Organizers or subscribers liable to extent minimum capital not paid.

- To the extent that the minimum capital has not been paid in, the organizers of the corporation or the subscribers to the stock, as the case may be, are liable to creditors. Eubanks v. Allstate Ins. Co., 441 F.2d 7 (5th Cir. 1971).

As a matter of law, when the stock of a corporation is not subscribed for up to the minimum amount of capital fixed by the charter, and none of it is paid in, if the corporators organize, elect themselves officers, proceed to business, contract debts up to and beyond the nominal capital, having paid in nothing whatever, they commit a legal fraud by so doing, and are liable to creditors to make good the minimum capital, together with interest thereon, should this be necessary to discharge the corporate debts. Howard v. Long, 142 Ga. 789, 83 S.E. 852 (1914); Smith v. Citizens & S. Bank, 148 Ga. 764, 98 S.E. 466 (1919).

Promoters initially liable on provisional contracts.

- Prior to the formal and complete organization of a corporation, the organizers of it may make provisional contracts in behalf of the corporation, which may become binding on the corporation after it begins business; but in the meantime, and until the corporation is legally organized, the promoters are liable as partners. Rosenheim Shoe Co. v. Horne, 10 Ga. App. 582, 73 S.E. 953 (1912), later appeal, 14 Ga. App. 13, 80 S.E. 24 (1913).

Purpose.

- The requirement of former Civil Code 1910, § 2220 (see now O.C.G.A. § 14-4-63) was for the purpose of creating a fund for the ultimate benefit of those who may extend credit to the corporation. John V. Farwell Co. v. Jackson Stores, 137 Ga. 174, 73 S.E. 13 (1911); Smith v. Citizens & S. Bank, 148 Ga. 764, 98 S.E. 466 (1919).

Capital stock of a corporation is deemed a trust fund for payment of its debts. Williams v. Clemons, 178 Ga. 619, 173 S.E. 718 (1934); Eubanks v. Allstate Ins. Co., 441 F.2d 7 (5th Cir. 1971).

Section is strictly construed.

- Former Civil Code 1910, § 2220 (see now O.C.G.A. § 14-4-63) was in derogation of the common law, and must be strictly construed. John V. Farwell Co. v. Jackson Stores, 137 Ga. 174, 73 S.E. 13 (1911); Ham v. Robinson Co., 146 Ga. 442, 91 S.E. 483 (1917).

Former Civil Code 1910, § 2220 (see now O.C.G.A. § 14-4-63) was remedial, and not penal; and a cause of action thereunder does not abate with the death of one liable by virtue of the statute. Ham v. Robinson Co., 146 Ga. 442, 91 S.E. 483 (1917).

Section not applicable to actions ex delicto.

- The cause of action given to creditors against persons who organize a company and transact business in its name before the minimum capital stock has been subscribed, does not include an action by one whose claim or demand against the corporation is ex delicto and does not spring from contract, express or implied. Howard v. Long, 142 Ga. 789, 83 S.E. 852 (1914).

Breach of lease contract constitutes debt.

- The claim of the plaintiff for damages for breach of a contract of lease, made with the persons who organized the company transacted business in its name before the minimum capital stock had been subscribed, is a debt within the meaning of former Civil Code 1910, § 2220 (see now O.C.G.A. § 14-4-63). American Ice Cream Mfg. Co. v. Economy Laundry Co., 148 Ga. 624, 97 S.E. 678 (1918).

What constitutes "minimum capital stock."

- When the application for charter and the charter of the corporation name only one sum as the proposed capital of the corporation, that sum is the "minimum capital stock" which former Civil Code 1910, § 2220 (see now O.C.G.A. § 14-4-63) required to be subscribed for in order to relieve the organizers of the corporation from individual liability to creditors. Rosenheim Shoe Co. v. Horne, 10 Ga. App. 582, 73 S.E. 953 (1912), later appeal, 14 Ga. App. 13, 80 S.E. 24 (1913); Smith v. Citizens & S. Bank, 148 Ga. 764, 98 S.E. 466 (1914).

Only bona fide subscriptions counted.

- In determining whether the minimum capital stock in a corporation has been subscribed, only bona fide subscriptions should be counted; colorable and illusory subscriptions, and conditional subscriptions, unless the conditions have been performed and the subscriptions thus made absolute before the persons organizing such corporation begin business in its name, should be rejected. Athens Apt. Corp. v. Hill, 156 Ga. 437, 119 S.E. 631 (1923).

Participation in transaction of business essential to liability.

- Under former Civil Code 1910, § 2220 (see now O.C.G.A. § 14-4-63), participation in the transaction of the business as well as in the organization of the company was essential to liability, so that a bill failing to allege that defendant stockholders participated in the transaction of the business by the company is insufficient. O.B. Andrews Co. v. Willingham, 286 F. 117 (5th Cir. 1923).

Accrual of cause of action.

- Although the debtor corporation, chartered in 1923, never received enough capital stock for its organization, the four-year statute of limitations for fraud did not begin to run upon the organization of the corporation, but began to run when a debt was incurred with plaintiff creditor bank in 1927; because no cause of action arose against corporation organizers before they transacted business in its name, a suit brought in 1930 was not barred. Rucker v. Mobley, 178 Ga. 496, 173 S.E. 392 (1934).

Creditor's right to presume that statute complied with.

- The requirement of the statute that the minimum capital stock of a corporation shall be subscribed for before the organizers thereof shall transact business in its name is obviously for the purpose of creating a fund, when the subscriptions to the amount of the minimum capital stock shall have been paid, for the ultimate benefit of those who may extend credit to the corporation; and such persons have the right to presume that the statute has been complied with, and to rely, if necessary, upon the statutory liability of those failing to observe the law. Williams v. Clemons, 178 Ga. 619, 173 S.E. 718 (1934).

Remedy in equity.

- The liability imposed by former Civil Code 1910, § 2220 (see now O.C.G.A. § 14-4-63) constituted a trust fund for the benefit of all creditors, and an action at law cannot be maintained by one creditor among many for the appropriation of the whole or any part of such liability to the creditor's own benefit, to the possible exclusion of all or any of the other creditors; but the remedy is in equity by a petition brought at the instance of one or more creditors and in behalf of all other creditors who may come in and be made parties plaintiff to the action. Hill & Merry v. Jackson Stores, 137 Ga. 174, 73 S.E. 13 (1911); Mobley ex rel. State Banking Co. v. Rucker, 176 Ga. 178, 167 S.E. 104 (1932).

Organizers liable for debts even after stock transfer.

- Persons who organize a company and transact business in its name before the minimum capital stock has been subscribed for, but who afterwards sell and transfer their stock and interest in the company, are nevertheless subject to the liability prescribed by former Civil Code 1910, § 2220 (see now O.C.G.A. § 14-4-63) for the satisfaction of debts subsequently contracted by the corporation. Williams v. Clemons, 178 Ga. 619, 173 S.E. 718 (1934).

Organizers committing fraud upon creditors.

- Organizers of a company who transact business in its name before the minimum capital stock has been subscribed for are considered as committing a fraud upon those who may extend credit to the company, and former Civil Code 1910, § 2220 (see now O.C.G.A. § 14-4-63) imposed a liability upon them for engaging in such fraudulent transaction, and they should not be allowed to escape the statutory penalty for such fraud by disposing of their stock. Williams v. Clemons, 178 Ga. 619, 173 S.E. 718 (1934).

Creditor's knowledge that minimum capital stock not subscribed as defense.

- If at the time credit was extended the creditor knew that the requisite amount of capital stock had not been subscribed, the creditor would not have been misled, and as to that creditor the persons organizing the corporation and transacting business in its name would not be estopped from pleading such knowledge as a defense to a suit brought under former Civil Code 1910, § 2220 (see now O.C.G.A. § 14-4-63). Lowe v. Byrd, 148 Ga. 388, 96 S.E. 1001 (1918); Farmers Whse. & Fertilizer Co. v. Macon Fertilizer Works, 150 Ga. 429, 104 S.E. 207 (1920); Athens Apt. Corp. v. Hill, 156 Ga. 437, 119 S.E. 631 (1923); Williams v. Clemons, 178 Ga. 619, 173 S.E. 718 (1934).

Running of statute of limitations.

- In an action for fraud under former Civil Code 1910, § 2220 (see now O.C.G.A. § 14-4-63), the statute of limitations did not begin to run until the plaintiffs had knowledge that the minimum capital stock of the corporation had not been subscribed for before the organizers thereof began to transact business in the name of the corporation. Williams v. Clemons, 178 Ga. 619, 173 S.E. 718 (1934).

Am. Jur. 2d.

- 18 Am. Jur. 2d, Corporations, § 96 et seq.

ALR.

- Inadequate capitalization as factor in disregard of corporate entity, 63 A.L.R.2d 1051.