Meaning
Statutory authority mandates that a board of directors receives adequate value for shares issued by an entity. Delaware general corporation law section 152 requires that such consideration consists of cash, tangible property, labor performed, or other assets owned by the corporation.
Payment Sufficiency
Boards hold the responsibility to establish the monetary value of non-cash inputs before authorizing an issuance. This evaluation creates a recorded internal determination that establishes the basis for the exchange. Accuracy in this valuation prevents future claims that the issuance was gift-like or lacked parity.
Approval Process
Directors pass a formal resolution to document the specific type and amount of consideration accepted in return for company stock. Documentation of this event serves as the primary evidence that a company fulfilled its obligation to receive full value. When a board fails to log these specific findings, the validity of the shares remains open to challenge during equity audits or ownership disputes.
Compliance Requirement
Failure to secure tangible value matching the par value or issued price of the stock threatens the characterization of the shares as fully paid and non-assessable. A company that issues paper without receiving valid consideration incurs risk regarding the enforceability of its capitalization table. Proper adherence to these rules secures the legal status of the equity against claims of insufficiency.
