February 1, 2023

Volume XIII, Number 32

Advertisement

January 31, 2023

Subscribe to Latest Legal News and Analysis

January 30, 2023

Subscribe to Latest Legal News and Analysis

Officer Exculpation Is Old News And Automatic In This State

Delaware's decision last summer to amend Section 102(b)(7) to permit the exculpation of certain officers for direct (but not derivative) stockholder suits for monetary damages for breach of fiduciary duty is attracting a great deal of attention.  This is understandable given Delaware's continuing dominance of the market for corporate charters.  The idea of exculpating officers is not new and in fact dates back  some 35 years.

Two years after the Delaware Supreme Court's momentous decision in Smith v. Van Gorkum, 488 A.2d 858 (Del. 1985), the Nevada legislature amended the state's corporation law to permit a provision in the articles "eliminating or limiting the personal liability of a director or officer to the corporation or its stockholders for damages for breach of fiduciary duty as a director or officer, but such a provision must not eliminate or limit the liability of a director or officer for: (a) Acts or omissions which involve intentional misconduct, fraud or a knowing violation of law; or  (b) The payment of dividends in violation of NRS 78.300.  1987 Nev. Stat. ch. 28, § 2.  The legislature has since amended the law and exculpation of both directors and officers is now automatic pursuant to NRS 78.138, unless the articles include a provision providing for greater liability.  Unlike Delaware, this exculpation is not limited to certain officers and does not exclude derivative actions.  To establish liability a plaintiff must either establish a statutory exception or (1) rebut the statutory presumption that officers  in deciding upon matters of business, are presumed to act in good faith, on an informed basis and with a view to the interests of the corporation; and (2) prove (a) the officer’s act or failure to act constituted a breach of his or her fiduciary duties as an officer; and (b) the breach involved intentional misconduct, fraud or a knowing violation of law.

© 2010-2023 Allen Matkins Leck Gamble Mallory & Natsis LLP National Law Review, Volume XII, Number 320
Advertisement
Advertisement
Advertisement

About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm
Partner

Keith Bishop works with privately held and publicly traded companies on federal and state corporate and securities transactions, compliance, and governance matters. He is highly-regarded for his in-depth knowledge of the distinctive corporate and regulatory requirements faced by corporations in the state of California.

While many law firms have a great deal of expertise in federal or Delaware corporate law, Keith’s specific focus on California corporate and securities law is uncommon. A former California state regulator of securities and financial institutions, Keith has decades of...

949-851-5428
Advertisement
Advertisement
Advertisement