With broad bipartisan support emblematic of the state’s pro-business atmosphere, the Nevada Legislature has approved—and Gov. Joe Lombardo has signed—Assembly Bill No. 126 (AB 126).
Passed under the leadership and guidance of co-sponsors Assemblyman Duy Nguyen and state Sen. Rochelle Nguyen, AB 126 makes certain meaningful amendments to Title 7 of the Nevada Revised Statutes (NRS), which governs business entities, including corporations and limited liability companies. The changes became effective upon Gov. Lombardo’s signature on May 30, 2023, but have yet to be codified.
AMENDMENT OF VOTING STANDARD FOR REVERSE STOCK SPLITS
AB 126 provides publicly traded corporations with relief with respect to the stockholder voting standard for the approval of a reverse stock split. For some publicly traded corporations, a reverse stock split is a crucial mechanism by which the company is able to maintain its listing on a national stock exchange. However, if the company has a broad retail stockholder base or has difficulty getting a response from its stockholders, it can be difficult to obtain the “majority of the outstanding voting power” vote previously required under NRS 78.2055 to effectuate a reverse stock split, even if a majority of the responsive stockholders overwhelmingly support such a split.
The revisions to NRS 78.2055 in AB 126 allow a publicly traded corporation (but not privately held corporations) to decrease the number of issued and outstanding shares of a class or series with the approval of the stockholders using the voting standard (established either by the NRS or set forth in the corporation’s governing documents) for “routine” matters, rather than requiring the stricter “majority of the outstanding voting power” standard. This approach permits a publicly-traded corporation with a non-responsive stockholder base to preserve its vital exchange listing, while still requiring stockholder approval of the split using the same voting standard as the corporation uses for other matters submitted for a stockholder vote.
CLARIFICATIONS AND ENHANCEMENTS REGARDING BOOKS AND RECORDS INSPECTION DEMANDS
NRS 78.257 gives any person who owns at least 15% of the outstanding shares of stock of a corporation (or who has been authorized in writing by the holders of at least 15% of the outstanding shares of stock) to inspect certain corporate records. AB 126 refines the phrasing of the statute to clarify that the documents available for inspection are “books of account and financial statements of the corporation” and also codifies the commonly implemented practice of a corporation conditioning such inspection upon the stockholder entering into and complying with a “confidentiality agreement having such terms and scope as are reasonably related to protecting the legitimate interests of the corporation.” The amendments also clarify the standards for the imposition of penalties upon the corporation for failure to comply with the inspection requirements.
CORPORATE NAME CHANGES WITHOUT STOCKHOLDER VOTE
Existing Nevada law provides a mechanism whereby a corporation can change its name without a vote of the stockholders by way of a short-form merger with a wholly-owned subsidiary pursuant to NRS 92A.180. AB 126 eliminates the need for this time-consuming and outdated method by amending NRS 78.390 to provide that the articles of incorporation may be amended to change the name of a corporation with only the approval of the board of directors, and without the approval of the stockholders, unless the articles expressly forbid the corporation from amending the articles in such manner without stockholder approval.
AUTHORIZATION TO CORRECT ERRONEOUSLY FILED RECORDS
Nevada corporations may correct certain inaccurate or defective records filed with the Office of the Nevada Secretary of State pursuant to NRS 78.0295. AB 126 amends NRS 78.0295 to clarify that its scope encompasses not only clerical defects within a filing, but also a situation in which a filing was made erroneously—i.e., the filing should not have been made at all or should have been made on a different form or in a different manner. The revised section reflects the common understanding and usage of NRS 78.0295. The same revisions were made to the corresponding statutes in NRS Title 7 for limited liability companies and other Nevada business entities.
CONFIRMATION OF THE SCOPE OF “POISON PILL” DEFENSIVE MEASURES
AB 126 clarifies the actions available to a corporation’s board of directors with respect to the adoption or signing of plans, arrangements or instruments. Specifically, it confirms that, while these sections do not limit the ability of corporate directors to take action to protect the interests of the corporation or its stockholders, these subsections do not give or imply any right of directors to circumvent or contravene other provisions of Nevada law, especially with respect to alteration of the terms and powers of existing authorized or outstanding shares. The primary emphasis of these subsections is to expressly permit the implementation of “poison pill” defensive measures.
INFORMATIONAL STATEMENTS FOR UNCERTIFICATED SHARES
Prior to the effectiveness of AB 126, NRS 78.235 required a corporation to send holders of uncertificated shares an annual information statement containing the information that would otherwise be on the stock certificates evidencing their shares. As amended by AB 126, such an information statement must only be delivered to holders of record of uncertificated shares within a reasonable time after the issuance or transfer of such shares on the corporation’s books, or within 10 days after a written request from the stockholder of record. This should eliminate a particularly time-consuming, burdensome and needless administrative obligation, especially for public corporations.
OTHER AMENDMENTS REGARDING CORPORATIONS
AB 126 also makes certain notable changes to NRS Chapter 78 governing corporations. Among other clarifications, the amendments:
- bring attention to the requirement of providing a written statement to stockholders with uncertificated shares and provide some parameters to reflect the actual practice of corporations with respect to the requirements under NRS 78.235;
- clarify NRS 78.242 to give more specific guidance as to under what circumstances a restriction on transfer will be binding on a transferee of shares;
- exclude from the definition of “acquisition” a tender offer under applicable federal securities laws to eliminate a potential conflict with NRS 92A.133 that permits a third party to conduct a tender offer and subsequent merger without stockholder approval; and
- clarify that the omission of the text of then-effective certificates of designation (and amendments thereto) from restated or amended and restated articles of incorporation are specifically permitted so long as express references thereto are made in the restated or amended and restated articles of incorporation.
This document is intended to provide you with general information regarding changes to Nevada's business laws. The contents of this document are not intended to provide specific legal advice. If you have any questions about the contents of this document or if you need legal advice as to an issue, please contact the attorneys listed or your regular Brownstein Hyatt Farber Schreck, LLP attorney. This communication may be considered advertising in some jurisdictions. The information in this article is accurate as of the publication date. Because the law in this area is changing rapidly, and insights are not automatically updated, continued accuracy cannot be guaranteed.