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

Commissioner of Insurance 

International Life Building Re: Required minimum capiAustin, Texas tal and surplus of a 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 of life insurance companies issuing no-par value 

stock pursuant to the provisions of Article 3.02a of the 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 on a 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 of a 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. If a life insurance company divides and issues all of its 

shares on a no-par value basis, and does not designate a 

definite stated capital in its articles of incorporation, 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 of every dollar received for the issued no-par shares, or is the capital some 

other figure, such as the minimum capital, if any, contained 

in your answer to Question No, 1 above? 

Section 5 of Article 3.02 of the Texas Insurance Code as amended in 

1955 provides that the ,“capital stock”. of a life insurance company organized 

thereunder should not be less than $100.000.00. all of which capital stock 

must be fully subscribed and paid up at the time the articles of incorporation are ~filed and that such company should in addition thereto have not less 

than $100.000.00 surplus, It is thereafter provided that~ *such minimum 

capital and surplus shall, at the time of incorporation, consist only of [&he 
Hon. William A. Harrison, page 2 (WW-360) 

types of property described). . .Mter the granting of charter, the surplus 

may be invested as otherwise provided in this Code. Notwithstanding 

any other provision6 of this Code, such minimum capital shall at all times 

be maintained in cash or in the classes of investments described in this 

article. * 

Section 2 of Article 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 of paragraph five 

of Sectron 1 of Article 3.02 of thrs Code shall be the minimum 

\ 

capital and surplus requirements for any company whrch is 

subJect to the provisions of Chapter 3 of this Code as amended; 

. . . 

Section 9 of Article 3.39 as added in 1955 is in part as follows: 

“9. Notwithstanding other provisions of this Article 3.39 

of this Code, the capital and surplus of a company hereafter 

organized under Article 3.02 of this Code . . . shall, at then 

time of incorporation, consist only of (types of property described); and the minimum capital of a company hereafter organized under said Article 3.02 . . . shall at all times be maintained in cash or in the same classes of investment. After the 

granting. of charter 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 1955 limits 

the permissible impairment of the’capital stock of a 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 of Article 3.02a as added in 1955 are as follows: 

‘(a) The stock of any 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 of which shall be fully paid and nonassessable. If divided or converted into share6 of par value, 

each share shall be for not less than One ($l,OO) Dollar nor 

more than One Hundred ($100.00) Dollars. If divided or converted into shares of no-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 of stock 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 par 
I-. ._, . . j 

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

value Subscribed and the actual consideration received by 

the company for such shares. Provided, however, that the 

stockholders of any such company authorizing the issuance 

of its stock without nominal or par value, shall be required 

in good faith to subscribe and pay for at least fifty (50%) 

percent of the authorized shares to be 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 of Article 2.07 of the Texas Insurance 

Code. So far 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 to the 1955 Act. 

All of the 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 to be subscribed, and 

which have actually been subscribed, multiplied by the face or par value 

of each such share. The capital stock of a corporatidn is thus a fixed 

quantity regardless of gains or losses and unaffected by fluctuation in 

the value of the corporate assets or the shares themselves. While the 

capital of the. corporation may for some purposes be considered in 

law as the equivalent of “capital stock”, the term “capital” is ordinarily 

used to designate the assets of the corporation, regardless of their 

source, utilized for the conduct of the corporate business and for the 

purpose of deriving gains and profits. 10 Tex.Jur. 669. In spite of the 

distinction normally drawn between the terms “capital stock” and the 

term “capital”, the Legislature has apparently not intended such a distinction to apply since it has used the terms intercha.ngeably in the 

passages here under discussion. 

It is apparent that in the case of a company issuing no-par stock, 

the definition normally given to the term “capilal stock” cannot be applied 

as this term IS defined to be the number of sharesauthorized and subscribed and multiplied by the face or par value of such shares. 

In the case of AmericarrRefining 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 to a-no-par corporation in connection with a franchise ~tax imposed on foreign corporations. The court held 

that the “capital stock” of such a corporation consisted of the aggregate 

amount of the contributions of its shareholders to the corporate entity. 

The Court suggested on page 617 of its opinion that the principle of “stating 

capital” may be utilized so as to allocate a portion of the consideration 

received to capital with the excess applying to surplus; ,This later proposition is supported by Dean Hildebrand who states that a corporation may 
Hon. William A. Harrison, page 4 (WW-360) 

fix how much of the purchase price received from the sale of no-par 

stock is to be capital and how much paid-in surplus. 2 Hildebrand Texas 

Corporations. 351.. 

While the authorities in Texas are sparse, we believe the proper 

rule to be, in view of the above and further there being nothing inconslstent with such rule, that the total c.onsideration received by a corporation 

from its stockholders for the sale of its no-par stock constitutes ‘capital” 

of such a company but that such a corporation may fix or state the portion 

of the consideration 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 of these principles by the Legislature 

in the Business Corporation Act passed in 1955 which 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 no express 

provision that the minimum capital and surplus requirement6 of Article 

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% of the authorized 6h6reS of no-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 to be paid before incorporation or amendment could not be 

said to be the “minimum capital” of such a company as the minimum 

amount required to be paid under the terms of Article 3.02a may 

exceed $250.000.00. If a life insurance company authorrzes l,OOO,OOO 

shares of no-par stock to be sold for $1.00 per share. the minimum 

amount required to be paid in before 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% of the authorized 

shares, 

We believe that the Legislature intended in the enactment of Senate 

Bill 15 in the 1955 Legislature tit requirements as to minimum capita: 

and surplus should apply uniformly to all stock life insurance companir 

In Section 2 of Article 3.02 hereinabove set forth, it is stated that “the 

capital and surplus requirements of paragraph 5 of Section 1 of Article 

3.02 of this Code shall be the minimum capital and surplus requiremen 

for any company which is subject to the provisions of Chapter 3 of this 

Code as amended.” 

In this connection it should be pointed out that the amendments tc 

Article 3.02, to Article 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 to the same minimum capital and minimum SUI 

plus as a life insurance company issuing only par value stock. 
Han, William A. Harrison, page .5 (WWL360),,::. .’ 

.- 

To the extent that OpiniOn NO. .O-5792 may be ,construed to hold 

that the ininimtim capital of ‘a life insurance company issuing no-par 

stock is $250;000.00, it is bverruled. .. ’ 

In response to your first question, we hold that the required 

minimum capital of a life insurance company issuing no-par stock 

is $100.000.00 as required by the terms of Article 3.02 of the Texas 

Insurance C,ode as amended, 

In response to your second question, we hold that the required 

minimum surplus of such a life insurance company at the time of its 

incorporation is ,$100,000.00. 

Since we have not stated that the minimum capital of a no-par 

company is $250,000, we do not answer your third question. 

In response to your fourth question, the capital of a norpar ~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 of no-par. 

shares, the stockholders of such company must have in good faith 

subscribed and paid for at least 50% of the authorized shares to. be 

issued without par value, which amount 60 paid may not be less 

than $250,000.00. Therefore, at the time of incorporationor ,at the 

time of such 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 in the aggregate with 

the minimum capital and surplus will equal the consideration fixed 

to be paid for 50% of the 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 of a life insurance 

company issuing no-par stock pursuant to Article 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 of no-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 of the minimum capital and surplus necessary to aggregate the consideration fixed to be paid for 50% 

of the authorized no-par shares may be allocated to either 

capital or surplus. 
Hon. William A. Harrison, page 6 (WW-360). c,.:i- ‘, 

The capital of a no-par life insurance company which 

does not designate a stated capital is the total~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 

I