Honorable Sidney Latham

secretaryof state Austin, Texas
Dear Sir: Ilttention:Mr. Rcrnco ?. Sessions Opinion No. O-5946 Re: Can a permit be issued for the sale of the increased capital stock under the same provisions of the law providing for the sale of pre-organizationaertifioates or receipts (Sectioa 7, Article 600a,Vernon's Texan Statutes)?
Your request for an opinion on the abovematter hes been receivedand carefully considered. We quote your request a8 follows: "Thewriter is in receipt of the following request involvingan interpretationof the Texas SecuritiesAct, particularly Section 7:
"'The client ofmine, a corporation,desires to increase its capital stook by the issuance of preferred stock of the parvalue of 8100 per share. Itspresent capital stock, v.hich vdll not he changed or disturbed,has 8 $10 parvalue. The proposal is to increase the oapital steak by providing for the issuanceof $100 preferred stock, and to sell the 8100 preferred stock at $%I0 per share. The privilegesattached to the preferredwill be such as to make it what my cljents believe to be an attractive investment. The proposal is for the stockholders to authorize the increase jn the capital stock, snd the directorsto certify the increase as providedby statute. An appllcatioawould then he filed with you for a permit to sell this stock under the provisions of the Securities .!.ct, which provides for a pre-organization sale of certifl,cstes or reOeipts. "'Withoutaskingyou to pass upon any fact questions irvalved, as thosemust necessarilybe determinedwhen you have all the facts before you, I would Like to know your positionas a matter of law on the following:Honorable Sidney Latham - page 2 O-5946

S'l. Can a permit be issued for the sale of the increased capital stockunder the seme provisions of the law providing for the sale of preorganizationcertificates or receipts (Section 7 ofArticle 600-a-Vernon's Texas Statutes)?
"'2. Is there any legal reasonwhy $100 par value stook shouldnot be sold at $300 per share?'
"Thewriter has been unable to fine any opinion rendered by your department or any court decisions bearing on this question, and I, therefore, respectfullyrequest that your offioe favor us with an opinion in thismatter." '; Seotion 7 ofArticle 600 a reads as follcwsr
'Sec. 7. In the event any dealer as defined herein shall sell or Offer for Sale any preorganieationcertificateor receipts, or shall in any manner solicit subscriptionsto or in any prOpoSed corporation, trust or joint stock companyproposed to be fonaed, the Secretaryof Statemay require, if he deems it necessary to protect the interest of prospective subscribersor certificateholders, the dealer SC offering such securities for sale to deposit allmoneys and funds received from the sale thereof, except such amounts thereof as the Secretary of State may have under this Act allowed as preorganizationexpensesand ccmmissions for the sale of such security, to be deposited in a trust account in some bank or trust companydoing business in the State of Texas, until such time as such proposed ocmpany shall have sold theminimum amount of capital to authoriee it to begin business in Texas, at which time the hank or trust company shall transfer suoh funds to the proposed corporationand its executive officers for the purpose of permitting it to undertake its business. In the event such prOpOSed company as herein defined shall fail within two (2)years to sell the minimum amount of capital necessary for the beginningof business in Texas, the bank or trust company shall return to the subscribersthat portion of the funds that had been depositedunder such preorganizationagraement. At the time of making the deposits,as herein provided for, the dealer or issuer shall furnish to suchbank or trust company the names of the persons purchasing or sub scribing for such securities,and the amount ofmoney paid in by each. "The total expenses, Including organizationexpenses and all commissions paid to salesmen of any proposed oCeQany, as heroin defined, shall not exceed twenty (20) per cent of the total amount of capital sought to be employed in such proposed company."
In our opinion, the above quoted law applies only to the sale of preorganization certificatesand receipts and subscriptionsto or inHonorable Sidney Latham - page 3 O-5946

proposed corporations,trust or joint stock companies,and that 8 permit can not be issued for the sale of increased capital stock thereunder, Therefore,question No. 1 is answered in the negative, Question No. 2 is also answered in the negative, but this holding is qualifiedby the statementthat, in our opinion, the sale of stock for #300.00 per share the pr value ofxhiah is only $lOO per share nould be subject to The SeauritiesAct (Artide 600a). Trustingthat this satisfactorilyanmers your icquiry,-seam
Yours very truly
A'TTORIEY

GSNERAL OF TEXAS 

## By S/JBS. w.Bassett Jas. W. Bassett Assistant

APPROVED APRIL 6. 1944 s/Gee. P. Blackburn ACTIKG ATTORNEY GENEXAL OF TEXAS Approved Opinion Comittee By BlRB Chairman