Corporate Services of Nevada

LEGAL ADVANTAGES; A COMPARISON WITH DELAWARE (continued)
Not intended to be legal advice, for discussion purposes only.

The Delaware judiciary is generally recognized as very experienced in corporate law.

However, Nevada has adopted Business Courts (based on the Delaware model) that minimize the time, cost, and risks of commercial litigation by (1) employing early, comprehensive case management, (2) allowing for active judicial participation in settlement, (3) giving priority to hearing settings to avoid business disruption, and (4) providing for predictability of legal decisions in commercial matters.   Under local court rules of practice, management of Nevada’s business court docket is the highest case management priority of the presiding judge of the business court docket.   Civil actions are assigned to the business court docket if, regardless of the nature of relief sought, the primary subject matter of the action is a dispute concerning the validity, control, operation, or governance of business entities created under Nevada statute, a shareholder derivative action, a dispute concerning a trade-mark or trade name, a claim pursuant to the Nevada Trade Secrets Act, Nevada Securities Act, or Nevada Deceptive Trade Practices Act, a claim involving investment securities, or any other dispute among business entities that would benefit from the enhanced case management of the business court docket.

Nevada provides directors with more discretion than Delaware in making corporate decisions, including decisions made in takeover situations. In Nevada, director and officer actions taken in response to a change or potential change in control that do not disenfranchise stockholders are granted the benefits of the business judgment rule.   Nev. Rev. Stat. § 78.139(1).   However, in the case of an action that impedes the rights of stockholders to vote for or remove directors, directors will only be given the advantages of the business judgment rule if the directors have reasonable grounds to believe a threat to corporate policy and effectiveness exists and the action taken that impedes the exercise of the stockholders’ rights is reasonable in relation to such threat. Nev. Rev. Stat. § 78.139(2).

In exercising their powers in response to a change or potential change of control, directors and officers of Nevada corporations may consider the effect of the decision on several corporate constituencies in addition to the stockholders, including the corporation’s employees, the interests of the community, and the economy. Nev. Rev. Stat. § 78.139(5).

In contrast, Delaware does not provide a similar list of statutory factors that corporate directors and officers may consider in making decisions. See generally Del. Code Ann. Tit. viii, § 141(e). In fact, in many cases, Delaware law provides that fiduciary duties require directors to accept an offer from the highest bidder regardless of the effect of such sale on the corporate constituencies other than the stockholders. See generally Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.3d 173 (Del. 1986). Thus, the flexibility granted to directors of Nevada corporations in the context of a hostile takeover are substantially greater than those granted to directors of Delaware corporations.

As an example, if two potential buyers bid for a Delaware corporation and Buyer A offered $1 more than Buyer B but planned to shut down the operations of the corporation and fire all of its employees, the Delaware directors would likely be required to take the offer from Buyer A. If the same offers were made for a Nevada corporation, the Nevada directors would be able to consider the effect of Buyer A’s plans on the employees of the corporation and the corporation’s other constituencies as a basis for rejecting the offer from Buyer A.