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Corporations • Stock Issuance
CORP#020
Legal Definition
The corporation can recover the loss from the purchasing shareholder and the directors who authorized the sale.
Plain English Explanation
The par value sets a minimum, legally binding price floor. If a director authorizes the sale of a share below the par value, then the corporation can sue the director and the purchaser to recover the lost value.
Hypothetical
Hypo 1: SuperCorp has set a par value of $1 per share. Bob is a director of SuperCorp. One day, Sam asks Bob if he can purchase 1,000 shares of SuperCorp for $900. Bob says, "Sure! We could use the money." Result: SuperCorp can sue Bob and/or Sam to recover the $100 in lost value from Bob selling Sam 1,000 shares below par value.
