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CALIFORNIA CORPORATE & SECURITIES LAW

Is Nevada Free-Loading On The SEC?

Nevada’s corporate law continues to attract attention from the academic community.  In a recent paper, three professors of accounting at West Chester University of Pennsylvania undertook a forensic examination of Nevada’s place in the market for corporate charters. Cataldo, A. J., Fuller, L., & Miller, T. (2014).  An Analysis of SEC and PCAOB Enforcement Actions against Engagement Quality Reviewers: A Comment and Extension in Support of the Nevada Effect. Journal of Forensic & Investigative Accounting, 6(2), 157-199.

First, the good news (for Nevada):

The two market share leaders in the market for corporate law have been and remain confined to Delaware and Nevada.  Nevada’s share of this market is increasing.

Id. at 157 (footnote omitted).

The bad news (at least for Nevada’s reputation) is that the professors found Nevada corporations to be over represented in SEC and PCAOB regulatory actions during the period from 1993 to 2008.  The good news (for Delaware) was that they found Delaware corporations to be under represented during the same period.

In more bad news (for Nevada), the professors found:

Nevada’s gains of corporate filing revenues, however, may be coming at the expense of the rest of the U.S.  Nevada is consuming a disproportionate share of Federal regulatory resources, at least where the SEC is concerned.

The professors therefore urge that the objective of future investigations be “to determine if and to what extent Nevada is free-loading on limited or scarce SEC and other Federal regulatory resources, including, but not limited to the SEC and PCAOB.”

Coincidentally, the authors cite my article, Silver Standard: There are many benefits to incorporating in Nevada, but tax avoidance is not one of them, Los Angeles Lawyer (November): 32-42 and an article by Rolin P. Bissell, The race to the top in state corporate law: The Delaware Model, Critical Legal Issues Working Paper Series 126 (November).  It so happens that Rolin and I will be speaking a week from Friday in Los Angeles at the 2014 Annual Delaware & California Law Update Symposium (Formerly Known as the Glendon Tremaine Symposium).

If you want a deep dive into Nevada corporate law, please take a look at my book, Bishop and Zucker on Nevada Corporations and Limited Liability Companies.

 

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