True-Value Rule Law and Legal Definition
True value rule is a principle of corporate law that a person who subscribes for and receives corporate stock must pay par value for it, in either money or its equivalent, so that a corporation's real assets square with its books. If true value is less than par value, the stock is deemed unpaid for to the full extent of the difference. In such cases the affected shareholder is liable to the creditors for the difference, notwithstanding the directors' good faith.
The following is an example of a case law on the rule:
By the "true value rule," nothing except money or money's worth is to be regarded as payment for shares of capital stock in corporations, regardless of whether the transaction is entered into in good faith or not. By this rule one who subscribes for and receives stock of a corporation must pay therefore the par value thereof, either in money or money's worth, so that the real assets of the corporation at the outset at least shall square with its books. When either by fraud, accident or mistake, stock of a corporation, so subscribed for and delivered, has not been so paid for in money or money's worth, the holder thereof, wherever the true value rule is in force, is liable to the creditors of the corporation to the full extent of the difference between the par value of the stock and the money or money's worth paid or turned over to the corporation in payment therefore. "Money or money's worth" means cash or its equivalent. If the directors see fit to accept property in lieu of cash they can only take it at its fair cash market value, if it is property which had an ascertainable market value. If it has no ascertainable market value, then the only price at which the directors could purchase it is such price as could be realized by selling it to others for cash.[De Shelter v. American Spring Water Supply Co., 182 Ill. App. 403 (Ill. App. Ct. 1913)]
