Nevada Doubles-Down as a Pro-Business Leader: Officer and Director Powers, and What Every Company Must Know About SB203Sep 28, 2017 Published Article
Nevada has long been hailed as one of the most business-friendly jurisdictions in the United States and one of the most benevolent to its domestic corporations. From a corporate standpoint, Nevada has been nicknamed the “Delaware of the West” for many years. Perhaps partially in an effort to shed that ostensibly complimentary comparison and move the Silver State into its own singular identity as a corporate haven, the 79th Session of the Nevada Legislature enacted Senate Bill 203, which pronounces Nevada’s intent to rely solely upon Nevada law for determining liability of directors and officers of a Nevada corporation.
Prior to the enactment of SB 203, Nevada courts often looked to the decisions of courts in other states (typically Delaware) for guidance in the interpretation and application of Nevada laws concerning liability of corporate directors and officers. For example, in 2011, the Nevada Supreme Court adopted a standard applied by Delaware courts relating to “aiding and abetting a breach of fiduciary duty” – a cause of action that did not explicitly exist in Nevada law prior to the Court’s invocation of guidance from Delaware. In re Amerco Derivative Litig., 127 Nev. 196, 252 P.3d 681 (2011).
Under SB 203, Nevada courts will be restricted from interpreting or enlarging Nevada law based on the law or court opinions of other states. The Nevada Legislature specifically affirmed that:
- Foreign law cannot influence Nevada law on director and officer duties and liabilities; and
- Directors and officers will have rigorous and definitive protections against allegations of breach of fiduciary duty.
The Nevada Declaration
The most significant amendment under SB 203 is the addition of a four-paragraph preamble to NRS 78.138, which declares that the plain meaning of the laws enacted by the Nevada Legislature, with specific regard to liability of directors and officers of a Nevada corporation, cannot be modified by laws or court decisions from other jurisdictions. By adding this unilateral statement, the Legislature handcuffed Nevada’s courts’ ability to interpret or apply the statute in any manner inconsistent with the broad protections it provides.
Simplified Director and Officer Protections
While NRS 78.138 and NRS 78.139 already contained substantial protections for officers and directors of Nevada corporations, SB 203 expands and clarifies those safeguards by requiring a trier of fact to overcome three significant hurdles to hold a director or officer individually liable. Any claimant attempting to hold an individual director or officer personally liable must:
- Rebut the presumption that directors and officers act in good faith;
- Prove the alleged actions or inactions constituted a breach of fiduciary duty; and
- Show that the breach involved intentional misconduct, fraud or a knowing violation of law.
SB 203 further reinforces the limitations on individual director and officer liability by amending NRS 78.138(4). This amendment broadens director and officer powers to allow them to consider any facts and assign any weight to those facts when exercising their powers and judgment on behalf of the corporation. This is a strict rebuke of Nevada’s borrowed case law, which stated the interests of shareholders should be a dominant factor in determining a potential breach of fiduciary duty. Ultimately, this amendment allows directors and officers of Nevada corporations to implement a business strategy without significant fear of retribution from disgruntled shareholders.
Simply stated, SB 203 creates nearly uncompromising obstacles to holding directors or officers of Nevada corporations personally liable for their actions taken on behalf of the corporation. The SB 203 amendments to Chapter 78 of the Nevada Revised Statutes go into effect October 1, 2017.