Brief survey of Nevada shareholder law.

Nevada Shareholder Law Survey

Business Law
Serving The Woodlands

Books and Records

Rights to Inspect Books and Records

Nevada shareholders of record who own at least 15% of all outstanding shares have the right to inspect and copy the books of account and financial records of the corporation. Nev. Rev. Stat. Ann. § 78.257(1) (West 2009). Alternatively, a shareholder who is authorized in writing by shareholders owning a total of 15% of the issued and outstanding shares has the right to inspect and copy corporate records as well. In addition to this right to inspect and copy, a shareholder who meets one of the above requirements has the right to audit the records. § 78.257(1).

The shareholder(s) conducting the inspection or audit must pay any costs associated with copying or auditing the records. § 78.257(2).

The corporation may deny a shareholder access to records if the shareholder refuses to furnish an affidavit stating that the reason for the inspection or audit is related to the shareholder’s interest in the corporation as a shareholder. § 78.257(3). If the shareholder uses information obtained under this right of inspection for any reason not related to his interest as a shareholder, this is a gross misdemeanor. § 78.257(3).

If the corporation willfully neglects or denies access to records, the corporation may be fined $100 a day. A shareholder who must file suit to enforce his right to inspect is entitled to costs and reasonable attorney’s fees if the shareholder prevails. § 78.257(5)(a).

The right to inspect and copy may not be limited by corporate by-laws or articles of incorporation. § 78.257(1).

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Shareholder Oppression

Nevada does not list oppression as a reason for involuntary dissolution. Hollis v. Hill, 232 F.3d 460, 468 (5th Cir. 2000) (applying Nevada law). Dissolution is not the sole remedy for an oppressed shareholder, however. Courts have equitable powers and can remedy situations where majority shareholders breach fiduciary duties to minority shareholders by engaging in oppression conduct. Id.

In addition, § 78.650 allows for shareholders who own at least 1/10th of the issued and outstanding stock to apply for dissolution if the directors “have been guilty of fraud or collusion or gross mismanagement in the conduct or control of its affairs.”

Shareholders in Nevada close corporations owe the same fiduciary duty that partners owe one another. Clark v. Lubritz, 944 P.2d 861, 865 (Nev. 1997). There must be “full and frank disclosure of all relevant information.” Id. citing Am. Jur.2d Partnership § 425 (1987).

Business Law
Serving The Woodlands
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Derivative Suits

Shareholder Derivative Suits

To have standing to file a derivative suit, the shareholder must have “an ongoing proprietary interest in the corporation.” Keever v. Jewelry Mountain Mines, Inc., 688 P.2d 317, 321 (Nev. 1984).

Before filing the derivative suit, the shareholder must first make a demand on the board of directors or the other shareholders to take the action that the shareholder desires. Nev. Rev. Stat. § 41.520(2); Shoen v. S.A.C. Holding Corp., 137 P.3d 1171, 1179 (Nev. 2006); see Nev. R. Civ. Proc. § 24.1. The demand requirement serves to notify directors of the shareholder’s concern and gives them the opportunity to take corrective measures without litigation. Shoen, 137 P.3d at 1179.

Shareholders wishing to file a derivative action to enforce rights of the corporation must file a verified complaint stating that the plaintiff was a shareholder at the time the action occurred. Nev. R. Civ. Proc. § 23.1 (2010). The shareholder must “allege with particularity” the effects the plaintiff took to have the corporation take (or refrain from) the actions desired. The shareholder must also state why the shareholder’s efforts failed or if necessary, why the shareholder took no action.

A derivative suit, once filed, will not be dismissed or settled without prior approval of the court. § 23.1