Court Opinion

ID: 4136149
Source: CourtListenerOpinion
Date Created: 2017-02-18 02:10:22.36722+00
Date Added: 2024-06-11T14:37:41.480520
License: Public Domain

THE    ,~TJ?O’RNEY       GENERAL
                       OF   TEXAS

Hon. William A. Harrison      Opinion No. ~~-830
Commissioner of Insurance
State Department of Insurance Re: Whether or not a charter
Austin, Texas                     amendment which will re-
                                  sult in an insurance com-
                                  pany issuing fractional
                                  shares of stock can be
Dear Mr. Harrison:                approved.
        YOU have requested our opinion on the legality of a
charter amendment presented to your office whereby a Casualty
stock company with par stock of the value of $2.50 per share,
proposes to amend its charter to effect a stock split by
changing the par value to $1.50 per share. The capital of
the company is unchanged by the amendment but the conversion
of the stock's par value results in its capital being divided
into 1,918,966 2/3 shares. You ask whether or not this
charter amendment should be approved since the amendment will
result in a fractlonal share of stock being issued.
        It Is our opinion that the proposed amendment may be
approved.
        Your request was occasioned by an Attorney General's
opinion dated December 21, 1926, which is to the effect that
an insurance company cannot issue fractional shares of stock.
        We do not find anything In the Insurance Code speclfi-
tally prohibiting the issuance of fractional shares. The
former Attorney General's opinion pointed out a statutory pro-
vision that each stockholder shall be entitled to one vote
for each share of stock fully paid up appearing in his name
on the books of the company and reasoned that it would be
impossible for this language to have application in case
certificates could be issued for fractional shares. A similar
provision appears in the present Insurance Code in Article
3.04, section 4.
        Turning to the Business Corporation Act, Art. 2.29
likewise provides that each outstanding share shall be en-
titled to one vote at a meeting of shareholders. Never-
theless, Art. 2.20 apeclfically authorizes ,theissuance
Hon. William A. Harrison, page 2 (W-830)

of fractional shares and provides further that a certificate
for a fractional share shall entitle the holder to exercise
voting rights, to receive dividends thereon, and to particl-
pate in any of the assets of the corporation In the event
of liquidation. AlSO, Art. 1333 of Title 32, R.C.S.,
formerly the exclusive general corporate law, provides that
when a corporation shall reduce its capital stock, and by
reason thereof fractional shares shall be issued or held
by any stockholders, the holder of any such fractional
share shall be entitled to vote the same at any meeting
of the stockholders in accordance with proportionate or
ratable value of such shares.
        These provisions of our corporate statutes show that
a legislative admonition that each fully paid up share of
stock must entitle its owner to one vote does not preclude
the existence of fractional shares. This being the case
we do not believe that a provision in the Insurance Code
that each stockholder is entitled to one vote for each
share of stock held was intended to prohibit the Issuance
of fractional shares by insurance companies, but was
simply intended as a protection for the stockholder, and
to secure for him the right to vote in stockholders
meetings.
        Therefore, the reasoning of the previous opinion
we believe to be erroneous and it is consequently over-
ruled.
        By this opinion we do not hold that those provisions
of the Business Corporation Act relating to fractional shares
apply to insurance companies. To do so is not necessary to
this opinion. They are mentioned solely by way of analogy.
We therefore hold that the charter amendment about which
you inquire may be approved.
        Your letter also requests our opinion on an additlon-
al charter amendment, but you have since advised that
further information will be submitted in connection with
that proposal. We will accordingly dispose of that question
in a subsequent opinion.
Hon. William A. Harrision, page 3 (~-830)

                         SUMMARY
        A casualty stock company with par stock may
        issue a certificate for a fractional share.

                                Very truly yours
                                WILL WILSON
                                Attorney General of Texas

                                   By:
                                     Assistant
APPROVED:
OPINION COMMITTEE
W. V. Geppert, Chairman
Raymond V. Loftin, Jr.
C. K. Richards
Fred Werkenthin
REVIEWED FOR THE ATTORNEY GENERAL
By: Leonard Passmore