Colorado § 7-106-203 - Liability of shareholders.

§ 7-106-203. Liability of shareholders.

(1) A purchaser from a corporation of shares issued by the corporation is not liable to the corporation or its creditors with respect to the shares except to pay the consideration for which the shares were authorized to be issued under section 7-106-202 or stated in a subscription agreement under section 7-106-201.

(2) Unless otherwise provided in the articles of incorporation, a shareholder or a subscriber for shares of a corporation is not personally liable for the acts or debts of the corporation; except that such person may become personally liable by reason of the person's own acts or conduct.

(3) Any person becoming an assignee or transferee of shares or of a subscription for shares in good faith and without knowledge or notice that the full consideration therefor has not been paid shall not be personally liable to the corporation or its creditors for any unpaid portion of such consideration.

Source: L. 93: Entire article added, p. 757, § 1, effective July 1, 1994. L. 2003: (1) amended, p. 2317, § 230, effective July 1, 2004.

ANNOTATION

Law reviews. For article, "Some Observations on Living Trusts", see 7 Dicta 3 (1930).

Annotator's note. Since § 7-106-203 is similar to § 7-4-120 as it existed prior to the 1993 recodification of the "Colorado Business Corporation Act", articles 101 to 117 of title 7, cases construing that provision and its predecessors have been included in the annotations to this section.

This section recognizes a subscriber who has not paid his subscription as a stockholder. See Mtn. Water Works Constr. Co. v. Holme, 49 Colo. 412, 113 P. 501 (1911); Lilylands Canal & Reservoir Co. v. Wood, 56 Colo. 130, 136 P. 1026 (1913).

The intention of this section is that stock issued by a corporation shall represent value. Buck v. Jones, 18 Colo. App. 250, 70 P. 951 (1902).

By virtue of this section a corporate creditor may maintain an action against an individual stockholder and recover to the amount of unpaid stock held by him. Smith v. Londoner, 5 Colo. 365 (1880).

Although the creditor who sues is also a stockholder in the corporation, this fact does not make any difference, provided he has paid in full for the stock held by him and consequently is not individually liable for the debts of the corporation. Smith v. Londoner, 5 Colo. 365 (1880).

But a stockholder is not liable for the acts of the corporation beyond his statutory liability, and a majority stockholder, in the absence of a showing that he used his interest for fraudulent purposes, is governed by the same rule. Liebhardt v. Wilson, 38 Colo. 1, 88 P. 173 (1906).

And proof that stock is not full paid is essential to maintenance of an action against stockholders under this section, and the burden is on plaintiff to make such proof. Speer v. Bordeleau, 20 Colo. App. 413, 79 P. 332 (1905); Henry v. Semonian, 27 Colo. App. 487, 150 P. 818 (1915).

A complaint joining the company and stockholders as defendants does not misjoin the parties, and a separate judgment may be rendered against a stockholder in the same suit for unpaid debts of the corporation. Smith v. Colo. Fire Ins. Co., 14 F. 399 (D. Colo. 1882); Tabor v. Goss & Phillips Mfg. Co., 11 Colo. 419, 18 P. 537 (1889).

To protect fiduciaries from personal liability, it must appear on the books of the corporation that the holding is in such capacity. Adams v. Clark, 36 Colo. 65, 85 P. 642 (1906).

Entry of personal judgment against stockholder was proper. Where stockholder, who owned practically all of the outstanding stock of the debtor corporation and was their principal officer, transferred corporate property to himself and then resold and leased the property, the interests of third parties would not be voided and thus, entry of personal judgment against the stockholder in favor of the creditor of the corporation was proper. Epcon Co. v. Bar B Que Baron Int'l, Inc., 32 Colo. App. 393, 512 P.2d 646 (1973).

Corporate veil pierced by application of the alter ego doctrine. Where the corporate entity has been used to defeat public convenience, or to justify or protect wrong, fraud, or crime, or in other situations where equity requires, stockholders may be held personally liable for corporate obligations. Reader v. Dertina & Associates Marketing, 693 P.2d 398 (Colo. App. 1984).

Outside reverse piercing is appropriate when a claimant demonstrates that a controlling insider and a corporation are alter egos of each other and justice requires recognizing the substance of that relationship over the form to achieve an equitable result. Outside reverse piercing claims occur when a corporate outsider pressing an action against a corporate insider seeks to disregard the corporate entity and to subject corporate assets to the claim or when an outsider with a claim against a corporate insider seeks to assert that claim against the corporation in an action between the claimant and the corporation. Outside reverse piercing actions involve a corporate outsider seeking to obligate a corporation for the debts of a dominant shareholder or other corporate insider. In re Phillips, 139 P.3d 639 (Colo. 2006).

This section is not limited by § 12-2-131 (2)(d). Magnuson v. Smith and Saetveit, P.C., 722 P.2d 1020 (Colo. App. 1986).

Failure of corporation to provide legally required workmen's compensation insurance does not per se meet test for piercing of the corporate veil. Matter of Death of Smithour, 778 P.2d 303 (Colo. App. 1989).

Applied in Colo. Fuel Co. v. Sedalia Smelting Co., 13 Colo. App. 474, 59 P. 222 (1899).