THEATI‘ORNEYGENEEAL
OF’mXAS
February 20, 1959
Honorable William W. King Opinion No.
Securities Commlsalon~
State Securities Board lb: Nhother the *ilicreasT~ of
Austin, Texas capital stock of a corporation”,
Article 581, V.C.S.; the Secu-
rities Act, Subdlviaibn (0).of
Section 5, refer0 to an ihcr66iee
of authorlced’shares zif a&pita1
8tbck,, or tii an’ inOreaae of
shares of capital stock oufstand-
ix@ by the iaauance of ahartis
already authorized, and related
questions.
Dear Hr. King:
We quote”from your letter requesting our opinion on the
above mentioned xMtera, in part as follova:
“Article 581, v.c.s., the Securities Act, In’ Sub-
M3ctlon (e) of Section 5, sets tit as &ii exempt trans-
hction: ‘The sale of an increase of chpltal stock bf
a corporation only to Its stockholders and without pag-
ment of any commission or expenae to any officer,
employee, broker or agent.’
“We have several question8 which involve inter-
pretation of the noted subsection. Flrst;does ‘in-
crease of capital stock of a corporation’ within the
meaning of this section refer to an Increase of
authorized &ares of capital stock, or does it refer
to an increase of shares of,capltal stock outstanding
by the issuance of shares already authoriaed?
“Secondly, &ssuming that ~pre-emptive rights of
the’ stockholders are not denied or limited by the coc-
poratlon4s charter can a corporation avail itself
of the’Section 5 (ef exemption if an offering of com-
mon shares Is not made to each stockholder in propiw-
tion to his holdings of common stock in the corporation?”
“Where the full authorle-&I amount of stock Is not ori-
ginally issued,~ hddltional stock may be issuiid from time to~tlm
up to the limit authorized, for this la not an increase of stock.”
Hon. Wllliam M. King, page 2 (WW-552)
18 Corpus Juris Secundum, Section 268.
It mat be noted that in Siibsectibn (e) of S@ctlon 5,
the Texas SectiPltiBs Act, th& Legislature used”the~ phrase,
“lncreaiie of caDita1, stock” and not “sale of capital stock”
which Would Indicate the iiitention of:‘the LegislStur& to iti-
blude’ only an aotual increase of the amount of caijltal' stock
authorieed~in’this exeMption. We think’ that tAti language of
this aubsbction’ I’@ al‘ciar and iinambiguoua and .t.hat the Only-
proper meaiilng that’ can b& drawn from It la that the sub&&&ion
refers tb ah Increase of authorleed stir&b of capital stock
through an amendment to the corporate charter.
Therefore, in answer to th'is first question, we hold -'
that Subsection (e) of,Section 5 of the’ Securities Act pelmitti an
exempttdn from regi’etration bg”a,corpor&tlofi of stock cofitititut-
ing an aatual increase of the authdrized shares of the capital
of the corporation.
In answer to y&r Question No. 2, we hold that there
is nothing specifically or ilhpliedly in this subsectiqn that
would require the breemptlve rights of the stockhoIder“to be
Qbbservedin order to qualify such an increase of capital stock
foti”this exemption. The pre’emptive rights oi a ato&kholder are
a mati%r.~ifi which fhe"stockholders thelpselves are peculiarly in-
terested, and not a matter for the concern of ‘th& Security Com-
missioner of Texas.
Having ansirered your,second’~question in the affirmative,
there Is no need to answer the third and fourth puestlons set a.xt
in your letter. Ytir fifth questlon ia quoted a8 follows:
‘Where stockholders’ pre-emptive~ rights are
expressly limited br denied %n a cbrpoi!ation’s charter,
could the sale of an’iniirease of capital stock of suhh
corporation be mede to any single atockhbldbr br to a
few individual stockholders as an exempt transaction
under the above noted subsection?”
Our ri3asonings specifically set out in answer to your
estion No. 2 apply here and we therefore hold that SubsectIon
? e) of Section 5 gf the Securities Act does not permit the
SYctiritieei Commi$iioner to be concerned with the denial or obser-
v.%nde by a corkratiijn of its stockhbldei+s' pre-emptive ri&hts"
in order to qualifjr an ,increaae bf capital stock by the corpora-
tion under this section.
SUNNANY
Subsection (e) of Section 5 of the Securi-
Hon. William X. Xlng, page 3 (w-552)
ties Act of Texas authorlees an exemptlbn
to be given tb the issuance by a corporhtion
of stock actually cbnatituting^ an increa’iie
in the authorieed capital of aaid corpbra-
tion. Aiid the question cif whether or not
individual stockholders are given pro';emp-
tive rights or aenied~‘such rights does not’
affect the exemption afforded by this section.
Very truly yours,
WIUWIIBON.
Attorney General of Texas
By s/Rich&r-d A. Well&
RQhard A. Wells
Assistant
RAW:jg:wc
APPROVED:
OPINION COMMITTEE:
Geo. P. Blackburn, Chairman
C.X. Richards
Robei+t T.~Lewis
Leonard Passmore
REVIEWIP)FOR TRE ATTORNEY
GENBRAL
BY:
\W. V. Geppert