MBE Rules · Business Associations
Consideration for Shares
Cal. Corp. Code § 409
The rule
Shares may be issued for money paid, labor done, services rendered, or property received — not for future services or unsecured promissory notes; the board's valuation of consideration is conclusive absent fraud.
In plain English
Shares can be issued in exchange for various forms of consideration, including cash, work performed, services provided, or property transferred. However, shares cannot be issued for future services or unsecured promises to pay, and the board's assessment of the value of the consideration is final unless there is evidence of fraud.
Worked example
A company issues 1,000 shares to an investor in exchange for $10,000 in cash. The board values the cash as adequate consideration for the shares. If the investor later claims the shares were issued for a future promise of services, the claim fails because the consideration was properly exchanged for cash.
Memory hook
Shares need real value now, not just promises for the future!
The trap
Exams may present scenarios where students confuse valid consideration with future promises, leading to incorrect conclusions about share issuance.
How examiners test it
Questions often involve fact patterns where students must identify whether the consideration for shares meets the legal requirements, particularly distinguishing between valid and invalid forms of consideration.
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