lm:

Eon. zollie steakley opinion No. wu-124 Secretary

of State CapitolStation Be: W. A. GreenCompeny - Payment, Austin,Texas of subscription to increased capitalstock of a corporation by oancellaticm of an indebteddess

of corporation Dear Sir: to subrrcriber.

Your letterofMsrch27,1957, requested our oplnionasto whether the Secretary of State should.approve and file sn amen&nsnt to a charter

whiuh purports to increase the capitalstock and p1y for such Increased stock by the cancellation of an indebtedness owed by the corporation

and to issue such stock for such consideration.

You set out the specific situation

of W. A. Oreen Company making applioatitm to increase

its capitalstock of $200,000.00,represented

by 2,000 shares

with a psr value of $100.00each, to $1,000,ooO.00, represented

by 10,000sharesof a per value of $100.00each. 'Ke adaiticnal 8,000 shares vith a par value of $800,000.00 is to be paid for by the cancellation of long-term

indebtedness

in the amxmt of $800,000.00 owed by the corporation to tha subscriber

for the increased

sharesand that such indebtedness represents

money actuallyloaned to the corporation an8 used by it in a buildingexpansion and improvemeat

program. It is our understanding that the subscriber who holds the long-term indebtedness

of the corporation is also the owner of the presentcapital stock of $200,000.00 We further understand

that all capitalstock is of the same class.

In the absenceof a statuteto the contrary, the satisfaction or releaseof a valid debt currently due by the corporation is
a lawfulmnsideration for the issuance of stock of the corporation
even when paymnt is required. by constitution

or statuteto ba in maney
. It would be an unnecessary formality

for the stock to be paid for In cash and in turn the debt be imediately paid with that cash. 18 C.J.S. 682 (Corporations, Section 2431, 11 FletcherCyclopedia of Corporations

(Permsnent

Edition)462, Sectian 5197. This is not violative

of ArticleXII, Section6, of our Coustitution which provides:

"No oorporatian

shall issue stock or bonds except for nmney pai8, labor done or property actually

received,

and all fictitious

increase

of stock or indebtedness shallbe void."Eon. ZolUe Steak&y, plge 2 (WW-124)

The rules as to the consideration for which stockmay lawfully be issuedapply to an increase of stock as well as to original stock. 18 C.J.S. 752 (Corporations, Secticol

275).

The transaction

must be free from fraud of any interest of other creditors

and other stockholders. The corporation

would have to be solventfor the indebtedness to be worth its face value. If the Indebtedness of the corporation is not currently

due, it should be examined

to &termine if it is such an indebtedness that the prepaymeatof it vould usuallyand normallyentitlethe debtor to a discount of its iudebtedness, such as a non-interest bearingdebt. In otherwords, the indebtedness, just as any other "property" used in pyment of the subscription for capitalstock,mast ba reasonably worth its face value, or It mast be valued at its fair marketvalue.

If your examination of the affairsof W. A. Green Company show that the corporaticnr is solvent,

that the indebtedness to be cancelled

is a bona fide debt and reasonably worth its face value
or valuedat its fair nmrketvalue,and that the transaction 011 its face is free from fraud of any Interest of other creditors

or other st4xkholder6,

then the proposed

amendment

shouldbe approved

and filed.

The cancellation

of a valid indebtedness currently

owed by a solventoorgoration is a lawful consideration for the issuance of capitalstook if the indebtedness is reasonably

worth its face value or is valued at its fair marketwlue and the transaction

is free from fraud of any interestof other creditor8 or other stockholders.

AFTROVED:

0PIRIoRc-t

H. Grady Chandler, Chairnan

ElbertM.Morrow Marietta

X. Payne E&rinP.Eorner Biley EugeneFletcher Very truly yours,

WILL WIIz.0~ Attorney

Generalof Texas

Bs 2+ Lawrence

Jone Assistant

F@XtB%DFORTEEATTO~GE3ERAL By: Geo. k. Blackburn