Legal Proof Required For Unwritten Co Founder Equity Agreements
Proving unwritten cofounder equity requires written admissions of definite material terms or consistent operational conduct establishing clear mutual assent.
Delaware DGCL Section 152
Meaning
A statutory provision within the Delaware General Corporation Law governs the consideration for which shares of stock may be issued. Under Delaware DGCL Section 152, the board of directors must determine the value of any assets, intellectual property, or services provided in exchange for stock. This section provides the legal foundation for ensuring that all equity issued is fully paid and non-assessable.
Capital Valuation
The valuation of non-cash consideration must be made by the board with a high degree of care to protect the corporation from subsequent challenges. Under Delaware DGCL Section 152, the evaluation of the directors as to the value of such consideration is conclusive in the absence of actual fraud. This protects the board’s decision from second-guessing by shareholders or tribunals, provided that there is a documented and reasonable basis for the valuation.
Board Authority
Directors possess the exclusive power to authorize the issuance of shares and to accept cash or property as payment. They must record this authorization in formal board resolutions that specify the exact consideration to be received before Delaware DGCL Section 152 can shield the transaction. If the board fails to pass these resolutions before issuing shares, the stock may be deemed void or voidable under state law.
Share Issuance
Stock cannot be legally issued until the designated consideration has been fully received by the corporation. This requirement means that future services cannot be used to pay for shares under Delaware DGCL Section 152 unless the board has explicitly authorized a vesting arrangement or another permissible structure. When the transaction is completed, the written board resolutions and the stock certificates are the ultimate proof that the shares were issued in compliance with the statute.
Lacking this proof can create severe issues during audits or funding rounds, where potential investors must verify that every share is legally valid.