Hon. William A. Harrison Opinion No. WW-360

Commissioner of Insurance International Life Building Re: Required minimum capiAustin, Texas tal and surplus ofa life insurance company issuing stock on .Dear Sir: a no-par value basis.

You have requested an opinion of this office concerning the capital and surplus requirements oflife insurance companies issuing no-par value stock pursuant tothe provisions ofArticle 3.02a ofthe Texas Insurance Code.. Your questions are as follows:

1. What is the required minimum capital, as that term is used and understood in insurance and corporate laws, of a life insurance company which divides and issues all of its shares ona no-par value basis?
2. What is the required minimum surplus, if any, of a life insurance company which divides and issues its shares on a no-par value basis ?
3. If.in answer to Question No. 1,you have stated that the minimum capital ofa no-par life insurance company is $250,000, is there any requirement that such no-par company have additional funds as surplus, and if so. how much is required ?
4. Ifa life insurance company divides and issues all of its shares ona no-par value basis, and does not designate a definite stated capital in its articles ofincorporation, what figure or amount’of money should we consider and use as the capital for such no-par company? Is the capital of such a no-par company the total vabJe ofevery dollar received for the issued no-par shares, or is the capital some other figure, such as the minimum capital, if any, contained inyour answer to Question No, 1above?
Section 5ofArticle 3.02 ofthe Texas Insurance Code as amended in 1955provides that the,“capital stock”. of a life insurance company organized thereunder should not be less than $100.000.00. all ofwhich capital stock must be fully subscribed and paid up at the time the articles ofincorporation are ~filed and that such company should in addition thereto have not less than $100.000.00 surplus, Itis thereafter provided that~*such minimum capital and surplus shall, at the time of incorporation, consist only of [&heHon. William A. Harrison, page 2 (WW-360)

types ofproperty described).

. .Mter the granting ofcharter, the surplus may be invested as otherwise provided in this Code. Notwithstanding any other provision6 ofthis Code, such minimum capital shall at all times be maintained in cash or inthe classes ofinvestments described in this article. *
Section 2ofArticle 3.02 as amended in 1955, is in part as follows:
“Section 2. From and after the effective date of this Act the capital and surplus requirements ofparagraph five of Sectron 1ofArticle 3.02 ofthrs Code shall be the minimum
\ capital and surplus requirements for any company whrch is

subJect tothe provisions ofChapter 3of this Code as amended;

. . . Section 9ofArticle 3.39 as added in 1955is in part as follows:
“9. Notwithstanding other provisions ofthis Article 3.39 ofthis Code, the capital and surplus ofa company hereafter organized under Article 3.02 ofthis Code

. . . shall, at then time ofincorporation, consist only of (types ofproperty described); and the minimum capital ofa company hereafter organized under said Article 3.02

. . .shall at all times be maintained in cash or inthe same classes ofinvestment. After the granting. ofcharter the surplus in excess of such one hundred thousand ($100,000) dollars may be invested as otherwise provided’in this Code for stock companies.”
Article 3.60 of the Texas Insurance Code as amended in 1955limits the permissible impairment ofthe’capital stock ofa life insurance company There is no comparable provision in the Code requiring a company to maintain the minimum surplus added into the law in 1955.so we conclude that after the incorporation a life insurance company is not required to maintain such minimum surplus.
The provisions ofArticle 3.02a as added in 1955are as follows:

‘(a) The stock ofany life, health or accident insurance company organized or operating under the provisions ofthis 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 nonassessable. Ifdivided or converted into share6 ofpar value, each share shall be for not less than One ($l,OO) Dollar nor more than One Hundred ($100.00) Dollars. Ifdivided or converted into shares ofno-par value, every such share shall be equal in all respects to every 

### other such share. At the time Of filing of original charter or any amendment of an existing charter authorizing the issuance ofstock with no-par value, the company shall file a statement under oath with the Board of Insurance Commissioners setting forth the number of shares without parI-. ._, ..j

I-Ion*William A. Harrison, page 3-(WW-360)

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value Subscribed and the actual consideration received by the company for such shares. Provided, however, that the stockholders ofany such company authorizing the issuance ofits stock without nominal or par value, shall be required in good faith to subscribe and pay for at least fifty (50%) percent ofthe authorized shares tobe issued wrthout nominal or par value. before said corporation shall be chartered or have its charter amended so as to authorize the issuance of shares without nominal or par value; and provided further, that in no event shall the amount so paid be less than Two Hundred Fifty Thousand ($250.000.00) Dollars.”
Prior to 1955, life insurance companies were authorized to issue

_ no-par stock under the terms ofArticle 2.07 ofthe Texas Insurance Code. Sofar as material here, there is no substantial distinction between Article 3.02a and Article 2.07 as it applied to life insurance corn- 1 parries prior tothe 1955Act.
All ofthe text writers draw a distinctron between the term &p&al” and the term “capital stock”. The term “capital stock” signifies primarily the number of shares authorized tobe subscribed, and which have actually been subscribed, multiplied by the face or par value ofeach such share. The capital stock of a corporatidn is thus afixed quantity regardless of gains or losses and unaffected by fluctuation in the value ofthe corporate assets or the shares themselves. While the capital ofthe.corporation may for some purposes be considered in law as the equivalent of “capital stock”, the term “capital” is ordinarily used todesignate the assets ofthe corporation, regardless oftheir source, utilized for the conduct ofthe corporate business and for the purpose ofderiving gains and profits. 10Tex.Jur. 669. In spite ofthe distinction normally drawn between the terms “capital stock” and the term “capital”, the Legislature has apparently not intended such adistinction toapply since ithas used the terms intercha.ngeably in the passages here under discussion.
Itis apparent that in the case ofa company issuing no-par stock, the definition normally given tothe term “capilal stock” cannot be applied as this term ISdefined to be the number of sharesauthorized and subscribed and multiplied by the face or par value of such shares.
Inthe case ofAmericarrRefining Company v. Staples, 2b0 S.W. 614, affirmed 269 S.W. 420. the Court of Civil Appeals defined the term

‘authorized capital stock” as it applied toa-no-par corporation in connection with a franchise ~taximposed onforeign corporations. The court held that the “capital **stock ”**  ofsuch a corporation consisted ofthe aggregate amount ofthe contributions ofits shareholders tothe corporate entity. The Court suggested onpage 617 ofits opinion that the principle of “stating capital” may be utilized so as to allocate a portion ofthe consideration received tocapital with the excess applying to surplus; ,This later proposition is supported by Dean Hildebrand who states that a corporation mayHon. William A. Harrison, page 4 (WW-360)

fix how much ofthe purchase price received from the sale ofno-par stock is to be capital and how much paid-in surplus. 2Hildebrand Texas Corporations. 351..
While the authorities in Texas are sparse, we believe the proper rule to be, in view ofthe above and further there being nothing inconslstentwith such rule, thatthe total c.onsideration received by a corporation from its stockholders for the sale ofits no-par stock constitutes ‘capital” ofsuch a company but that such a corporation may fix or state the portion oftheconsideration received which shall be its capital (or "stated capital”) with the amount received in exces6 being “surplus”. Our view is further fortified by the recognition ofthese principles by the Legislature in the Business Corporation Act passed in 1955which expressly makes the rules applicable to corporation6 governed thereby.
Article 3.02a doe6 not specify “minimum capital” or “minimum surplus” for a company issuing no-par stock and there is noexpress provision that the minimum capital and surplus requirement6 ofArticle 3.02 are to be considered applicable. Article 3.02a require6 that the’ stockholders of a life insurance company issuing no-par stock subscribe and pay for at least 50% ofthe authorized 6h6reS ofno-par stock before such corporation be chartered or have its charter amended so as to

- **ar** stock and that in no event should the ~?~~~ot$?~?~ ztz $250.000.00. The $250.000.00 minimum required tobe paid before incorporation or amendment could not be said tobe the “minimum capital” ofsuch a company as the minimum amount required to be paid under the terms ofArticle 3.02a may exceed $250.000.00. Ifa life insurance company authorrzes l,OOO,OOO shares ofno-par stock to be sold for $1.00 per share. the minimum amount required to be paid inbefore the amendment or original incorporation could be effective would be $500.000.00 since the stockholders must in good faith subscribe and pay for at least 50% ofthe authorized shares,
We believe that the Legislature intended in the enactment ofSenate Bill 15in the 1955 Legislature tit requirements as to minimum capita: and surplus should apply uniformly toall stock life insurance companir InSection 2 ofArticle 3.02 hereinabove set forth, it is stated that “the capital and surplus requirements ofparagraph 5ofSection 1ofArticle 3.02 ofthis Code shall be the minimum capital and surplus requiremen for any company which is subject tothe provisions of Chapter 3ofthis Code as amended.”
Inthis connection it should be pointed out that the amendments tc Article 3.02, toArticle 3.39 adding section 9. and the provisions enacting Article 3.02a were all contained in the same legislation, Senate Bil 15,Acts 1955, 54th Legislatures, page 916. For this and the other reaso hereinabove given we hold that a life insurance company which issues no-par stock is subject tothe same minimum capital and minimum SUI plus as a life insurance company issuing only par value stock.Han, William A. Harrison, page .5(WWL360),,::.

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.-To the extent that OpiniOn NO. .O-5792 may be ,construed tohold thatthe ininimtim capital of‘a life insurance company issuing no-par stock is $250;000.00, it is bverruled.

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Inresponse toyour first question, we hold that the required minimum capital ofa life insurance company issuing no-par stock is $100.000.00 as required by the **terms** ofArticle 3.02 ofthe Texas Insurance C,odeas amended,
Inresponse toyour second question, we hold that the required minimum surplus of such a life insurance company atthe time ofits incorporation is ,$100,000.00.

Since we have not stated that the minimum capital ofa no-par company is $250,000, we do not answer your third question.
Inresponse toyour fourth question, the capital ofanorpar ~life insurance company which does not designate a stated capital is the total consideration received by the corporation from its stockholders.

.’ for.its stock.
We would again point out that before a no-par life insurance company may be chartered or before a life insurance company **may.** have its charter amended 60 as to authorize the issuance ofno-par. shares, the stockholders of such company must have in good faith subscribed and paid for at least 50% ofthe authorized shares to.be issued without par value, which amount 60paid may notbe less than $250,000.00. Therefore, atthe time ofincorporationor ,atthe time ofsuch a charter amendment, such a company must have funds over and above the minimum capital of $100,000,00 and minimum surplus of $100.000.00, which additional funds inthe aggregate with the minimum capital and surplus will equal the consideration fixed tobe paid for 50% ofthe authorized no-par shares, which.aggregate amount may not be less than $250,000,00. Such additional funds may be assigned to either capital or surplus.
SUMMARY
The required minimum capital ofa life insurance company issuing no-par stock pursuant toArticle 3.02a is $100.000.00 and its required minimum surplus is $100.000.00; provided, however, that at the time such a company is incorporated, or before its charter may be amended so as to authorize the issuance ofno-par shares, the stockholders of such a company must have in good faith subscribed and paid for 50% of the authorized no-par shares, which amount so paid may not be less than $250.000.00. The funds in excess ofthe minimum capital and surplus necessary toaggregate the consideration fixed to be paid for 50% ofthe authorized no-par shares may be allocated to either capital or surplus.Hon. William A. Harrison, page 6 (WW-360). c,.:i- ‘,

The capital ofano-par life insurance company which does notdesignate a stated capital is thetotal~considetation received by the corporation from its stockholders for its stock.
Yours very truly,
WILL WILSON Attorney General of Texas 

# %
Fred B. Werkenthin

Assistant
APPROVED:

.. OPINION COMMITTEE:
Geo. P. Blackburn, Chairman Morgan’ Nesbitt John Minton Wayland Rivers
REVIEWED FOR THE ATTORNEY GENERAL

._ BY:- W. V. Geppert

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