues, or divisions of, aparticular kind of stock, to that ofthe applicant.” A closely analogous case is State ex rel Standard Tank Car Company v. Sullivan, (1920) 282 MO. 261, 221 S.W. 728. There the Missouri Supreme Court held that aforeign corporation could not be refused the right to do business inMissouri for the reason that apart ofthe capital stock which the foreign company had issued had nopar value and it (the foreign company) could not,: for that reason, have been organized as a domestic corporation. The Court stated that where there was nointention or established policy to exclude foreign corporations merely because the domestic laws forbade. c

Hon. William A. Harrison, page 5 (WW-958)

the particular kind of corporate structure possessed by such foreign corporation, this reason alone could not be used to exclude the foreign company from doing business inMissouri, at least inthe absence ofamore express prohibition. Three additional states have adopted this precise construction and in each instance the authoritv is that ofthe hiehest court in the respective state. State ex rel Fibreboard Products v. &kle, (1928) 147 Wash. 10, 264 P. 1010; North American Petroleum Hopkins, hAmerican Petroleum Co. v. Hopkins, (1919) 105Kan. 161, 181P. 625; Commonwealth Acceptance Corp. v. Jordan, lmonwealth (1926) 198 Cal. 618, 246 P. 796.

The basic reasoning behind those cases mentioned above, with which we agree, is that a state, acting through its legislature, inaproper case anu subject to limitations ofthe Federal and state constitutions, has the power to control and regulate domestic and foreign corporations equally, insofar as they operate within the state, including issuances of corporate stock, and can determine the legal effect of such activities. The only critical question is one of construction ofthose legislative acts.

Regarding the construction problem, with respect to a statute ofthe kind in question, particularly ifit does not expressly state whether it is applicable toforeign corporations, it is said in 23 Am. Jur. 108, Foreign Corporations, Section 101:

“In the construction of statutes applicable to corporations, it is not to be presumed that the legislature intended to grant greater rights to foreign than to domestic corporations and to favor them with rights and privileges greater than those conferred upon domestic corporations. No principle of comity requires that foreign corporations be placed in amore favorable situation under the local statutes than similar domestic corporations. However, statutory provisions dealing with the incorporation or organization ofcorporations, rather thanwith their business inthe state, are ordinarily deemed inapplicable toforeign corporations, as are local laws concerned with strictly corporate acts as distinguished from those which may be done by agents. ” When it is remembered that Article 3.OZa, insofar as it applies to par value stock, is aprohibitory statute that obviously applies to domestic corporations, the following must likewise be considered with respect to such aprohibitory statute:

“A general law prohibiting corporations from exer-Hon. William A. Harrison, page 6 (WW-958)

cising particular powers and privileges ordinarily operates onforeign as well as on domestic corporations for the reason that the exercise by aforeign corporation of such powers in the enacting state would violate the public policy thereof as indicated by the general restraint imposed onits own corporations. Onthe other hand, all the limitations imposed by local statutes upon domestic corporations do not necessarily apply to foreign corporations. Ifan act forbidden is of such anature that the right toperform it exists inherently inall corporations unless specially denied, or ifthe prohibition is designed to establish not ageneral public policy toward corporations, butmerely a more effective exercise ofvisitorial power over them, a prohibitory statute which does not in terms refer toforeign corporations may be held not toapply to them. ” 23 Am. Jur. 109, Foreign Corporations, Sec. 103. The only language ofArticle 3.02a which could possibly be construed to include aforeign company is that portion which reads:

“The stock ofany life, health or accident insurance company organized or operating under the provisions of this chapter. ~ .” The language ofthis Article makes provision for regulating domestic companies which came into existence after codification ofthe insurance laws, thus were “organized” under Chapter 3.

The term “operating” refers to those domestic companies which were organized under the insurance laws as they existed before the creation of Chapter 3. Though organized before Chapter 3was created, these domestic companies are now subject to its requirements, thus are “operating” thereunder. Consequently, those domestic companies whxchwere organized under Chapter 3and those domestic companies which were organized under prior law butare now operating under Chapter 3are both regulated thereunder and the language makes allowance for both situations. As previously discussed, such language alone does not indicate an intention onthe part ofthe Legislature tomake foreign companies subject to its requirements.

Inasmuch as there is noprovision establishing limits for par value stock for foreign life, health and accident companies contained inSubchap-Hon. William A. Harrison, page 7 (WW-958)

ter B ofArticle 3ofthe Texas Insurance Code; and inasmuch as any control relative thereto would have to be derived from statutes dealing with domestic companies only, we feel that the conclusion reached above conforms to existing authority and is consistent with the intent ofthe Legislature.

Since we have held that foreign life, health and accident companies may have stock with apar value ofless than One Dollar ($1.00) or more than One Hundred Dollars ($100.00) per share, we answer your second question in the negative. Thus, the Certificate ofAuthority ofaforeign stock life, health or accident company, doing business inthis State, should not be revoked for non-compliance with Texas insurance laws, if, subsequent to its date ofadmission to do business here, it amends its charter converting its shares into shares ofpar value less than One Dollar ($1.00) or more than One Hundred Dollars ($100.00). Certainly ifaforeign corporation may enter the State with less than One Dollar ($1.00) par value, itmay subsequently amend its charter so as to provide for shares having less than One Dollar ($1.00) par value. SUMMARY

1. A foreign stock life, health and accident company, with par value stock, having apar value ofless than One Dollar ($1.00) per share or more than One Hundred Dollars ($100.00) per share, may be granted a Certificate ofAuthority to transact the business ofinsurance inthis State.

2. A foreign stock life, health and accident insurance company, doing business inthis State, who amends its charter, converting its shares into shares ofpar value less than One Dollar ($1.00) or more than One Hundred Dollars ($lOO.,OO) should not have its Certificate ofAuthority suspended or revoked for non-compliance with the provislons ofthe laws ofthis State. Very truly yours, WILL WILSON Attorney General of Texas

By c “&a& C. Dean Davis Assistant Attorney General CDD/peHon. William A. Harrison, page 8 (WW-958)

APPROVED: OPINION COMMITTEE Morgan Nesbitt, Chairman Ray Loftin Arthur Sandlin Vernon Teofan

REVIEWEDFORTHEATTORNEYGENERAL BY: Leonard Passmore