Untitled Texas Attorney General Opinion

Mr. J. N. Nutt Opinion No. c-231 Commissioner of Insurance State Board of Insurance Re: Must an ,existing life in- Capitol Station surance company have on Austin, Texas hand aggregate capital and surplus of at least $250,- 000 before it can amend its charter to provide ad- Dear Mr. Nutts ditional no par shares. You have requested our opinion on the following ques- tion: "'Isa life insurance company which is au- thorized to issue stock without nominal or par value required to have on hand aggregate capital and surplus of at least $250,000 be- fore it can amend its charter to provide addi- tional no par shares?"" In youx letter you state that before approving a char- ter amendment to provide additional no par shares it has been the policy of the State Board of Rnsurance to require a state- ment of the company, under oath, that at least 50% of the au- thorized shares have been subscribed and fully paid for, and that not less than $250,000 has been received for such issued shares, 010 I " but it has never been the policy of the Department to require evidence that not less than $250,000 baggre'gatecapital and surplus) is in the possession of the company at the time of such amendment."" Mr. J. N. Nutt, page 2 (C-231) you indicate that this question has arisen by virtue of some of the language of the Attorney General's Opinion No. ~-360 (1958) which could be construed as holding that Article 3.02a of the Insurance Code requires $ZSO,OOO to be in the possession of the company at the time of such amend- ment. The applicable part of Article 3.02a of the Insurance Code provides: . . . At the time of filing of an original charter or any amendment of an existing char- ter authorizing the issuance of stock with no. par value the company sha.11file a statement under oath with the State Board of Insurance setting forth the number of shares without par value subscribed and the actual consideration received by the company for such shares. Pro- vided, 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 per cent (50%) of the au- thorized shares to be issued without 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 Fiftv Thousand Dollars ($250,000) . . .'I (Emphasis added.) In Attorney General's Opinion No. WE-360 the question of the requirements as to minimum,capital, minimum surplus and the minimum aggregate of capital and surplus of a life insur- ance company issuing no par value stock was presented. This Opinion did not have before it the specific question presented herein, and any statement concerning the capital, surplus and aggregate capital and surplus requirements before there can be a charter amendment to provide additional shares was dictum, and not controlling in the answer to this request. -1121- Mr. J. N. Nutt, page 3 (C-231) Article 3.02a provides that the amount paid for a company's shares shall not be less than $250,000. However, Article3.02a has no application to the continuing financial structure of the company in relation to the minimum capital and minimum surplus which must be maintained by the company. See for example Section ,5 of Article 3.02 of the Insurance Code wherein the minimum capital and minimum surplus require- ments at the time of ,incoroorationare set forth, and then provides only that: II. . . such minimum capital shall at all times be maintained . . .'I Similarly Article 3.3%3(l) of the Insurance Code pro- vides: ,I ,. and the minimum capital of a companv ,hereafter orsanized under said Article 3.02 and the minimum free surplus of a company hereafter organized under said Article 11.01 at all times shall be maintained in cash or in the same classes of investments . . ." This apparently places the requirement of the maintenance of surplus only on those mutual life insurance companies orga- nized under Chapter 11, and restates the requirement that minimum capital only be maintained at all times by insurance companies under Chapter 3. The Insurance Code has been carefully searched for any intent that such aggregate minimum capital and surplus be main- tained at all times, or in the alternative, that such must be on hand as a prerequisite to the amendment of its charter to provide for additional shares. No such intention is found and there appears to be no valid reason for placing this heavy a burden on no par life insurance companies. It is also ob- served that instead of providing any additional safeguards this purported onerous requirement could well have the very opposite effect. -1122- ---. Mr. J. N. Nutt, page 4 (c-231) It is, therefore, concluded that your departmental construction is correct, that it is not necessary for the company to have on hand an aggregate of $250,000 in their capital and surplus at the time,of such amendment, and that to the extent that the prior Opinion m-360 is in conflict, it is expressly overruled. SUMMARY An existing life insurance company au- thorized to issue no par stock is not re- quired to have on hand aggregate capital and surplus of at least $250,000 before it can amend its charter to provide additional no par shares. Respectfully submitted, WAGGONER CARR Attorney General of Texas PP:da:s By,- Assistant Attorney General APPROVED: OPINION COMMITTEE W. V. Geppert, Chairman Joe Long John Reeves W. 0. Shultz Robert Smith APPROVED FOR THE ATTORNEY GENERAL By: Ii.Grady Chandler -1123-