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CALIFORNIA CORPORATE & SECURITIES LAW

Want To File A Derivative Suit? You May Soon Be Required To Read Statutes

I have been writing recently about SB 203, a bill that is now pending in the Nevada legislature.  As introduced, the bill would, among other things, require the following: In an action involving or relating to a domestic corporation that is subject to the provisions of NRS 41.520 or alleges a breach of a fiduciary duty by a director…

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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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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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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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What Is A Knowing Violation Of Law?

Nevada’s private corporation law automatically exculpates directors and officers from individual liability from individual liable to the corporation or its stockholders or creditors for any damages as a result of any act or failure to act in his or her capacity as a director or officer unless it is proven that: The director’s or officer’s…

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The Most Important Principles of Delaware Corporate Law Can’t Be Found In the DGCL

I have often observed that you can read every section of the Delaware General Corporation Law and learn almost nothing about Delaware corporate law.  Here are three of the most fundamental principles of Delaware corporate law that you won’t find in the DGCL: The business judgment rule.  This venerable presumption is derived from, but not stated…

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Nevada’s Duty Of Care Standard Fails To Win Summary Judgment For Director

NRS 78.138(1) imposes two explicit duties on directors in the exercise of their powers: they must act in good faith and with a view to the interests of the corporation.  This contrasts with Delaware case law which speaks of a triad of duties comprised of care, loyalty and good faith, with good faith standing a bit…

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Nevada Exculpation Statute Leads To Dismissal Of Claims Against Erstwhile Officer

Nevada, unlike either California or Delaware, exculpates corporate officers from liability to the corporation for any damages as a result of “any act or failure to act” in his or her capacity as an officer unless it is proven that (i) the officer’s action or failure to act constituted a breach of his or her…

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Delaware Court Rules Nevada Law Governs But Applies Delaware Law

Although there are many significant differences between the corporate laws of Nevada and Delaware, the Nevada Supreme Court has often looked across the country to Delaware.  Thus, the Nevada high court has adopted Delaware’s test for demand futility articulated in Aronson v. Lewis, 473 A.2d 805 (Del. 1984) (overruled in part on other grounds by Brehm v. Eisner,…

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How Nevada Surpasses Delaware In Limiting The Liability Of Directors And Officers

It is hard to believe that it has been more than a quarter century since the Delaware Supreme Court dropped the bombshell of Smith v. Van Gorkom, 488 A.2d 858 (Del. 1985).  Suddenly, incorporation in Delaware no longer looked like a good idea (at least from the perspective of a director).  At the time, Chicago…

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