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Texas has been getting most of the headlines in the DExit sweepstakes, but earlier this week, the Nevada legislature adopted amendments to the state’s corporate statute that provide a reminder that The Silver State is still a formidable competitor in the race to dethrone Delaware as the nation’s preferred jurisdiction of incorporation.

The most notable changes involve enabling Nevada corporations to adopt charter provisions waiving jury trials for stockholder lawsuits, and defining the fiduciary duties owed by controlling stockholders, establishing a procedure for cleansing transactions involving controlling stockholders, and limiting their liability.  This excerpt from a Business Law Prof Blog on the amendments summarizes the changes affecting controlling stockholders:

Duties

The legislation also addresses controlling stockholder duties. The Nevada Business Law Section explains the change as providing:

that the only fiduciary duty owed by a controlling stockholder is to refrain from exerting undue influence over a director or officer with the purpose and proximate effect of inducing a breach of fiduciary duty by said director or officer that (a) results in liability under NRS 78.138 and (b) involves a contract or transaction where the controlling stockholder has a material and nonspeculative financial interest and results in a material, nonspeculative and nonratable financial benefit to the controlling stockholder.

Cleansing

The changes allow for disinterested directors to approve a transaction with a controlling stockholder, granting a presumption that there was no breach of fiduciary duty.

The proposed amendment further provides the presumption that there is no breach of fiduciary duty by a controlling stockholder if the underlying contract or transaction has been approved by either (1) a committee of only disinterested directors or (2) the board of directors in reliance upon the recommendation of a committee of only disinterested directors.

Liability

The legislation also gives controlling stockholders protection similar to the Nevada business judgment rule for officers and directors. It also notes that Nevada aims to “maintain Nevada’s competitive advantage as a leader in stable, predictable and common-sense corporate law.”

The amendments also address Delaware’s Activision-Blizzard decision by clarifying that Nevada directors do not need to approve “final” merger documents and allowing them to use their business judgment to decide when the documents are sufficiently “substantially final” for board approval.

– John Jenkins