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CALIFORNIA CORPORATE & SECURITIES LAW

Why Nevada Is A More Reliable Alternative To Delaware

Directors and officers cannot always base their decisions on first-hand information.  As a practical matter, they must receive and act based on information and opinions of others. The question then becomes whether a director’s or officer’s decision will be protected when it was made in reliance upon others.  Section 141(e) of the Delaware General Corporation…

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Nevada Seizes Delaware’s Business Entity Formation Crown

Delaware has long dominated the market for incorporations.  Thus, I was surprised to see University of Nevada Law Professor Eric H. Franklin write that Nevada enjoys a 4 to 1 advantage over Delaware in corporate formations.  If this seems inexplicable, there is an explanation.  Delaware accounts for three times as many business formations as Nevada.…

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Officers: Got Business Judgment Rule? Nevada Says Yes, Delaware Maybe Not

Francis Pileggi writes about a recent ruling by U.S. District Judge Sue L. Robinson in which she refused to consider whether the business judgment rule applied to officers of a Delaware corporation: Defendants have cited to no cases where a Delaware court has held that the business judgment rule applies to corporate officers; therefore, the court…

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SEC Overlooks Nevada’s Transfer Agent Licensing Laws

Transfer agents provide a number of crucial services, primarily for publicly traded companies.  Among other responsibilities, they maintain ownership records, record security transfers, issue and cancel certificates and distribute dividends.  Since 1975, persons performing transfer agent services for public companies must be licensed by the “appropriate regulatory authority” (“ARA”) pursuant to Section 17A(c) of the…

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Court Rules Coequal Stockholders Owe Fiduciary Duties To Each Other

Stockholders in closely held corporations often operate their companies as if they were partnerships.  Does that mean that the stockholders, like partners, owe fiduciary duties to each other? In Jones v. H. F. Ahmanson & Co., 1 Cal. 3d 93 (1969), the California Supreme Court famously held: Majority shareholders may not use their power to…

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The Charging Order – How The Nevada Secretary Of State Doesn’t Get It Quite Right

In 2007, Nevada imposed an interesting limitation, the charging order, on the ability of creditors to foreclose on shares of closely-held Nevada corporations.  Here’s how the Nevada Secretary of State’s website describes the statute, NRS 78.746: Charging order protection for stock of closely-held corporations protects stockholders of all Nevada corporations with between 2 and 75…

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Nevada’s Secretary of State Concatenates Veil Piercing, Indemnification And Exculpation

The Nevada Secretary of State’s website unabashedly proclaims “Nevada is the second most popular commercial filing jurisdiction in the country, due largely to our favorable business laws and low-tax environment.”  The website then continues with a list of “legal advantages”, including the following: Piercing the corporate veil in Nevada requires the presence of “fraud” or…

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The Tax Man Cometh To Nevada Businesses

Nevada likes to market itself as a low tax jurisdiction, touting the fact that “Nevada does not impose income tax on domestic or foreign corporations.”  It may not impose a tax on income, but it does impose a tax on “commerce”.  This new tax is imposed on businesses with a “Nevada gross revenue” exceeding $4 million in the taxable year.  A…

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Nevada Corporations And Virtual Stockholder Meetings

Companies typically cite cost savings and ease of access as the motivation for holding virtual stockholder meetings.  Andy D. Bryant, Chairman of the Board of Intel Corporation, for example, provided the following rationale in the company’s 2016 proxy materials: Intel has for years been a leader in the use of technology to improve and broaden…

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Three Considerations For Drafting A Code of Business Conduct

Although the Securities and Exchange Commission does not require that a company adopt a code of business conduct and ethics, I would be very surprised to hear of an SEC reporting company that has not adopted such a code.  Item 406 of Regulation S-K requires a reporting company to disclose whether it has “adopted a code of ethics…

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