Untitled Texas Attorney General Opinion ( 1960 )

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THEATTORNEY GENE-L
OF TEXAS
November 16, 1960
Honorable William A. Harrison Opinion No. WW-958
Commissioner of Insurance
State Board of Insurance Re: May a foreign stock life, health
International Life Building or accident insurance company,
Austin, Texas with par value stock, having a
par value of less than one dollar
per share or more than one hun-
dred dollars per share be granted
a Certificate of Authority to trans-
act the business of insurance in
Dear Mr. Harrison: this State, and related questions.
You request an opinion from this office and we quote from your letter
as follows:
“A foreign stock life insurance company with shares of
stock of the par value of fifty (5OC) cents per share has filed
application for a Certificate of Authority to do business in
this State. Article 3. OZa, Texas Insurance Code, provides that
the par value of each share of stock of a life, health or accident
company organized or operating under the provisions of Chapter
3 ‘shall be for not less than One ($1.00) Dollar nor more than
One Hundred ($100. 00) Dollars. ’ Therefore, a question has
arisen as to whether or nut this company can be admitted to do
business in this State. In considering this point, it was called
to our attention that there are at least four (4) such type com-
panies presently doing business in this State whose shares of
stock have been established at a par value of less than one ($1.00)
dollar by charter amendments subsequently to the date of their
admission to do business in this State. At the time that such
companies were initially authorized to conduct business in this
State the par value of their shares was one ($1.00) dollar or more.
“In view of the above situations, it is urgent that we have
youropinion at the earliest date possible concerning the following
questions:
I’( 1) May a foreign stock life, health or accident insur -
- .
Hon. William A. Harrison, page 2 (WW-958)
ante company, with par value stock, having a par value
of less than one ($1.00) dollar per share or more than
one hundred ($100.00) dollars per share be granted a
Certificate of Authority to transact the business of insur-
ance in this State?
r’(2) If a foreign stock life, health or accident
insurance company, doing business in this State, amends
its charter converting its shares into shares of par value
less than one ($1.00) dollar or more than one hundred
($100. 00) dollars, should the Certificate of Authority of
such company to transact the business of insurance in this
State be suspended or revoked for non-compliance with
the provisions of the laws of this State? ”
Your first question is answered in the affirmative.
Prior to the adoption of the Insurance Code in 1951, what is now
Article 2. 07 of the Code was the only statute dealing specifically with the
value of shares of stock in an insurance company organized in Texas.
At that time it was Article 4704, Vernon’s Civil Statutes, 1925.
When the insurance laws of the State were codified, Chapter 3,
thereof, entitled “Life, Health & Accident Insurance, ‘I contained various
subchapters. Subchapter A is entitled Domestic Companies while B is
entitled Foreign Companies.
Contained in Subchapter A is Article 3.02a which reads in part as
follows:
“(a) The stock of any life, health or accident insur-
ance company organized or operating under the provisions of
this chapter may be divided or converted into shares of either
par value or no-par value, or both, all of which shall be fully
paid and non-assessable. If divided or converted into shares
of par value, each share shall be for not less than One ($1. 00)
Dollar nor more than One Hundred ($100. 00) Dollars . . .”
This provision, included as it was under the domestic companies’
subchapter, was not enacted until 1955 at which time the Code was already
in existence and the division of “domestic” and “foreign” regulating statutes
already established. While the Legislature could have easily expressed
its intention that the minimum par value restriction should apply to foreign
c
Hon. William A. Harrison, page 3 (WW-958)
companies as well, it did not choose to amend the subchapter of the Code
regulating foreign companies, i. e., Subchapter B.
Generally, where the Legislature intended that certain provisions
of the Code would apply to both foreign and domestic companies such has
been included in both Subchapters A and B. Subchapter A, dealing with
domestic companies, contains several requirements which are also con-
tained in B, relating to foreign companies. For instance, Subchapter A,
Art. 3.04, Sec. 1, 3 requires of domestic companies:
“An affidavit made by two (2) or more of its incor-
porators that all of the stock has been subscribed in good
faith and fully paid for, as required by law, in the amount
of not less than One Hundred Thousand Dollars ($100,000)
capital and that such company is possessed of at least One
Hundred Thousand Dollars ($100, 000) surplus, as required
by law, in addition to its capital. . ~”
That requirement, insofar as it relates to capital and surplus, is also con-
tained in Subchapter B, Art. 3.22:
“No such foreign stock insurance company shall be
licensed by the Board of Insurance Commissioners or shall
transact any such business of insurance’in this State unless
such company is possessed of not less than the minimum
capital and surplus required by this chapter of a similar
domestic company in similar circumstances, including the
same character of investments for its minimum capital and
surplus. . .”
Likewise “A: by way of Article 3. 02, deals with domestic companies
and the requirements for incorporating same, while “B” regulates the same
subject matter as to foreign companies through Articles 3.20 and 3.2 1.
In light of the foregoing, the requirement in Subchapter A that
shares of par value stock shall be not less than $1. 00 nor more than $100. 00
does not necessarily become applicable to foreign companies, especially
when Subchapter B contains no express requirement of par value stock
minimum or maximum for foreign companies.
In 1959, the Legislature amended Article 2 1.43 of the Insurance Code
to read in part as follows:
Hon. William A. Harrison, page 4 (WW-958)
“No foreign or alien insurance corporation shall be
denied permission to do business within this state for the
reason that all of its authorized capital stock has not been
fully subscribed and paid for; provided
‘I( 1) that at least the minimum dollar amount of
capital stock of such corporation required by the laws of
this state (which may be less than all of its authorized
capital stock) has been subscribed and paid for; and
“(2) that it has at least the minimum dollar amount
of surplus required by the laws of this state for the kinds of
business such corporations seek to write; and
“(3) that such corporation has fully complied with all
laws of its domiciliary state relating to authorization and
issuance of capital stock. ”
Again, no mention of minimum or maximum par value for foreign
companies is made, but rather Section (3) above implies that such matters
shall be controlled by the “laws of its domiciliary state. ”
As far as can be determined, no Texas court has been called upon
to decide the question. Consequently, we have examined the decisions of
foreign jurisdictions for guidance and direction. In 8 ALR2d 1196, there
is contained the most concise statement of existing authority:
“It is now well settled that, in the absence of unmis-
takable language to the contrary, an intention to exclude a
foreign corp”ration from doing business in a state will not
be inferred merely because no provision is made by the law
thereof for the organization of domestic corporations similar
in stock structure, as based upon an issue or issues, or divi-
sions of, a particular kind of stock, to that of the applicant.”
A closely analogous case is State ex rel Standard Tank Car Company
v. Sullivan, (1920) 282 MO. 261, 221 S.W. 728. There the Missouri Supreme
Court held that a foreign corporation could not be refused the right to do
business in Missouri for the reason that a part of the capital stock which the
foreign company had issued had no par value and it (the foreign company)
could not,: for that reason, have been organized as a domestic corporation.
The Court stated that where there was no intention or established policy
to exclude foreign corporations merely because the domestic laws forbade
. c
Hon. William A. Harrison, page 5 (WW-958)
the particular kind of corporate structure possessed by such foreign cor-
poration, this reason alone could not be used to exclude the foreign com-
pany from doing business in Missouri, at least in the absence of a more
express prohibition. Three additional states have adopted this precise
construction and in each instance the authoritv is that of the hiehest court
in the respective state. State ex rel Fibreboard Products v. &kle, (1928)
147 Wash. 10, 264 P. 1010; Northh American Petroleum Co. v. Hopkins,
(19 19) 105 Kan. 16 1, 18 1 P. 625; Commonwealth
lmonwealth Acceptance Corp. v. Jordan,
(1926) 198 Cal. 618, 246 P. 796.
The basic reasoning behind those cases mentioned above, with which
we agree, is that a state, acting through its legislature, in a proper case
anu subject to limitations of the Federal and state constitutions, has the
power to control and regulate domestic and foreign corporations equally,
insofar as they operate within the state, including issuances of corporate
stock, and can determine the legal effect of such activities. The only
critical question is one of construction of those legislative acts.
Regarding the construction problem, with respect to a statute of the
kind in question, particularly if it does not expressly state whether it is
applicable to foreign corporations, it is said in 23 Am. Jur. 108, Foreign
Corporations, Section 10 1:
“In the construction of statutes applicable to corpor-
ations, it is not to be presumed that the legislature intended
to grant greater rights to foreign than to domestic corpora-
tions and to favor them with rights and privileges greater
than those conferred upon domestic corporations. No prin-
ciple of comity requires that foreign corporations be placed
in a more favorable situation under the local statutes than
similar domestic corporations. However, statutory provi-
sions dealing with the incorporation or organization of cor-
porations, rather than with their business in the state, are
ordinarily deemed inapplicable to foreign corporations, as
are local laws concerned with strictly corporate acts as dis-
tinguished from those which may be done by agents. ”
When it is remembered that Article 3. OZa, insofar as it applies to
par value stock, is a prohibitory statute that obviously applies to domestic
corporations, the following must likewise be considered with respect to
such a prohibitory statute:
“A general law prohibiting corporations from exer-
Hon. William A. Harrison, page 6 (WW-958)
cising particular powers and privileges ordinarily oper-
ates on foreign as well as on domestic corporations for
the reason that the exercise by a foreign corporation of
such powers in the enacting state would violate the public
policy thereof as indicated by the general restraint im-
posed on its own corporations. On the other hand, all the
limitations imposed by local statutes upon domestic cor-
porations do not necessarily apply to foreign corporations.
If an act forbidden is of such a nature that the right to per-
form it exists inherently in all corporations unless special-
ly denied, or if the prohibition is designed to establish not
a general public policy toward corporations, but merely a
more effective exercise of visitorial power over them, a
prohibitory statute which does not in terms refer to foreign
corporations may be held not to apply to them. ” 23 Am. Jur.
109, Foreign Corporations, Sec. 103.
The only language of Article 3.02a which could possibly be construed
to include a foreign company is that portion which reads:
“The stock of any life, health or accident insurance
company organized or operating under the provisions of
this chapter. ~ .”
The language of this Article makes provision for regulating domestic
companies which came into existence after codification of the insurance
laws, thus were “organized” under Chapter 3.
The term “operating” refers to those domestic companies which were
organized under the insurance laws as they existed before the creation of
Chapter 3. Though organized before Chapter 3 was created, these domestic
companies are now subject to its requirements, thus are “operating” there-
under.
Consequently, those domestic companies whxch were organized under
Chapter 3 and those domestic companies which were organized under prior
law but are now operating under Chapter 3 are both regulated thereunder
and the language makes allowance for both situations. As previously dis-
cussed, such language alone does not indicate an intention on the part of the
Legislature to make foreign companies subject to its requirements.
Inasmuch as there is no provision establishing limits for par value
stock for foreign life, health and accident companies contained in Subchap-
Hon. William A. Harrison, page 7 (WW-958)
ter B of Article 3 of the Texas Insurance Code; and inasmuch as any control
relative thereto would have to be derived from statutes dealing with domes-
tic companies only, we feel that the conclusion reached above conforms to
existing authority and is consistent with the intent of the Legislature.
Since we have held that foreign life, health and accident companies
may have stock with a par value of less than One Dollar ($1. 00) or more than
One Hundred Dollars ($100.00) per share, we answer your second question in
the negative. Thus, the Certificate of Authority of a foreign stock life, health
or accident company, doing business in this State, should not be revoked for
non-compliance with Texas insurance laws, if, subsequent to its date of ad-
mission to do business here, it amends its charter converting its shares into
shares of par value less than One Dollar ($1.00) or more than One Hundred
Dollars ($100.00). Certainly if a foreign corporation may enter the State
with less than One Dollar ($1. 00) par value, it may subsequently amend its
charter so as to provide for shares having less than One Dollar ($1. 00) par
value.
SUMMARY
1. A foreign stock life, health and accident company,
with par value stock, having a par value of less than One
Dollar ($1.00) per share or more than One Hundred Dollars
($100.00) per share, may be granted a Certificate of Authority
to transact the business of insurance in this State.
2. A foreign stock life, health and accident insurance
company, doing business in this State, who amends its charter,
converting its shares into shares of par value less than One
Dollar ($1. 00) or more than One Hundred Dollars ($lOO.,OO)
should not have its Certificate of Authority suspended or revoked
for non-compliance with the provislons of the laws of this State.
Very truly yours,
WILL WILSON
Attorney General of Texas
By c “&a&
C. Dean Davis
Assistant Attorney General
CDD/pe
Hon. William A. Harrison, page 8 (WW-958)
APPROVED:
OPINION COMMITTEE
Morgan Nesbitt, Chairman
Ray Loftin
Arthur Sandlin
Vernon Teofan
REVIEWEDFORTHEATTORNEYGENERAL
BY: Leonard Passmore