Amendments to Nevada Corporation & LLC Laws

Nevada, known for its business-friendly tax climate and strong liability protections, continues to set the standard for corporate governance in the United States. 

Last year, the Silver State enacted several major amendments to its limited liability company (LLC) and corporation laws that will significantly impact businesses’ operations. That said, it’s vital for entrepreneurs like you to understand their implications and adapt your strategies accordingly. 

This blog will explore the latest amendments to Nevada’s corporation and LLC laws and their various implications.

Nevada’s Assembly Bill No. 126 (AB 126)

AB 126 was approved by the Nevada Legislature and Gov. Joe Lombardo last May 30, 2023. Sponsored by Assemblyman Duy Nguyen and state Sen. Rochelle Nguyen, the bill made several major amendments to Title 7 of Nevada Revised Statutes (NRS), which governs business entities, including corporations and limited liability companies (LLCs).

Some of the most notable changes it brought to the NRS are: 

Amendment of Voting Standard For Reverse Stock Splits

The bill provides public-traded corporations relief regarding the stockholder voting standards for a reverse stock split. 

A reverse stock split is a crucial measure for public companies that allows them to reduce the number of outstanding shares in the market. It’s an effective strategy that allows corporations to keep their listings on a national stock exchange. 

But to do this, the company must obtain the “majority of the outstanding voting power” vote as required by NRS 78.2055. The same rule applies even if most responsive stockholders support the split. 

Fortunately, AB 126 has removed the “majority of the outstanding voting power” requirement, replacing it with the same voting standard corporations use for stockholder voting. This way, public companies with non-responsive stockholders can preserve their exchange listing. 

Clarifications & Enhancements Regarding Books & Records Inspection Demands

According to NRS 78.257, stockholders with at least 15% outstanding shares can inspect certain corporate records. 

AB 126 clarifies this statute, indicating that stockholders with statutory rights of inspection can request access to “books of account and financial statement of the corporation.” 

The bill also authorizes a corporation’s board of directors to require stockholders to enter and comply with a confidentiality agreement “having such terms and scope as are reasonably related to protecting the legitimate interests of the corporation” before the inspection. 

Lastly, AB 126 also identified the standards for imposing penalties on corporations that fail to comply with the inspection requirements. 

Corporate Name Changes

Existing Nevada corporation laws make name-changing difficult for corporations. As per NRS 92A. 180, corporations can only change their names without a stockholder vote through a short-form merger with a wholly-owned subsidiary. 

This approach can be time-consuming. So, as a solution, Ab 126 amended NRS 78.390 to allow corporations to amend their articles of incorporation with the approval of their board of directors. 

This way, they can change their names without needing stockholder approval. 

However, it’s worth noting that if the company’s articles of incorporation explicitly prohibit such amendments without stockholder approval, the initial requirement will remain. 

Correcting Erroneously Filed Records

AB 126 also clarifies the scope of NRS 78.0295, which allows Nevada corporations to correct certain inaccurate or defective records filed with the Office of the Nevada Secretary of State. 

According to the amendment, corporations can now correct clerical errors in filings and inaccurate filings. This includes filings made using the wrong form, which should not have been made in the first place. 

The same revisions were made to corresponding statutes for LLCs and other business entities. 

Scope of “Poison Pill” Defensive Measures

AB 126 clarifies the actions that a company’s board of directors can use when adopting arrangements or plans. 

It specifically states that while the law doesn’t stop directors from taking action to protect the company or its shareholders, it also doesn’t give them the right to go against other Nevada laws. This is especially true when changing the terms or powers of shares already authorized or sold. 

The main point of these revisions is to allow the use of “poison pill” defense strategies, which companies typically use to defend themselves from hostile takeovers. Under this new amendment, businesses can adopt poison pill defense strategies without fear of violating Nevada’s corporation laws. 

Informational Statements For Uncertificated Shares

Before the enactment of AB 126, corporations were required to send annual information statements containing information that would otherwise be included in stock certificates to stockholders with uncertificated shares. 

The bill’s amendments eliminate this burdensome administrative obligation by indicating that informational statements for uncertificated shares be delivered to stockholders within a reasonable timeframe after issuance or within 10 days after the holder submits a request. 

Other Amendments to Nevada’s Corporation Laws

There are other notable changes that AB 126 made to NRS Chapter 78, which governs Nevada’s corporations, such as:

• Clarifying NRS 78.242 to provide more specific guidelines regarding under what circumstances a restriction on transfer will be binding on a share transferee. 
• Eliminating a potential conflict in NRS 92A. 133 that allows a third party to conduct a tender offer and subsequent merger without stockholder approval
• Bringing attention to the requirement of giving a written statement to stockholders with uncertificated shares and providing parameters to reflect the corporations’ practices concerning NRS 78.235. 

Key Takeaway

These amendments reflect Nevada’s commitment to becoming one of the country’s leading destinations for incorporation. By adapting its legislation to the evolving needs of its corporations, the Silver State created an environment where businesses could thrive and grow. 

If you want to know more about the implications of AB 126 on your corporation or LLC, let NCH’s business specialists help you. 

NCH is a premier business formation service provider in Nevada. Our business specialists will guide you through the intricacies of these new laws. With years of experience and expertise in Nevada’s corporation and LLC laws, we can ensure your company complies with the state’s latest legislation. 

Whether you’re a new entrepreneur hoping to incorporate your business or an established business navigating regulatory changes, NCH is here to provide you with all the support you need. 

To learn more about our services, visit our website here or call us at 1-800-508-1729 to schedule a consultation with one of our business specialists. 

Disclaimer: The above material has been prepared for informational purposes only, containing opinions of the provider, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Please consider consulting tax, legal, and accounting advisors before engaging in any transaction.