Senate Bill No. 124–Senator Titus

 

February 13, 2003

____________

 

Referred to Committee on Judiciary

 

SUMMARY—Revises statutory liability of stockholders, directors and officers of corporations. (BDR 7‑100)

 

FISCAL NOTE:  Effect on Local Government: No.

                          Effect on the State: No.

 

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EXPLANATION – Matter in bolded italics is new; matter between brackets [omitted material] is material to be omitted.

 

AN ACT relating to corporations; revising the statutory liability of stockholders, directors and officers of a corporation; and providing other matters properly relating thereto.

 

THE PEOPLE OF THE STATE OF NEVADA, REPRESENTED IN

SENATE AND ASSEMBLY, DO ENACT AS FOLLOWS:

 

1-1  Section 1. NRS 78.037 is hereby amended to read as follows:

1-2  78.037  The articles of incorporation may also contain [any] :

1-3  1.  A provision eliminating or limiting the personal liability of

1-4  a director or officer to the corporation or its stockholders for

1-5  damages for breach of fiduciary duty as a director or officer, but

1-6  such a provision must not eliminate or limit the liability of a

1-7  director or officer for:

1-8  (a) Acts or omissions which involve intentional misconduct,

1-9  fraud or a knowing violation of law; or

1-10      (b) The payment of distributions in violation of NRS 78.300.

1-11      2.  Any provision, not contrary to the laws of this state[:

1-12      1.  For] , for the management of the business and for the

1-13  conduct of the affairs of the corporation[;

1-14      2.  Creating,] , and any provision creating, defining, limiting or

1-15  regulating the powers of the corporation or the rights, powers or

1-16  duties of the directors, the officers or the stockholders, or any class

1-17  of the stockholders, or the holders of bonds or other obligations of

1-18  the corporation[; or

2-1  3.  Governing] , or governing the distribution or division of the

2-2  profits of the corporation.

2-3  Sec. 2.  NRS 78.138 is hereby amended to read as follows:

2-4  78.138  1.  Directors and officers shall exercise their powers in

2-5  good faith and with a view to the interests of the corporation.

2-6  2.  In performing their respective duties, directors and officers

2-7  are entitled to rely on information, opinions, reports, books of

2-8  account or statements, including financial statements and other

2-9  financial data, that are prepared or presented by:

2-10      (a) One or more directors, officers or employees of the

2-11  corporation reasonably believed to be reliable and competent in the

2-12  matters prepared or presented;

2-13      (b) Counsel, public accountants, financial advisers, valuation

2-14  advisers, investment bankers or other persons as to matters

2-15  reasonably believed to be within the preparer’s or presenter’s

2-16  professional or expert competence; or

2-17      (c) A committee on which the director or officer relying

2-18  thereon does not serve, established in accordance with NRS 78.125,

2-19  as to matters within the committee’s designated authority and

2-20  matters on which the committee is reasonably believed to merit

2-21  confidence,

2-22  but a director or officer is not entitled to rely on such information,

2-23  opinions, reports, books of account or statements if he has

2-24  knowledge concerning the matter in question that would cause

2-25  reliance thereon to be unwarranted.

2-26      3.  Directors and officers, in deciding upon matters of business,

2-27  are presumed to act in good faith, on an informed basis and with a

2-28  view to the interests of the corporation.

2-29      4.  Directors and officers, in exercising their respective powers

2-30  with a view to the interests of the corporation, may consider:

2-31      (a) The interests of the corporation’s employees, suppliers,

2-32  creditors and customers;

2-33      (b) The economy of the state and nation;

2-34      (c) The interests of the community and of society; and

2-35      (d) The long-term as well as short-term interests of the

2-36  corporation and its stockholders, including the possibility that these

2-37  interests may be best served by the continued independence of the

2-38  corporation.

2-39      5.  Directors and officers are not required to consider the effect

2-40  of a proposed corporate action upon any particular group having an

2-41  interest in the corporation as a dominant factor.

2-42      6.  The provisions of subsections 4 and 5 do not create or

2-43  authorize any causes of action against the corporation or its directors

2-44  or officers.

3-1  [7.  Except as otherwise provided in NRS 35.230, 90.660,

3-2  91.250, 452.200, 452.270, 668.045 and 694A.030, a director or

3-3  officer is not individually liable to the corporation or its

3-4  stockholders for any damages as a result of any act or failure to act

3-5  in his capacity as a director or officer unless it is proven that:

3-6  (a) His act or failure to act constituted a breach of his fiduciary

3-7  duties as a director or officer; and

3-8  (b) His breach of those duties involved intentional misconduct,

3-9  fraud or a knowing violation of law.]

3-10      Sec. 3.  NRS 78.300 is hereby amended to read as follows:

3-11      78.300  1.  The directors of a corporation shall not make

3-12  distributions to stockholders except as provided by this chapter.

3-13      2.  Except as otherwise provided in subsection 3 , [and NRS

3-14  78.138,] in case of any willful or grossly negligent violation of the

3-15  provisions of this section, the directors under whose administration

3-16  the violation occurred are jointly and severally liable, at any time

3-17  within 3 years after each violation, to the corporation, and, in the

3-18  event of its dissolution or insolvency, to its creditors at the time of

3-19  the violation, or any of them, to the lesser of the full amount of the

3-20  distribution made or of any loss sustained by the corporation by

3-21  reason of the distribution to stockholders.

3-22      3.  The liability imposed pursuant to subsection 2 does not

3-23  apply to a director who caused his dissent to be entered upon the

3-24  minutes of the meeting of the directors at the time the action was

3-25  taken or who was not present at the meeting and caused his dissent

3-26  to be entered on learning of the action.

3-27      Sec. 4.  NRS 78.7502 is hereby amended to read as follows:

3-28      78.7502  1.  A corporation may indemnify any person who

3-29  was or is a party or is threatened to be made a party to any

3-30  threatened, pending or completed action, suit or proceeding, whether

3-31  civil, criminal, administrative or investigative, except an action by

3-32  or in the right of the corporation, by reason of the fact that he is or

3-33  was a director, officer, employee or agent of the corporation, or is or

3-34  was serving at the request of the corporation as a director, officer,

3-35  employee or agent of another corporation, partnership, joint venture,

3-36  trust or other enterprise, against expenses, including attorneys’ fees,

3-37  judgments, fines and amounts paid in settlement actually and

3-38  reasonably incurred by him in connection with the action, suit or

3-39  proceeding if he[:

3-40      (a) Is not liable pursuant to NRS 78.138; or

3-41      (b) Acted] acted in good faith and in a manner which he

3-42  reasonably believed to be in or not opposed to the best interests of

3-43  the corporation, and, with respect to any criminal action or

3-44  proceeding, had no reasonable cause to believe his conduct was

3-45  unlawful. The termination of any action, suit or proceeding by

4-1  judgment, order, settlement, conviction or upon a plea of nolo

4-2  contendere or its equivalent, does not, of itself, create a presumption

4-3  that the person [is liable pursuant to NRS 78.138 or] did not act in

4-4  good faith and in a manner which he reasonably believed to be in or

4-5  not opposed to the best interests of the corporation, or that, with

4-6  respect to any criminal action or proceeding, he had reasonable

4-7  cause to believe that his conduct was unlawful.

4-8  2.  A corporation may indemnify any person who was or is a

4-9  party or is threatened to be made a party to any threatened, pending

4-10  or completed action or suit by or in the right of the corporation to

4-11  procure a judgment in its favor by reason of the fact that he is or was

4-12  a director, officer, employee or agent of the corporation, or is or was

4-13  serving at the request of the corporation as a director, officer,

4-14  employee or agent of another corporation, partnership, joint venture,

4-15  trust or other enterprise against expenses, including amounts paid in

4-16  settlement and attorneys’ fees actually and reasonably incurred by

4-17  him in connection with the defense or settlement of the action or suit

4-18  if he[:

4-19      (a) Is not liable pursuant to NRS 78.138; or

4-20      (b) Acted] acted in good faith and in a manner which he

4-21  reasonably believed to be in or not opposed to the best interests of

4-22  the corporation. Indemnification may not be made for any claim,

4-23  issue or matter as to which such a person has been adjudged by a

4-24  court of competent jurisdiction, after exhaustion of all appeals

4-25  therefrom, to be liable to the corporation or for amounts paid in

4-26  settlement to the corporation, unless and only to the extent that the

4-27  court in which the action or suit was brought or other court of

4-28  competent jurisdiction determines upon application that in view of

4-29  all the circumstances of the case, the person is fairly and reasonably

4-30  entitled to indemnity for such expenses as the court deems proper.

4-31      3.  To the extent that a director, officer, employee or agent of a

4-32  corporation has been successful on the merits or otherwise in

4-33  defense of any action, suit or proceeding referred to in subsections 1

4-34  and 2, or in defense of any claim, issue or matter therein, the

4-35  corporation shall indemnify him against expenses, including

4-36  attorneys’ fees, actually and reasonably incurred by him in

4-37  connection with the defense.

4-38      Sec. 5.  NRS 78.747 is hereby repealed.

 

5-1  TEXT OF REPEALED SECTION

 

5-2  78.747  Liability of stockholder, director or officer for debt

5-3   or liability of corporation.

5-4  1.  Except as otherwise provided by specific statute, no

5-5   stockholder, director or officer of a corporation is individually

5-6   liable for a debt or liability of the corporation, unless the

5-7   stockholder, director or officer acts as the alter ego of the

5-8   corporation.

5-9  2.  A stockholder, director or officer acts as the alter ego of a

5-10   corporation if:

5-11      (a) The corporation is influenced and governed by the

5-12   stockholder, director or officer;

5-13      (b) There is such unity of interest and ownership that the

5-14   corporation and the stockholder, director or officer are inseparable

5-15   from each other; and

5-16      (c) Adherence to the corporate fiction of a separate entity would

5-17   sanction fraud or promote a manifest injustice.

5-18      3.  The question of whether a stockholder, director or officer

5-19   acts as the alter ego of a corporation must be determined by the

5-20   court as a matter of law.

 

5-21  H