31A-5-305 - Authorized securities.
31A-5-305. Authorized securities.
(1) (a) The articles of incorporation of a stock corporation may authorize the kind ofshares permitted by Sections 16-10a-601 and 16-10a-602, and stock rights and options, exceptthat:
(i) nonvoting common stock may not be issued;
(ii) all classes of common stock must have equal voting rights;
(iii) all common stock must have a stated par value; and
(iv) except with the commissioner's approval, for two years after the initial issuance of acertificate of authority, the corporation may issue no shares and no other securities convertibleinto shares except a single class of common stock.
(b) Section 16-10a-604 applies to the issuance of certificates for fractional shares orscrip.
(c) The consideration and payment for shares and certificates representing shares isgoverned by Subsection 31A-5-207(1)(a).
(d) The liability of subscribers and shareholders for unpaid subscriptions and the statusof stock is governed by Section 16-10a-622.
(e) A shareholder's preemptive rights is governed by Section 16-10a-630.
(f) Stock corporations may issue bonds and contribution notes on the same basis asmutuals under Subsections (2)(a) and (b).
(2) (a) The articles of incorporation of a nonassessable mutual may authorize bonds ofone or more classes. The articles of incorporation shall specify the amount of each class of bondsthe corporation is authorized to issue, their designations, preferences, limitations, rates ofinterest, relative rights, and other terms, subject to all of the following provisions:
(i) During the first year after the initial issuance of a certificate of authority, thecorporation may issue only a single class of bonds with identical rights.
(ii) After the first year, but within five years after the initial issuance of a certificate ofauthority, additional classes of bonds may be authorized after receiving the approval of thecommissioner. The commissioner shall approve the issuance if the commissioner finds thatpolicyholders and prior bondholders will not be prejudiced.
(iii) The rate of interest shall be fair.
(iv) The bonds shall bear a maturity date not later than 10 years from the date ofissuance, when principal and accrued interest shall be due and payable, subject to Subsection(2)(d).
(b) A mutual may issue contribution notes with the commissioner's approval. Thecontribution notes may be denominated by any name that is not misleading. The contributionnotes are subject to this subsection. The commissioner may approve the issuance only if thecommissioner finds that:
(i) the notes will not be issued in denominations of less than $2,500, and no single issuewill be sold to more than 15 persons;
(ii) no discount, commission, or other fee will be paid or allowed;
(iii) the notes will not be the subject of a public offering;
(iv) the terms of the notes are not prejudicial to policyholders, holders of mutual bonds,or prior contribution notes; and
(v) the mutual's articles or bylaws do not forbid their issuance.
(c) A mutual may not:
(i) if it has any outstanding obligations on bonds or contribution notes, borrow oncontribution notes from, or sell bonds to, any other insurer without the approval of thecommissioner; or
(ii) make a loan to another insurer except a fully secured loan at usual market rates ofinterest.
(d) Payment of the principal or interest on bonds or contribution notes may be made inwhole or in part only after approval by the commissioner. The commissioner's approval shall begiven if all the financial requirements of the issuer to do the insurance business it is then doingwill continue to be satisfied after that payment, and if the interests of its insureds and the publicare not endangered by the payment. In the event of liquidation under Chapter 27a, InsurerReceivership Act, unpaid amounts of principal and interest on contribution notes are subordinateto the payment of principal and interest on any bonds issued by the corporation.
(e) This section does not prevent a mutual from borrowing money on notes which are itsgeneral obligations, nor from pledging any part of its disposable assets.
(3) This section does not apply to securities issued prior to July 1, 1986.
Amended by Chapter 309, 2007 General Session