THE ATTORNEYGENERAL
ofi'TEXAS
Ausniu 11. ‘I-EXAS
WI& WJLSON
AT-roRNEY GENERAL April 24, 1959
Mr. William A. Harrison Opinion No. WW-601
Commissioner of Insurance
International Life Building Rt: Whether or not commissions paid
Austin, Texas to directors on the sale of capital
stock is prohibited by Article
Dear Sir: 3.67 of the Insurance Code.
You have requested the opinion of this office on the question of
“whether the taking of a commission by an officer or dirtctor of a life
insurance company operating under the provisions of Chapter 3, Texas
Insurance Code, on sales of original issue capital stock of such company
made personally by such officer or director violates tht provisions of
Article 3.67, Texas Insurance Code.”
Article 3.67 reads as follows:
“No director or officer’of any insurance company
transacting business inor organiaed under the laws of
this State, shall rtceive any money or valuable thing for
negotiating, procuring, recommending or aiding in any
purchase or sale by such company of any property, or
any loan from such company, nor be pecuniarily inter-
ested, either as principal, co-principal, agent or bene-
ficiary in any such purchase, sale or loan. Nothing in
this article shall prewnt a life insurance corporation
from making a loan upon a policy held therein, by the
borrower, not in txcess of the rettrvt value thtreof.’ .
It is our opinion that the taking of a commission by a director for sales
of original iasut capital stock falls with&the prohibition of Article 3.67.
The argument has been made that inasmuch am stock does not be-
come property until after the purchase ha6 beeh madt and-a stock certffi-
cab issued, a commirsion on tht salt would not be a violation of Article
$67. Ao stated in Volume 11,~Flttchtr Cyclopedia of Corporations, page
:
“Stock ca? be created only by contract. whether
it be in the simple form of a subcription, or in any other
mode. There must be an agreement to take tht stock,
and nothing short of this can crqate ft. Thie imparts to
the stock the quality ‘of property which bforo it did not
poaa*se.s
Mr. William, A. Harrison,, page 2 (WW-601)
It should be remembered, however, that Article 3.67 by its own terms not
only prohibits the taking of a commission for the sale itself but for “nego-
tiating, procuring, recommending or aiding” in such sale. It is obvious
that the “agreement to take the stock” will have been preceded by negotia-
tions, no matter how limited or cursory, htncc any commission received
as a result of such a sale would necessarily include compensation for the
negotiations leading to its consummation. It is equally obvious that the
commission is in fact paid for the person’s activities in negotiating, recom-
mending, procuring and aiding in, the obtaiping of the subscription agree-.
mtnt.
It has also been argued that if Article 3.67 is construed to prohibit
a director or an officer of an insurance company of the kind in question
from receiving a commission on ‘the sale of original issue capital stock of
such company, the same article by the same reasoning would prohibit the
director from being pecuniarily interested as principal in the purchase of
any such property sold by such company and hence would be prohibited
from purchasing stock in the company even though such director is re-
quired by Article 3.04, Section 4, to be a stockholder. This, of course,
would be a ridiculous result but, in view of Article 3.14, one that does not
follow. This article, also’passed in 1909, expressly exempts the directors’
dealings with the insurance company as a shareholder from the general
prohibitions relating to directors’ activitie’s. It provides:
“Any director, member Of a committee, or officer,
or any clerk of a ‘d,omestic’ company, who is charged with
the duty of handling or investing its funds, shall not deposit
or invest such, ~~~,~~~.~.erneegt,,~~~~hecprpo.r,,ate name of such
company; . &all not- b~$&&w&o~!fC(fYd&of such company; shall
not be itiYev&te$tin”any ivatf’i~~‘&@loi&, pledge, securiv
or property of such company, except as stockholder; sha
not take or receive to his own use any fee, brokerage, com-
mission, gift or other consideration for, or on account of,
a loan made by or on behalf of such company.”
$I
‘The conclusion we have reached is in accbrdance with an Attorney
General opinion dated August 3,, 1911, to the Commissioner of Insurance
and Banking which hei&thj&a co&so), whereby the pr,eside,n$of an insur-
ance company,was to’receive a 25%.commission~ for the sale of unsold
capital,stock was unlawful. by,,virtue of ,&is article.,
We do not pass upon any penal laws covering this or similar fact
situations since the rules for con,struing civil and penal statutes are dif-
ferent. ..,
. .
.
MI-. William A. Harrison, page 3 (WW-601)
SUMMARY
C.ommissions paid to directors on the
sale of capital stock are prohibited by
Article 3.67 of the Insurance Code.
Very truly yours,
WILL WILSON 9
Att
BY
APPROVED:
OPINION COMMITTEE:
Geo. P. Blackburn, Chairman
William K. Hemphill
Tom I. McFarling
John Reeves
REVIEWFP FOR TW AT.WRNEY,.G~NE;RAL .
BY:
‘korgan Nesbitt