Honorable Sidney Latham
secretary of state
Austin, Texas
Dear Sir: Ilttention: Mr. Rcrnco ?. Sessions
Opinion No. O-5946
Re: Can a permit be issued for
the sale of the increased
capital stock under the
same provisions of the law
providing for the sale of
pre-organization aertifioates
or receipts (Sectioa 7, Art-
icle 600a, Vernon's Texan
Statutes)?
Your request for an opinion on the above matter hes been re-
ceived and carefully considered. We quote your request a8 follows:
"The writer is in receipt of the following request involving an
interpretation of the Texas Securities Act, particularly Section 7:
"'The client of mine, a corporation, desires to increase
its capital stook by the issuance of preferred stock of the
par value of 8100 per share. Its present capital stock,
v.hichvdll not he changed or disturbed, has 8 $10 par value.
The proposal is to increase the oapital steak by providing
for the issuance of $100 preferred stock, and to sell the
8100 preferred stock at $%I0 per share. The privileges at-
tached to the preferred will be such as to make it what my
cljents believe to be an attractive investment. The proposal
is for the stockholders to authorize the increase jn the
capital stock, snd the directors to certify the increase as
provided by statute. An appllcatioa would then he filed
with you for a permit to sell this stock under the provisions
of the Securities .!.ct,
which provides for a pre-organization
sale of certifl,cstesor reOeipts.
"'Without asking you to pass upon any fact questions ir-
valved, as those must necessarily be determined when you
have all the facts before you, I would Like to know your
position as a matter of law on the following:
Honorable Sidney Latham - page 2 O-5946
S'l. Can a permit be issued for the sale of
the increased capital stock under the
seme provisions of the law providing
for the sale of preorganization certif-
icates or receipts (Section 7 of Article
600-a- Vernon's Texas Statutes)?
"'2. Is there any legal reason why $100 par
value stook should not be sold at $300
per share?'
"The writer has been unable to fine any opinion rendered by your
department or any court decisions bearing on this question, and I,
therefore, respectfully request that your offioe favor us with an opin-
ion in this matter." ';
Seotion 7 of Article 600 a reads as follcwsr
'Sec. 7. In the event any dealer as defined herein shall sell
or Offer for Sale any preorganieation certificate or receipts, or shall
in any manner solicit subscriptions to or in any prOpoSed corporation,
trust or joint stock company proposed to be fonaed, the Secretary of
State may require, if he deems it necessary to protect the interest of
prospective subscribers or certificate holders, the dealer SC offering
such securities for sale to deposit all moneys and funds received from
the sale thereof, except such amounts thereof as the Secretary of State
may have under this Act allowed as preorganization expenses and ccmmis-
sions for the sale of such security, to be deposited in a trust account
in some bank or trust company doing business in the State of Texas,
until such time as such proposed ocmpany shall have sold the minimum
amount of capital to authoriee it to begin business in Texas, at which
time the hank or trust company shall transfer suoh funds to the pro-
posed corporation and its executive officers for the purpose of permit-
ting it to undertake its business. In the event such prOpOSed company
as herein defined shall fail within two (2) years to sell the minimum
amount of capital necessary for the beginning of business in Texas,
the bank or trust company shall return to the subscribers that portion
of the funds that had been deposited under such preorganization agrae-
ment. At the time of making the deposits, as herein provided for, the
dealer or issuer shall furnish to such bank or trust company the names
of the persons purchasing or sub scribing for such securities, and the
amount of money paid in by each.
"The total expenses, Including organization expenses and all com-
missions paid to salesmen of any proposed oCeQany, as heroin defined,
shall not exceed twenty (20) per cent of the total amount of capital
sought to be employed in such proposed company."
In our opinion, the above quoted law applies only to the sale of
preorganization certificates and receipts and subscriptions to or in
Honorable Sidney Latham - page 3 O-5946
proposed corporations, trust or joint stock companies, and that 8 permit
can not be issued for the sale of increased capital stock thereunder,
Therefore, question No. 1 is answered in the negative,
Question No. 2 is also answered in the negative, but this holding
is qualified by the statement that, in our opinion, the sale of stock
for #300.00 per share the pr value of xhiah is only $lOO per share
nould be subject to The Seaurities Act (Artide 600a).
Trusting that this satisfactorily anmers your icquiry, -seam
Yours very truly
A'TTORIEYGSNERAL OF TEXAS
ByS/JBS.w. Bassett
Jas. W. Bassett
Assistant
APPROVED APRIL 6. 1944
s/Gee. P. Blackburn
ACTIKG ATTORNEY GENEXAL
OF TEXAS
Approved Opinion Comittee By BlRBChairman