Meaning
Statutory authority in the State of Delaware grants the board of directors the final word on the adequacy of the price paid for capital stock. Under the provisions of dgcl section 152, the determination of the board regarding the value of consideration received for shares is conclusive unless actual fraud is proven. This rule prevents minority shareholders from challenging the board’s math later.
It applies specifically to the issuance of stock and does not govern the subsequent sale of those shares between private parties.
Valuation Finality
Board members must meet and formally resolve that the cash, physical property, intellectual assets or past services provided for stock equals the required value. The record of this resolution in the corporate minutes constitutes the definitive proof of the share’s validity. If the board fails to make this explicit determination, the shares might be found voidable in a future dispute.
Asset Diversity
Directors have the power to accept intangible assets such as intellectual property as payment. The law requires a clear statement of what was received to ensure the capital stock is fully paid. This process keeps the cap table stable during high stakes negotiations.
Statutory Standard
Delaware law prioritizes the stability of corporate securities to encourage investment. Reliance on this statute means that once a board acts in good faith, the ownership of the company is settled. This certainty is a central feature of the legal environment for startups.
