Attorney General Opinion WW-0601

THE ATTORNEYGENERAL ofi' TEXAS WI& WJLSON AT-roRNEY GENERAL Ausniu 11. ‘I-EXAS April 24, 1959 Mr. William A. Harrison Opinion No. WW-601 Commissioner of Insurance International Life Building Austin, Texas Rt: Dear Sir: Whether or not commissions paid to directors on the sale of capital stock is prohibited by Article 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,,~~~~he cprpo.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, APPROVED: OPINION COMMITTEE: Geo. P. Blackburn, Chairman William K. Hemphill Tom I. McFarling John Reeves WILL WILSON 9 Att BY REVIEWFP FOR TW AT.WRNEY,.G~NE;RAL . BY: ‘korgan Nesbitt