Opinions from 1936-1938

No. 2991 ORGANIZATION OF INSURANCE COMPANIES-DIVISION OF CAPITAL STOCK INTO VOTING AND NON-VOTING CLASSES 1. The omission of a significant word or provision from a re-enactment indicates an intention to exclude the object theretofore accomplished by the words omitted. 2. Apparent inaccuracies and mistakes in the mere verbiage or phraseolo- gy will be overlooked to gi-ve effect to the spirit of the law. 3. The caption or marginal note appearing in a code as adopted by the legislature is to be regarded as a part of the article to which it relates. 4. Capital stock domestic fire insurance companies may not divide capital structure into classes of stock, part of which are composed of voting shares and part of non-voting shares. 5. The holder of each share of domestic capital stock fire insurance companies is entitled to vote each share of stock that he holds at all stockholders' meetings. 6. This decision is not in conflict with the case of St. Regis Candies vs. Hovas, 3 S. W. (2) 430, which treats with ordinary corporations only. Austin, Texas September 17, 1936 Honorable R. L. Daniel Chairman, Board of Insurance Commis- sioners, Austin Texas. DEAR SIR: Your communication of August 3 has been referred to the writers for consideration. We have concluded that, due to the importance of your inquiry, a conference opinion should be rendered. Your letter reads in part as follows: "There has been presented to this Department the Articles of Incorporation and other information relative to the incorporation of a capital stock fire insurance company. It is the intent of the organizers to provide for a fully paid capital stock of not less than $100,000. It is their desire, however, to divide the stock into Common and Preferred, the Common stock to retain the entire voting power conferred by the stock. The Preferred stock in question will be non-voting. I "You are requested to advise this Department whether or not in your opinion such a division of stock would be permissible under the laws of this State." We think the best solution to your problem can be obtained by briefly reviewing the history of applicable general corporation and insurance legislation, and court decisions. According- ly, we direct your attention to Chapter 108, beginning at page 192 and ending at page 215 of the General Laws of Texas, Reg- ular, First and Second Called Sessions of the Legislature, 1909. The portion. of this Act to which we direct your attention is found at page 194, about the center of such page, as follows: REPORT OF ATTORNEY GENERAL "At all meetings of the stockholders, each stockholder shall be entitled to one vote for each share of stock fully paid up appearing in his name on tha books of the company, which vote may be given in person or by written proxy." This is an Act providing primarily for the incorporation of life, accident and health insurance companies and defining the same, and is now found as a part of Article 4718, R. C. S. 1925. In connection with this provision, we refer you to a letter ad- dressed to Honorable R. L. Daniel, Chairman of the Board of Insurance Commissioners, by W. W. Heath, of this Department, under date of May 4, 1935, in which it was held under this provision that no stock in such company could be issued without voting privileges. We find, however, provision on page 210, Section 55 of said Original Act of 1909, as follows: "All the provisions of the laws of this State applicable to life, fire, marine, inland, lightning or tornado insurance companies, shall, so far as the same are applicable, govern and apply to all companies transacting any other kind of insurance business in this State, so far as they are not in conflict with provisions of law made specially applicable thereto." (Italics ours). We have briefly reviewed the title on insurance of the Re- vised Civil Statutes of 1925, but in our rather casual examina- tion of same we have failed to find incorporated therein Section 55, as hereinabove quoted. This becomes immaterial to the question here presented, in view of Article 4710 of the 1925 Codification as hereinafter set forth. In the case of St. Regis Candies, Inc., et al vs. Hovas, et al, 3 S. W. (2d) 432, in an opinion by the Supreme Court Commis- sion of Appeals adopted by the Supreme Court, the question of the power of a private Texas corporation to divide its shares of stock into two classes, one class to have voting privileges, and the other class to be without voting privileges, is fully dis- cussed. The following language is used by the Court: "Authorized increase or decrease of 'authorized capital stock' may be secured by action of the directors based upon 'a two-thirds vote of all its stock' in the one case, or 'a two-thirds vote of all its outstanding stock' in the other, Articles 1330, 1332. Voluntary dissolution may be had 'where four- fifths in interest of all stock outstanding shall vc.te' therefor 'at a stockholders' meeting,' or 'when, without a stockholders' meeting, all the stockholders . consent in writing,' Article 1387. In respect to action taken or proposed under these provisions (i.e., articles 1330, 1332, and 1387) and action taken or proposed in respect to other fundamental alterations of the corporate purpose, structure, and properties, and for instant purposes, two assumptions are indulged in favor of the holders of class B stock, so-ealled: (a) Every stockholder is entitled to vote; and (b) those owners are 'stockholders.' "We have generally reviewed the constitutional and statutory provisions mentioned above for the purpose of indicating that no expressed declaration of voting right in a stockholder exists, save in the exceptional instances last mentioned and on the assumptions there made. If the right exists in virtue of law it rests in implication. The fact that the Legislature, in execution of REPORT OF ATTORNEY GENERAL the command given, made specific provision for voting rights in what we have called the exceptional situations and omitted provision therefor in other cases is not without cogency. With the exact subject of voting rigbts present in the minds of the law makers, a specific enactment for named conditions and silence in respect to other conditions would seem to indicate a purposed omission in deference to liberty of contract. "There are other situations of like import: (a) The general requirements of article 12 of the Constitution have reference to railroad and insurance corporations, as well as to corporations generally. But in executing the command the Legislature put railroad corporations into a class (title 112, arts. 6259-6534, R. S. 1925) and insurance corporations into another class (title 78. arts. 4679-5068, R. S. 1925). "In article 6289 certain 'rules' are named to be controlling in the 'election of the board of directors' of a railroad corporation. Among the rules is this: "'Each stockholder shall have the right to vote . for the number of shares of stock owned by him for as many persons as there are directors to be elected.' "The matter of 'by-laws' is the subject of article 6293, and it is there said that: " 'The stockholders of the corporation shall be entitled to one vote for each share of stock held by them.' "Comparable provisions are made for 'life, health, and accident insurance' corporations (article 4718), 'mutual assessment accident companies' (article 4789), 'mutual life insurance companies' (article 4801), and 'mutual insurance companies' (article 4868), and omitted in respect to various other classes of 'insurance companies,' etc. "(b) By the terms of section 16, art. 16, Constitution, the Legislature is required to provide, by general laws, for the incorporation of, 'bodies with banking and discounting privileges, for supervision, etc., and for adequate protection and security of depositors and creditors. Execution of the requirements has general evidence in title 16, R. S. 1925 (articles 342-548). Among other things, it is there provided (article 503) that: " 'In the elections of directors, and in deciding all questicns at meetings of shareholders . each shareholder shall be entitled to one vote on each share of stock held by him.'" It is apparent from a reading of the above quotation that it is the opinion of the court that, except to the extent as provided for by the Legislature to the contrary, corporations may be created in Texas with two classes of stock, one with voting privileges, and the other without voting privileges. It is equally apparent from a careful study of said decision that the Legisla- ture has the right to provide that all of the stock of a corporation shall have voting privileges. It, therefore, necessarily follows that since the Legislature has seen fit to make the special provision entitling each stockholder to one vote for each share of stock fully paid up carried in his name on the books of the life, accident and health company, organized under the provisions of Chapter 3, Title 78 of the Revised Civil Statutes, as set out in Article 4718, Revised Civil Statutes 1925, in the absence of some similar provisions with respect to other domestic in- REPORT OF ATTORNEY GENERAL surance companies, such other domestic insurance companies could be created with two classes of stock, one with voting privileges, and one without voting privileges, especially if Section 55 of the Original Act of 1909, making the provision of the laws of this State, applicable to life companies, govern and apply to all companies transacting any other kind of insurance business in this State, has been repealed by omission from the 1925 Codi- fication.

Load more