Wednesday, July 12, 2017

Nevada D&Os won’t face liability for ignoring Delaware practice

By Anne Sherry, J.D.

Directors and officers of Nevada corporations will soon have assurance that they need not abide by other states’ laws or practices. SB 203, which takes effect October 1, also clarifies the factors that a director or officer may consider when resisting a change in control and tightens the burden of proof required for an officer or director to be individually liable.

Laws of other jurisdictions. The text of the bill expresses the legislature’s finding that Nevada’s laws, including the fiduciary duties and liabilities of officers and directors of domestic corporations, “must not be supplanted or modified by laws or judicial decisions from any other jurisdiction.” Accordingly, the law establishes that while directors and officers “may be informed by” other jurisdictions’ laws, judicial decisions, and best practices, the failure or refusal to take those other sources into account is not a breach of fiduciary duty.

Burden of proof. Nevada law already established a presumption that directors and officers act in good faith, on an informed basis, and with a view to the interest of the corporation. The bill clarifies that individual liability arises only upon (1) rebuttal of this presumption and (2) proof of a breach of fiduciary duty involving intentional misconduct, fraud, or a knowing violation of law.

Resisting a change-in-control. The amended law also makes clear that when resisting a change of control (or exercising other powers), directors and officers may consider the long- or short-term interests of the corporation or its stockholders, including the possibility that these interests may be best served by the corporation’s continued independence. A director may resist a change in control if the board determines it is opposed to or not in the best interest of the corporation, upon considering the relevant factors, including the nature of the indebtedness and other obligations that would result. Directors and officers may consider or assign weight to the interests of a particular person or group, but they are not required to consider, as a dominant factor, the effect of a corporate action on any particular group or constituency.