Meaning
Delaware General Corporation Law Section 152 is a statutory provision that governs the lawful consideration for which a corporation may issue stock, establishing the parameters under which shares acquire valid legal existence. Directors hold the authority to determine the amount of consideration received for shares, and their judgment regarding valuation remains conclusive in the absence of actual fraud. Corporation statutes require this determination to precede issuance, ensuring that capital accounts reflect genuine inflows before equity enters circulation.
Valuation Standard
Board determination creates the baseline for stock validity, operating as the primary mechanism for establishing share pricing during capital raises. Directors calculate this figure through asset appraisals, future earnings projections or comparable enterprise evaluations, matching the valuation to the economic reality of the transaction. Stock issued below par value or for invalid consideration creates assessable liability for the holder, exposing investors to claims from corporate creditors during insolvency events.
Consideration Type
Lawful payment takes the form of cash, labor done, personal property, real property, leases or any combination thereof, expanding the permissible assets beyond monetary contributions. Promissory notes executed by the purchaser present distinct compliance hurdles, because unfulfilled future services or unsecured promises often fail to satisfy statutory prerequisites for fully paid shares. Treasury shares occupy a separate category, allowing the entity to reissue previously acquired stock without applying identical primary issuance constraints.
Issuance Consequence
Fully paid and non-assessable status attaches immediately once the board accepts the qualifying consideration, insulating the shareholder from future capital calls by the entity or its claimants. Stock distributed without receiving adequate payment remains voidable, triggering corrective recapitalization efforts or rescission rights that complicate subsequent financing rounds. Capitalization tables mirror these mechanics by recording the exact ratio between nominal par values and paid-in surplus, translating statutory compliance into clean accounting entries for prospective acquirers.
