The theory of the law is that all corporate securities are issued in exchange for cash, or other value, equivalent at least to the nominal value of the shares. If shares are issued without proper consideration, they may be cancelled as invalid. An important case in point was decided in the State of New York in 1912. It appears, according to testimony, that at the time Henry O. Havemeyer was president of the American Sugar Refining Company, he undertook, in behalf of his company, to purchase shares of the National Sugar Refining Company and otherwise to help finance that concern. In return for his services he received $10,000,000 of the common stock of the National Sugar Refining Company. When suit was brought against his estate several years later for cancellation of this issue, it was decided by the courts that insufficient consideration had been received, and that the whole issue should be declared void.

Some governments will not permit payment for stock to be made in anything except cash. The State of New Jersey allows payment in cash and property, excluding services. These limitations, however, are of no great practical importance, for it is a very simple matter to arrange for an exchange of checks which will satisfy the technical requirements of the law and at the same time accomplish the identical purpose that would have been accomplished if property or services had been directly accepted in payment for the stock.

In this country stock is seldom issued for less than its par value, and is seldom allowed to remain permanently "partly paid." In England partly paid shares are common, especially in banking corporations. In this case the unpaid portion of the shares remains as a liability of the shareholder and is therefore a source of strength to the institution. In both countries, with very few exceptions, shares that are issued for cash, property, or services valued at less than the par value of the shares, carry with them an obligation on the part of the holder to pay up the difference at any time that the corporation - or the receiver for the corporation if it should become insolvent - may call upon him to do so. This liability does not, however, extend to an innocent holder for value.

A bona fide purchaser for value and without notice of stock issued by a corporation as "paid up" cannot be held liable on such stock in any way, either to the corporation, corporate creditors, or to other persons, even though the stock was not paid up as represented. Such a purchaser has a right to rely on the representations of the corporation that the stock is paid up.*

Partly paid stock may at some later date be made full-paid if the corporation prospers and accumulates a sufficient surplus to enable it to declare a stock dividend equivalent to the unpaid portion of the shares. Some time ago one Utah corporation, the stock of which had been only 20% paid, found itself in a position to declare an 80% stock dividend. There was probably no doubt about the legality and the propriety of this procedure. The corporation's surplus was genuine, and it was much better for the shareholders to be relieved of their obligation than to continue to carry so much of a surplus account.

Under certain conditions shares may be sold by a corporation below their par value and still be regarded as full-paid. -The chief condition is that the corporation shall be in need of funds and shall not be able, with reasonable effort, to dispose of its shares at or above their par value. In the same way an insolvent corporation may be permitted to issue some of its shares, in payment of its debts, at a price below the par value of the stock.

*Cook on Corporations, §50.