Creditors' right to insist upon full value contribution by shareholders

Shareholders are obligated on various theories to contribute full value to the corporation for shares received. Both the trust fund theory and the holding-out theory seek to emphasize shareholders' responsibilities to creditors. While jurists have more or less abandoned the trust fund doctrine as untenable it may be emphasized none the less that even that doctrine gave creditors no right to insist upon full payment for shares unless they had "exhausted their remedies at law."

Nevertheless, the creditors, if their claims are unpaid, might well insist that shareholders contribute full value for their shares on the grounds that the incorporation statute has been violated: i.e., on the grounds of the statutory-obligation theory. All this, of course, is on the assumption that the corporation is solvent. An insolvent corporation is in a different position; and here, perhaps, the trust fund doctrine has greater cogency. As the United States Supreme Court once said:

Solvent, it [the corporation] holds its property as an individual holds his, free from the touch of a creditor who has acquired no lien; free also from the touch of a stockholder who, though equitably interested in, has no legal right to, the property. Becoming insolvent, the equitable interest of the stockholders in the property, together with their conditional liability to the creditors, places the property in a condition of trust, first, for the creditors, and then for the stockhold- ers. Whatever of trust there is arises from the peculiar and diverse equitable rights of the stockholders as against the corporation in its property and their conditional liability to its creditors. It is rather a trust in the administration of assets after possession by a court of equity than a trust attaching to the propety, as such, for the direct benefit of either creditor or stockholder.