Meaning
A statutory provision defines the authority of a board of directors to issue capital stock and determine the required consideration. Under corporate governance standards, Delaware corporate code section 152 regulates the nature and valuation of the consideration that must be paid for shares to be fully paid and non-assessable. The section governs the types of acceptable payment, which can include cash or past services rendered to the corporation.
Compliance with this provision is essential to ensure that issued shares are legally valid and immune to future challenges by creditors or disgruntled investors.
Valuation Authority
The board of directors holds the exclusive power to determine the value of the consideration received for stock issuances. In the absence of actual fraud, the judgment of the directors as to the value of such consideration is conclusive. This statutory deference protects the board from liability when valuing non-cash assets or services.
It also ensures that the capitalization records of the company remain stable even if market conditions change.
Acceptable Consideration
Cash and intellectual property are valid forms of payment under the statutory guidelines. Founders often contribute intellectual property as consideration for their initial founder shares, which requires a formal valuation resolution. Performing this valuation at the time of issuance prevents the shares from being declared unpaid or partly paid.
The clear categorization of these assets in the corporate minutes protects the company from future administrative disputes.
Issuance Compliance
Failing to receive the authorized consideration before issuing stock creates a material defect in the shares.
