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CALIFORNIA CORPORATE & SECURITIES LAW

California, Delaware And Nevada Differ On Committee Composition

In this prior post, I compared the differing limitations on committee authority under California and Delaware law.  Today’s post focuses on differences in committee composition among California, Delaware and Nevada.  These are summarized in the chart below.  In this post, I’m referring to committees of the board of directors; these are committees that have the power to exercise the authority of the board of directors.  A board of directors could establish other types of committees that would not be subject to these restraints, but those committees would not have the power to exercise the authority of the board of directors.

Perhaps the most radical difference among the three states is Nevada’s authorization to include persons who are not directors.  There are three restraints on this authorization.  First, the person must be a natural person.  Second, at least one member of the committee must be a director.  Thus, a Nevada corporation could have a committee comprised of a single person, but that person must be a director.  Nevada also would not permit a committee to be comprised wholly of non-directors.  Third, the articles of incorporation or bylaws may prohibit the appointment of non-directors.

As I discuss in my Nevada law treatise, the ability to include non-directors on committees engenders some interesting questions.  For example, what fiduciary obligations, if any, do non-director committee members have?  Do non-director committee members get the benefit of Nevada’s liberal exculpatory statute?  Does a board of directors improperly delegate its duties if it appoints a committee comprised of a majority of non-directors?

California
(§ 311)

Delaware
(§ 141)

Nevada
(NRS 78.125)

Minimum Number of Members

2

1

1

All Members Must be Directors

Yes

Yes

No

Why is the SEC soliciting “unnecessary” comments?

I’ve recently written about the SEC’s adoption of an interim final rule permitting issuers to include a summaries in their annual reports on Form 10-K. The adopting release includes the following two statements:

[T]he Commission finds that notice and public comment are unnecessary.

We request and encourage any interested person to submit comments on any aspect of the interim final amendment, other matters that might have an impact on the amendment, and any suggestions for further revisions.

I’m confused.  Why is the SEC soliciting comments when it has already determined comments to be “unnecessary”?

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