In some states, a shareholder who receives watered stock may be liable to creditors of the corporation for unpaid corporate debts.

Question

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Watered stock refers to shares issued by a corporation that are not fully paid for, meaning that the corporation did not receive the full value of the shares. If creditors of the corporation are not paid, they may seek to recover the unpaid debts from the shareholders, including those who received watered stock. This can result in the shareholder being held personally liable for the corporate debts. Therefore, in some states, a shareholder who receives watered stock may be liable to creditors of the corporation for unpaid corporate debts.

In Some States, a Shareholder Who Receives Watered Stock May