recorded webinar


Nevada and Delaware are among the most popular destinations for businesses choosing to incorporate outside their home state. In this recorded webinar, we will highlight some meaningful differences between the two as they relate to corporate law, as well as demonstrate how Nevada is not the “Delaware of the West.”



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We will discuss some of the distinctive aspects of Nevada's corporate and LLC laws, including certain fundamental provisions of Nevada Revised Statutes as well as relevant Nevada cases. Attendees will leave the program with a better understanding of the meaningful differences between Nevada and Delaware corporate law.

The topics to be discussed include:

  • Fiduciary duties of directors and officers and the Business Judgment Rule

  • Takeover and change-of-control considerations

  • Nevada's "Acquisition of Controlling Interest" statutes

  • Nevada's "Combinations with Interested Stockholders" statutes

  • Nevada distinctions regarding appraisal and dissenter's rights

  • Liability of directors and officers

  • Stockholder inspection rights

  • Ratification of defective corporate acts

  • Corporate litigation in Nevada and the Business Court

  • Fiduciary duties in the LLC context

  • Recently enacted and proposed amendments to Nevada's corporate and LLC statutes


Anu: Hello everyone and welcome to today's webinar, Understand the Critical Distinctions in Nevada Corporate and LLC Law. My name is Anu Shah and I will be your moderator. Joining us today are guest speakers Albert Kovacs and Ellen Schulhofer of Brownstein Hyatt Farber Schreck, LLP.

Albert's practice focuses on helping clients navigate complex corporate governance issues with counseling businesses in a wide range or corporate and commercial matters. He also advises clients with respect to Nevada corporate and business law issues arising in litigation, including cases relating to mergers and acquisitions transactions, hostile takeover bids, and stockholder disputes.

Ellen served as the managing partner of Brownstein's Las Vegas office and is on the firm's executive committee. She is primarily responsible for the corporate and business group in Nevada. Ellen and her team represent clients in a broad range of corporate and general business transactions and have served as Nevada council to public and privately held companies.

And with that, let's welcome our presenters.

Albert: Hello everybody. This is Albert Kovacs.

Ellen: And this is Ellen Schulhofer. We're going to go ahead and get started, since we have a lot to cover in an hour. I'm going to just dive in. Just to begin, just general rules of the road in Nevada nomenclature pronunciation. In Delaware, everybody knows the general corporation law of the State of Delaware is what their corporate code is called.

In Nevada, we don't have a short title. We're not The Nevada General Corporation Law. It's the Nevada Revised Statute. Chapter 78 is the Corporation Statute and 92a is the statue that covers mergers, conversions, exchanges, etc., so that's the NRS Chapter 78. You'll hear us refer to NRS a few times, a number of times during this presentation and that's what that refers to.

Just to start, Fiduciary duties in Nevada.

Albert: Real quick point, especially for litigators. You'll notice the pronunciation key that's no longer a license plate in Nevada but it used to be, believe it or not, telling people how to pronounce the name of the state. It is not Nevada. It is Nevada. I have seen judges wince. I have seen judges squint at out-of-town litigators that say Nevada. It's a really bad way to start off, so practice before you start doing any Nevada work.

Ellen: Soft A. So, fiduciary duties in Nevada are codified in our statutes and so is the business judgment rule. In fact, the business judgment rule is codified as a legal presumption in the same statute, which is NRS 78.138. In Nevada, as a matter of law, directors and officers are presumed to act in good faith on an informed basis and with a view to the interest of the corporation and in performing those duties, directors and officers can rely on financial statements, financial data presented by directors, officers and others who are reasonably believed to be reliable and competent.

In Nevada, another distinguishing factor is that we are a constituency jurisdiction. In exercising their powers, directors and officers may but are not required to consider the effect of a decision on several constituencies in addition to the stockholders. That would include the corporation's employees, suppliers, creditors, long and short-term interests of the corporation and its stockholders. Just to underscore this, the NRS specifically states that directors and officers are not required to consider the effects of a proposed corporate action upon any constituent as a dominant factor, so they can weigh those factors as they see fit. In Nevada, it's not always about maximizing stockholder value.

Albert: Just to clarify one point on that, I want to say that in addition to stockholders, the way the statute technically reads, stockholders, including long-term and short-term interests of the stockholders, are listed among the constituencies that the Board may but is not required to consider. So, the constituencies are not on top of the stockholders. The stockholders are among the constituencies. The baseline presumption of the business judgment rule and the fiduciary duties reference the interest of the corporation. In fact, it does not say the interest of the corporation and its stockholders. It's an important distinction. In a second we'll be talking about M&A Context. That is a very important distinction.

Ellen: Absolutely. Under Nevada law, the limitations on personal liability are applied both to directors and officers and neither a director nor an officer is individually liable to the corporation or its stockholders or to creditors for damages for a failure to act unless it is proven that their act constituted a breach of their fiduciary duties and the breach involved intentional misconduct, fraud, or a knowing violation of law. It'd have to be both prongs.

Also, unlike in Delaware, the Nevada statutes do not expressly preclude a corporation from limiting liability for a director's breach of the duty of loyalty or for any transaction from which a director derives an improper personal benefit, so that's a distinction with Delaware.

The NRS also permits a corporation to renounce in its articles any interest or expectancy to participate in specific classes or categories of business opportunities. That's something else to be noted and again, like I said earlier, the provision limiting liability applies both to directors and officers and expressly applies to liabilities as to creditors. In Nevada, it's not necessary to adopt provisions in your articles to limit personal liability, although that's still the custom to put it in your articles and your bylaws or at least one or the other but the limitation is provided by statute so that's not required.

Albert: Big caution point on that. If you are drafting articles of incorporation for a Nevada corporation without advice from Nevada council and you use the standard Delaware exculpation provision, you will be inadvertently increasing the potential liability for your directors and officers under Nevada law. The statute provides that you can increase the risk of personal liability for directors and officers in your articles, so if you include the standard Delaware language that carves out breaches of duty of loyalty, you will have exposed your directors and officers to much greater liability than they would be afforded if you did nothing at all.

Ellen: You're better off saying nothing.

Albert: So, ironically and very often in Nevada, fewer words are better.

Ellen: Second-to-last on this slide is distribution to stockholders. The Nevada law is a little different than Delaware here, or quite different, since Delaware focuses more on surplus and net profits. Nevada provides that no distribution may be made if, after giving it effect, the corporation wouldn't be able to pay its debts as they come due in the usual course of business or total assets would be less than total liabilities plus whatever would be necessary to satisfy preferential rights of preferred stockholders. So, there's an insolvency test and a balance-sheet test. Directors can consider financial statements that are reasonable in the circumstances and other factors in determining whether they pass those tests but those tests need to be passed.

Now there's another difference in Delaware that is pursuant to our statutes. Corporations may actually provide in their articles that they are allowed to make a distribution that would otherwise be prohibited by the balance-sheet test, so you can actually eliminate that test in your articles.

Albert: Yeah, it's the model-act approach with that twist, where you can opt out of the balance-sheet test in your articles. Of course, that doesn't save you from allegations of fraudulent transfers, etc. but may limit the director's liability under 78.300 for an improper distribution.

There is personal liability for directors for making an improper distribution in violation of that statute, however, the personal liability is still subject to the limitations of 138.7 that we talked about earlier in terms of proving a breach of fiduciary duty that involved intentional misconduct brought or known by law. So, that heightened standard for personal liability applies to distributions as well.

One final point on this. We'll talk about this in a little bit more detail later as ratification of corporate act. Nevada does have an expressed statute. It's right at the very beginning, kind of buried with some of the more ministerial previsions, 78.0296 or thereabouts. This is modeled in concept on the Delaware approach but intended to be a lot more user friendly, a lot more concise. I've actually yet to see this statute used in practice and that's probably a good thing. It's intended to be the worst-case scenario.

I think trying to ratify an overissuance of stock or something like that rather than just trying to correct a defective filing. We have a mechanism for that. It's called a Certificate of Correction. That's the preferred approach if you have something that just includes clerical errors or otherwise needs to be fixed. This ratification of corporate acts is for the end-of-the-world scenario or close thereto.

Next, we'll turn to fiduciary duties in the context of a change of control or defensive situations. The quick back run on this, 78.138. So, our codified fiduciary duties have been around for long while, more than 20 years. In 1997, a federal court decided nonetheless, notwithstanding, to clear phrasing of 138, that Revlon duties still apply.

The Nevada legislature in the very next legislative session said, "No, please read more carefully," that that is not the case and actually broke the statute into two pieces. So, now our fiduciary duties are codified in 78.138 and 139. 139 deals with the change or potential change of control scenario and basically, what it says is it points you to 138 and says "Even in the change of control context or a potential change of control, which would include a defensive posture situation, the business judgment rule applies and the fiduciary duties are the same. There is no heightened standard. There is no Revlon. There is no Unocal. The directors have the same fiduciary duties and are entitled to the same presumption of the business judgment rule.

There is one exception. It's very narrow and it's actually laid out with specificity in the statute. That is that there is a precondition to the application of the presumption of the business judgment rule if the directors or officers take an action to impede the ability of the stockholders to vote for or remove directors. The statute then goes on to carve out and say, "Here's what we don't mean by impeding stockholders." Just the time of the meeting, time of the vote does not count as impeding. A poison pill does not count as impeding. That's actually one of several references in our statutes that expressly contemplate the ability of a board to enact poison pill.

The general rule, even in the change of control situation, including a sale of the company, hostile takeover, the baseline rule is business judgment rule applies. There is no heightened standard or precondition to the application of the business judgment rule. There should not be heightened scrutiny.

In fact, we actually have two very recent, meaning as of last week, so recent they're not even in this slide, Nevada Supreme Court cases which are on somewhat technical matters kind of beyond the scope of this introductory presentation but that very specifically re-emphasize the application of the business judgment rule in Nevada and the limitations on courts' ability to second guess the business judgment of directors.

For merger agreements, where this tends to come into play is all the things that are traditionally required because of Revlon duties, go shops, robust auctions, etc. Those are certainly done in Nevada. Think of them as options that are on the buffet table for you to pick and choose what's appropriate in the circumstance but they are not required. It's not a mandatory checklist to go through in order to get the presumption of business judgment rule. That's where you start in Nevada.

Many people do that because it makes sense. If it's good in the circumstance, if the board wants to negotiate a better deal, all that is well and fine. The board can choose to maximize stockholder value, they're just not required to.

Ellen: For merger agreements, just a couple of other things. There's no forced of those in Nevada and boards of directors in Nevada can delegate all of their powers to committees of the board unlike in Delaware. That includes approving mergers, other matters that are submitted to stockholders in a Delaware context. Where you couldn't delegate that to a committee, you can do that in Nevada.

Albert: All of that is by statute, including the no-force-the vote provision. That's actually in our merger statutes, that a force-the-vote provision is unenforceable.

Ellen: Stockholder voting inspection right issues. In Nevada, directors are allowed to buy a plurality of votes unless you provide otherwise in your articles or bylaws. We don't often see other provisions but you can. You can have more than a plurality of votes cast. And the NRS also permits classification of boards, staggered boards. In Nevada, it's four classes as opposed to Delaware's three.

Albert: I've never seen anybody use four but you could do it if you wanted to.

Ellen: But you can, yes. At least one-fourth of the directors has to be elected annually. Removal of directors in Nevada is a little different, again than Delaware and other states. In Nevada, it takes two-thirds of the voting power of the issued now-standing stock entitled to vote to remove a director from office. Nevada law also does not make a distinction between removal for cause or removal without cause, so those are again two differences with Delaware.

Albert: And that two-thirds standard, you can increase in your governing documents but you cannot reduce it.

Ellen: Stockholder meetings. Unless the articles or the bylaws provide for a different proportion of the voting power, a quorum a majority of the voting power. That includes those who are present in person or by proxy and that's regardless of whether proxy has authority to vote on all matters.

The default voting standard for stockholder action in Nevada, except again in the election of directors, which is a plurality, is more votes cast in favor of the action or the proposal than votes cast in opposition. So again, this is a measure of votes actually cast and not of those present at the meeting, for example, extensions, which are not votes cast, are not counted in that scenario. It's a majority of the votes cast. That's the default standard. That doesn't mean you can't provide again for a different standard.

Unless the articles provide otherwise and this has to be in the articles, action may be taken by written consent of the holders of outstanding stock having at least that percentage of votes or the minimum number of votes that would be necessary to take action at a meeting. So, you can take action by written consent unless you provide otherwise in your articles.

Another distinction with Delaware is that the Delaware General Corporation Law requires corporations to give notice of the taking of corporate action without a meeting if it's by less than unanimous written consent. So, all those stockholders who didn't consent in writing, Nevada does not have that requirement.

Bylaws. Directors can make bylaws in Nevada subject to bylaws adopted by the stockholders. I mean, unless otherwise provided by a bylaw that is adopted by the stockholders, directors may adopt, amend or repeal any bylaw, including any bylaw that's adopted by the stockholders. And then the articles may also grant authority to adopt, amend or repeal bylaws exclusively to the directors. Again, we don't see that terribly often but it is something that you are permitted to do under Nevada law.

Albert: You used to see it every once in a while for public companies . . . not so much anymore.

Ellen: Not so much anymore, yeah. Inspection is another distinction with Delaware. Actually, stockholder inspection rights under Nevada law are more limited than in Delaware. There's two statutes, one relating to governing documents and stock ledgers and the othertobooks and records.

In Nevada, stockholder of records who's been a stockholder for at least six months before the demand and holds at least five percent of the outstanding shares or has been authorized in writing by the holders of five percent, may inspect articles and all amendments, bylaws and all amendments and the stock ledger or duplicate stock ledger that shows limited information . . . names, places of residence and number of shares.

Albert: That's the record stockholder list. That is not a no-vote list.

Ellen: And then the books and records rule in Nevada is you can inspect books of account and financial records and make copies and audit them. That is granted only to a stockholder who owns at least 15% of the issued and outstanding shares or has been authorized by 15% and that request can be, as in Delaware, I believe, denied to any stockholder who doesn't furnish an affidavit that says that it's for a purpose related to his/her/its interest as a stockholder.

Note though, that these requirements do not apply to corporation that furnishes detailed annual financial statements or has filed during the last 12 months all reports required under Section 13 or Section 15 via the Securities Exchange Act of 1934. So, if you're a public company, these requirements don't apply to you.

Albert: Yeah, if you're a public company or if you provided a detailed annual report, you're current on your SEC filings, that statute is inapplicable. There is no counterpart to a Delaware 220 fishing expedition for a public company in Nevada. It is not possible. So, an important distinction there for public companies usually welcomed by boards.

Our anti-takeover statutes: Some important distinctions here. Nevada does have a control share law. Unlike Delaware, ours is, I believe, modeled off the Indiana statute. Basically, just puts limitations on voting rights for certain stockholders who make public market acquisitions of shares and go over certain thresholds, one-fifth, one-third majority. The statutes very rarely apply, however, because there are a number of hurdles for them to apply.

For example, you have to have 200 record stockholders and CD & Co. counts as one. Each phrase counts as one. So, some public companies have difficulty even getting to that 200 record stockholders. If you clear that and you have 200 or more, 100 or more of those record stockholders have to have actual Nevada addresses on your stock ledger records. That narrows it down significantly. If you clear that hurdle, you actually have to do business in Nevada directly or through an affiliate corporation.

So, you can see those three hurdles are going to funnel down the potential applicability of this to a pretty small group of companies. If you do find yourself in this scenario, it's pretty easy to opt out. The statutes are a bit quirky. You can opt out of them in your articles or bylaws generally or with respect to a particular stockholder or a particular transaction and that opt-out, the statutes will look at your governing documents the 10th day after the acquisition. So, it doesn't even have to be a permanent bylaw to the amendment, you just have to have it in there on that 10th day and you're good.

Nevada does have a parallel to the Section 203 in Delaware. Ours is called the Combinations of Interested Stockholder Statute. A couple important distinctions there based on changes made in recent amendments and some things that have just been there forever. The applicable threshold to determine if someone's interested or not is 10%, not 15. The three-year limitation in Delaware is two years in Nevada. That's a change from a couple years ago. Nevada does not have a tender offer exception to these statutes, so if you get to 85% ownership, Delaware statutes fall away. Nevada says, "Congratulations, you own 85%. The statutes still apply."

There are some time limitations. If you fall afoul of the combinations statutes, you find that they apply and they only apply to public companies with 200 or more record stockholders. Again, CD & Co. counts as one. If you find yourself in a scenario where a stockholder is counted as an interest stockholder and the statutes would otherwise block a combination, which is a pretty broad definition of a transaction with an interested stockholder. There are backdoors.

In the first two years after they become an interested stockholder, you can still complete a combination, however, you need board approval, you need whatever standard stockholder approval you would need, so for a merger a majority of the outstanding shares and in addition you would need 60% of the outstanding voting power not beneficially owned by the interested stockholder or its affiliates or its associates. So, a supermajority of the minority requirements.

In the second two years after the interested stockholder becomes an interested stockholder, that 60% becomes a majority, so slightly easier but still depending on how many affiliates the interested stockholder has and how much they own can be a difficult threshold to clear. After four years, the statutes fall away. So, if you have someone who goes over 10% in a market acquisition and the statutes would otherwise interfere with their ability to do a deal, if you're willing to wait four years, the whole thing falls away. That's a very recent amendment. That was in 2015.

Key thing for M&A transactions. These are super easy to avoid. All it takes is the board to approve either the combination of the transaction by which the person goes over 10%, 10% before they go over 10%.

Ellen: It has to be before they go over.

Albert: And it has to be before in real time. This is not the kind of thing where you ratify something two years after the fact. This is the trick and this is where people get into trouble. If they have the 15% Delaware number in mind, they could very easily blow through the 10% threshold without realizing it and put themselves in a bind.

Ellen: You can't unring that bell.

Albert: So, once you get near 10%, that's the time to start talking to the board and if you're thinking about a deal, make sure that it is friendly.

Ellen: Dissenter's Rights. Under Nevada laws, stockholders can dissent and obtain payment for fair value. By the way, we call them Dissenter's Rights here, not Appraisal Rights. Although the statutes do refer to Appraisal Rights, the title is Dissenter's Rights.

So, you can dissent in certain types of acquisitions, certain mergers, such as where stockholder approval is required and certain subsidiary mergers, stock exchanges and certain other corporate actions but holders of securities that are listed on a national securities exchange or traded in an organized market and held by at least 2,000 stockholders of record with a market value of at least $20 million are generally not entitled to Dissenter's Rights.

There are exceptions to this. You can provide otherwise in your articles, the board resolutions can expressly provide otherwise and then if the stockholders under the plan of merger have to accept something other than cash or shares of stock of a public company or combination of that then that exception might not apply but generally they are not entitled to Dissenter's Rights.

We don't have really the time to get into the nuances or differences between the mechanics and timing procedures in Delaware and Nevada. Both require technical compliance with the specific notice and payment rules.

Albert: One important distinction . . . in Nevada, once you trade the notices back and forth and someone does confirm that they indeed do want to assert Dissenter's Rights, the company pays the fair value up front before you go to court and that's required. It's optional in Delaware. Now it's permitted in Delaware. In Nevada, it's required, so you pay your fair value up front. That cuts off the interest and then you go to court, maybe, to fight about the margin.

Ellen: Yeah. I mean, the other point, I guess, here is that, I mean, there is case law here, relatively recent I think, that says that the district court determines fair value and litigants in Dissenter's Rights actions have to present the evidence of fair value using at least one valuation method and they have to convince the court why their method should be given more weight than the other person's method.

It's somewhat similar to Delaware. I guess what I would say in conclusion is that they are different and as Albert just pointed out, that's one major distinction, so just be sure to check the statutes. They're all in Chapter 92a. They're not in Chapter 78. Or, check with a Nevada practitioner on the process.

Albert: The determination of fair value, the actual process that the court will use, I believe, is identical to Delaware. Both sides bear the burden of proof but the court is not required to accept either side, so the court makes its independent determination of fair value on its own.

Ellen: The only other thing about Dissenter's Rights I'd say is we do have an exclusive remedy provision in our Dissenter's Rights statute that says that stockholders who are entitled to dissent and obtain payment may not challenge the corporate action unless the action wasn't lawful or fraudulent with respect to the stockholder or the corporation but there is case law that limits this limitation and very broadly defines fraudulent to mean not just common-law fraud but also acts involving fiduciary duties. And that has opened the doors since that case in 2003 to continuing challenges of transactions, even when the stockholders have Dissenter's Rights.

Albert: Right. So, what looks like a pretty express limitation, the Nevada Supreme Court has blown a giant hold in it. One other point on Dissenter's Rights. Because we have the market, the exchange-listed exception there for public company, in the acquisition of a public company, including for cash, like Ellen said, there is no Dissenter's Rights, which means even in a cash-only deal, appraisal arbitrage is impossible in Nevada. It cannot be done because those rights don't exist.

Up next, ratification of corporate acts. We touched on it. I'm not sure I have anything further to add. What I mentioned before, this is kind of the worst-case scenario, relatively new back in 2015. As far as I know, it's still relatively untested. Conceptually premised on Delaware but the mechanics are intended to be more Nevada in style and ease of use.

Recent amendments. To keep current on changes if you were previously familiar with Nevada law. In 2015 the Nevada legislature did enact what we call a commerce tax. Some of us use some expletives in front of that term. Nevada does not have any franchise tax. There is a fee that's required to be paid for corporations based on the stated capital in your articles.

If you're good at math, you can reduce your par value down to a tenth of a penny and even for public companies, get that fee often down to a couple thousand or sometimes even less than $1,000 a year. On top of that, we have a state business license fee of $500 a year for corporations. That is $200 a year for LLCs.

The commerce tax, however, applies to all business entities in Nevada and all business entities, whether or not they do business in Nevada, are required to file a commerce tax return. I've done this personally for an LLC I had. It takes about 25 seconds once you figure out how to do it. It's all online and very easy.

Only if you have over $4 million of Nevada nexus revenues is there even a possibility that you will even actually have any tax liability under this statute. It's just something to be mindful of for companies that actually generate revenues tied to the state of Nevada, to make sure their accountants, if they aren't already, are aware of this and just things get filed properly and paid on time.

In 2015 with the ratification or corporate acts, also that year was the four-year outer limitation on our interested stockholder statutes, so again, our parallel with Delaware 203. Some clarifications on rather ministerial things relating to communications-only stockholder meetings, which are now permitted expressly.

Some just grammatical clarifications of our statutory safe harbor of dealing with interested directors and officers and clarifying our record gate provisions to make sure that people know when and whether they have to establish a new record gate if they postpone a meeting as opposed to adjourning it.

Twenty-seventeen was supposed to be a very big year and I'll talk about those now as proposed amendments for 2019. The politics of the Nevada legislature thwarted that a little bit but hopefully just delayed things rather than actually impeded them.

Ellen: Our legislature meets every two years, so our only shot at changing these statutes is every other year in the odd year, so the next time the legislature will kick up is January of 2019. Then we'll go through June of 2019 and that's when we expect, hope that these next few changes Albert's going to discuss are going to get approved.

Albert: One thing that did get through in 2017, which goes into effect on October 1st is Senate Bill 203, which adds to Chapter 78. An express finding of a policy by the Nevada legislature clarifies and confirms the internal affairs doctrine in Nevada, that the laws of the state of Nevada govern the internal affairs of domestic corporations including duties and liabilities of the directors, officers, and stockholders. Also, it expressly states that the plain language of the statutes, which is intended to govern and operate as written with minimal, if any, interpretation that must not be replaced or supplanted by judicial decisions from other jurisdictions, cough, cough, Delaware.

We should not have Delaware cases premised on Revlon interpreting our corporate statutes which expressly reject Revlon. We also include a clarification there that says, "Obviously, directors and officers of Nevada corporations are going to be aware of case law from other jurisdictions including Delaware" and they can be informed by that. Like I said, the buffet of options that has been produced by Delaware case law is obviously something that boards can consider but their failure to follow that, even if they consider that is not evidence of a breach of fiduciary duty.

A couple in that same bill. There have been a couple clarifications to 78.138 and 139, again, intended to make those provisions more user friendly, more plain and clear on their face and more readily accessible to lawyers and directors and officers without the need for judicial interpretation.

We have very little case law in Nevada notwithstanding the three important Supreme Court cases that have come out in the last month. We very rarely get a business case out of our Supreme Court that impacts these statutes. The ones we've gotten recently have all indicated a very strong bolstering of the business judgment rule and an emphasis on judicial restraint in terms of interfering with business decisions by directors. So, the recent Supreme Court cases that we have seen all support the plain reading of the statutes, which is encouraging.

A couple other ministerial things in 2017, very technical things regarding the timing of the initial list of directors and officers that must be submitted when you form an entity. It used to be you had up to 60 days to file that. Now, you have to do it right away. Very technical things regarding Series LLC and this is technical details beyond the scope of what we're talking about.

In 2019, many of these things we were hoping to get in 2017 didn't happen. We will be proposing an express statutory provision to confirm the well-established and accepted and viable practice in Nevada of putting form selection provisions in your articles and bylaws. For those of you who may be asking, "Well, what about fee-shifting?" Fee shifting, we don't have a statute that permits that. I have not seen any Nevada public companies do it. It's been discussed. I haven't seen anybody pull the trigger.

The reason for that is because we have a statute that limits imposing liability for the corporation stats on stockholders. So, if fee-shifting were to work in Nevada, it would have to be done via an article's amendment, which just makes it tougher to do and even then, I'm not sure that that would be consistent with the policy of the statute. So, fee-shifting, potentially viable but definitely on the riskier side of things.

Another big thing would be adopting a Nevada parallel to Delaware's 251h, so we could have our own intermediate form merger statute that would cover more than just tender offers. In Nevada, the tender offer plus top-up approach still works. Until we can get our version of 251h into place, that's the way it would need to be done. You don't have that shortcut.

When we get our statute in place, the plan is to have not only a conceptual counterpart to 251h but for public companies with the right amount of notice in advance, if you have a situation where someone or a group owns sufficient shares to accomplish, say for example, a merger, it eliminates the need to hold a completely perfunctory and faded company stockholder meeting and just provide adequate advance notice so that if someone doesn't like the deal they can challenge it and that kind of thing but to hopefully streamline that for public companies. That would just be for public companies.

A big issue we'll talk about later that at the State Bar Annual Meeting this year was a big topic of discussion is trying to clarify our law on fiduciary duties for limited liability companies. More details on that later.

Also, hoping to eliminate aiding and abetting liability for financial advisors and other advisors of corporations in instances where the board or the directors are not themselves personally liable because of the limitations of 138.7, the logic being if the directors are not on the hook, it's not fair to just shift your attention to the bankers.

There are some technical qualifications. We would also like to try to close the hole blown in the exclusive remedy provisions of our Dissenter's Rights provisions and try to limit that to actual fraud rather than the very broad definition of fraud to try to make that exclusive remedy provision in our Dissenter's Rights statutes have some actual teeth.

One other thought is we currently have a veil-piercing statue for corporations in 78.747. It simply codifies Nevada case law on the subject. Ideally, we have something paralleling that for Nevada LLCs, however, I think the better guidance is that that's probably already the case anyway because of the concepts enacted in case law.

Ellen: On corporate litigation. Neither of us are litigators but we do work with our litigators. We have a few things on the slide. I won't go through everything. Our judges are elected, including our Supreme Court. Any other distinction with Delaware is that we do permit jury trials in corporate law cases. That's been the case for a while. Until recently, we had no appellate court and we still have, I would say, no true intermediate appellate court but we have a Court of Appeals.

Albert: We did have a Supreme Court.

Ellen: We always had a Supreme Court. We have never had an intermediate appellate court. As Albert had said earlier, I think a couple times, we don't have a lot of published decisions although lately there have been more and maybe there will be more in the future but right now, we don't have a lot of case law. There are really very few Nevada Supreme Court cases directly interpreting the statutes we've been talking about. There's only a handful. o again, here you always look at the statutes first. There may be some case law but probably not and it's just rare to find cases on point.

District courts hear in Nevada corporate law cases but there are business courts that are available both in Washoe County, which is where Reno is and in Clark County, which is where Las Vegas is and there's statutory procedure for transferring cases between counties to get your case in front of the business court judge. It's just a designation. These judges tend to get more of the business cases, so they tend to know these statutes well and the case law well but it's not a chancery court.

The big point in this is something we always, Albert alluded to earlier and we always tell people when we're consulted, that many practitioners who come from out of state think you can just apply to all our corporate case law here or corporate law here but our courts have held, as Albert said earlier. The Delaware case law, while it may be persuasive in the absence of Nevada statutes and precedent on point for an issue of corporate law, it doesn't take the place of clear guidance from Nevada courts and statutes. So, if our statutes directly address an issue or our Nevada case law does, in that situation Delaware case law isn't going to apply and like in the case of Revlon we specifically legislated around that.

In our experience, we found that the Nevada business court judges apply Nevada law as Albert said and really, this has all been reinforced by SB-203. They're going to apply the plain reading and meaning of the statutes. They'll look at our legislative history and obviously our case law but only after all that will they look at other sources of interpretation or policy concerns and that's only when it's not clear in Nevada what was intended.

Albert: I think you'll see an interesting point, that in the absence of the Nevada law our courts will tend to look at Delaware but they don't automatically apply Delaware law. In fact, very recently one of the Supreme Court cases we just saw deals with the Nevada Supreme Court adopting New York law over Delaware law in the context of deferring to the business judgment of a special litigation committee in the case of a derivative demand.

Again, you can see there what the Supreme Court did is they thought the New York law was more consistent with the deferential approach and business judgment rule approach under Nevada law and rejected the more intrusive approach under Delaware law. So, Delaware law is kind of the first go to but it's not a lock. It's not an automatic kneejerk application.

Ellen: It may be persuasive.

Albert: It may be persuasive. It's not a guarantee.

Next to LLCs. Nevada's LLC statutes tend to be a little more, I won't call them bare bones but they don't have as many default provisions or automatic provisions as you might see in other jurisdictions like New Jersey or California or even Delaware. The emphasis in Nevada is on the LLC existing as a creature of contract, so there are some bare minimum default provisions that apply if you're signing governing documents but the emphasis is on flexibility. The bottom line is if you want it to work a certain way, write it down that way, be precise, be careful, be complete, do not expect the statutes to fill in the gaps, do not expect the court to fill in the gaps.

A big issue like I mentioned earlier is fiduciary duties, default fiduciary duties for Nevada LLCs. Unlike Delaware, which kind of folded in Delaware case law in fiduciary duties in 18.1104. Nevada does not have that provision on this point. We tried to clarify it in 2013 to make our LLC statutes look more like our Limited Partnership statutes and kind of have LLCs be a make-it-what-you-want-it-to-be creature of contracts, so there would be no default fiduciary duties for members with management authority or managers of an LLC and if you want that to apply, put it in your governing documents. That did not make it through in that form.

What did get through is what was intended to be somewhat of a clarification that you see on the screen right now to that same effect that says, "If and to the extent that there are fiduciary duties," and those kinds of things. The addition of "if" was intended to help clarify that there should not be default fiduciary duties implied as a matter of law as opposed to what it expressly just built up in the governing document.

However, the statute in many folks' view, including mine, is still ambiguous and ideally, we would have a clarification one way or the other in Nevada so that people know and we don't have to wait who knows how long for a Nevada Supreme Court case to resolve the issue. In Nevada, we prefer not to wait for our judges to make law for us. We prefer to have our legislature to make the law and ideally, that will be handled in 2019.

Ellen: No matter what, you have at least the covenant in good faith and fair dealing. I think that's the only part of that statute that's clear at a minimum.

Albert: Which would be in any contract but that's the same as Delaware. The difficulty of waiting for a judicial decision on this or adopting something similar to what Delaware did, where they just folded in case law . . . say, for example, we were to put verbatim the Delaware approach into our statutes. The first question would be "Who's cases?" Delaware can do that because their fiduciary duties for corporations are premised on case law.

In Nevada, our fiduciary duties not only are based in statutes, they're different from Delaware, so if you fold in "the common law" of fiduciary duties to our LLC statute, it just compounds the ambiguity. It actually makes the problem worse, so hopefully, in 2019 we'll see a precise answer to this.

I'm almost to the point where I don't care which way it comes out. We just need an answer because whichever way it comes out, you can always make it different in your governing document. But people do need some guidance because not everybody is careful and precise and complete in their governing documents and the law should provide some guidance and surety to those folks as well.

This next slide. These are the potential approaches that will be debated by the state bar and I'm sure by legislators in 2019 and hopefully, among all the other changes we discussed, this issue will be clarified in Nevada. Until then, the general rule of thumb is if you want it to work a certain way, write it down, be precise, be careful, be complete. Don't rely on the statutes to burn your gas and don't rely on a court to know what you meant. Precision is key.

I think that's all we have aside from these delightful graphics on the last page. General rule of thumb, notwithstanding the myths that the nomenclature that Nevada is the Delaware of the west. I never quite know whether that's a compliment or a pejorative. Depending on my mood, it's probably a little bit of both. Do not assume that Delaware law controls a Nevada entity. In some instances, that can be moderately problematic. In some cases, it can result in personal liability for your directors. In other cases, it could mean your deal is prohibited for four years.

So, on the margins, it could have profound impact. Middle of the road, it can impact how deals are negotiated and how boards of directors conduct their affairs, make decisions and proceed with the company's business. So, when in doubt, call or look it up. Don't assume that Delaware is the rule of the road. The biggest tip and/or trick we can give to everybody.

With that, we're happy to take any questions.

Anu: Thank you, Albert and Ellen. The presentation was great. I've been getting lots of feedback immediately about it. Everybody was very engaged and found this to be quite . . .