NRS: CHAPTER 78A - CLOSE CORPORATIONS

[Rev. 6/29/2024 2:53:04 PM--2023]

CHAPTER 78A - CLOSE CORPORATIONS

GENERAL PROVISIONS

NRS 78A.010 Applicability of chapter.

NRS 78A.013 Form required for filing of records.

NRS 78A.015 Filing of records written in language other than English.

NRS 78A.017 Cancellation of filings.

NRS 78A.018 Secretary of State authorized to adopt certain regulations to allow close corporation to carry out powers and duties through most recent technology.

FORMATION

NRS 78A.020 Filing requirements; required and optional provisions of articles of incorporation.

NRS 78A.030 Procedure for existing corporation to become close corporation.

SHARES OF STOCK

NRS 78A.040 Notice required on share certificates; effect of notice and restrictions on transfer of shares; shareholders to be provided with copies of provisions restricting rights.

NRS 78A.050 Transfer of shares prohibited; exceptions.

NRS 78A.060 Effect of attempt to transfer shares in violation of prohibition.

POWERS AND DUTIES

NRS 78A.070 Shareholders’ agreements: Authority to enter; effect; amendment.

NRS 78A.080 Shareholders’ agreements: Validity.

NRS 78A.090 Operation without board of directors; elimination and reinstatement of board.

NRS 78A.100 Annual meeting.

NRS 78A.110 Records signed, acknowledged or verified by person acting in more than one capacity.

NRS 78A.120 Limitation on liability of shareholders.

NRS 78A.130 Merger or share exchange; sale, lease or exchange of assets.

NRS 78A.140 Appointment of custodian, receiver or provisional director.

NRS 78A.150 Provisional director: Requirements for appointment; qualifications, rights and powers; compensation.

NRS 78A.160 Option of stockholder to dissolve corporation: Inclusion in articles of incorporation; exercise of option; notice on stock certificate.

TERMINATION OF STATUS AS CLOSE CORPORATION

NRS 78A.170 Time of termination of status.

NRS 78A.180 Voluntary termination of status.

NRS 78A.190 Involuntary termination of status; intervention by court.

NRS 78A.200 Effect of termination of status.

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GENERAL PROVISIONS

NRS 78A.010 Applicability of chapter. The provisions of this chapter apply to all close corporations formed pursuant to NRS 78A.020. Unless otherwise provided by this chapter, the provisions of chapter 78 of NRS are applicable to all close corporations.

(Added to NRS by 1989, 940)

NRS 78A.013 Form required for filing of records.

1. Each record filed with the Secretary of State pursuant to this chapter must be on or accompanied by a form prescribed by the Secretary of State.

2. The Secretary of State may refuse to file a record which does not comply with subsection 1 or which does not contain all the information required by statute for filing the record.

3. If the provisions of the form prescribed by the Secretary of State conflict with the provisions of any record that is submitted for filing with the form:

(a) The provisions of the form control for all purposes with respect to the information that is required by statute to appear in the record in order for the record to be filed; and

(b) Unless otherwise provided in the record, the provisions of the record control in every other situation.

4. The Secretary of State may by regulation provide for the electronic filing of records with the Office of the Secretary of State.

(Added to NRS by 2003, 20th Special Session, 40)

NRS 78A.015 Filing of records written in language other than English. No record which is written in a language other than English may be filed or submitted for filing in the Office of the Secretary of State pursuant to the provisions of this chapter unless it is accompanied by a verified translation of that record into the English language.

(Added to NRS by 1995, 1117; A 2003, 3108)

NRS 78A.017 Cancellation of filings. If a close corporation has made a filing with the Secretary of State and the Secretary of State has not processed the filing and placed the filing into the public record, the close corporation may cancel the filing by:

1. Filing a statement of cancellation with the Secretary of State; and

2. Paying the required fee pursuant to subsection 7 of NRS 78.785.

(Added to NRS by 2009, 2829)

NRS 78A.018 Secretary of State authorized to adopt certain regulations to allow close corporation to carry out powers and duties through most recent technology. The Secretary of State may adopt regulations to define, for the purposes of certain provisions of this chapter, the terms “meeting,” “writing,” “written” and other terms to allow a close corporation or other entity which is subject to the provisions of this chapter to carry out its powers and duties as prescribed by this chapter through the use of the most recent technology available including, without limitation, the use of electronic communications, videoconferencing, telecommunications and blockchains.

(Added to NRS by 2011, 777; A 2019, 2822)

FORMATION

NRS 78A.020 Filing requirements; required and optional provisions of articles of incorporation.

1. A close corporation must be formed in accordance with NRS 78.030 to 78.055, inclusive, subject to the following requirements:

(a) All of the issued stock of the corporation of all classes, exclusive of treasury shares, must be represented by certificates and must be held of record by a specified number of persons, not to exceed 30.

(b) All of the issued stock of all classes must be subject to one or more of the restrictions on transfer pursuant to NRS 78A.050.

(c) The corporation shall not offer any of its stock of any class that would constitute a public offering within the meaning of the Securities Act of 1933, 15 U.S.C. §§ 77a et seq.

2. The articles of incorporation of a close corporation must:

(a) Set forth the matters required by NRS 78.035 except that the articles must state that there will be no board of directors if so agreed pursuant to NRS 78A.070.

(b) Contain a heading stating the name of the corporation and that it is a close corporation.

3. The articles of incorporation of a close corporation may set forth the qualifications of stockholders by specifying the classes of persons who are entitled to be holders of record of stock of any class, the classes of persons who are not entitled to be holders of record of stock of any class, or both.

4. To determine the number of holders of record of the stock of a close corporation, stock that is held in joint or common tenancy or by community property must be treated as held by one stockholder.

(Added to NRS by 1989, 941; A 1993, 980; 2009, 1684)

NRS 78A.030 Procedure for existing corporation to become close corporation.

1. Any corporation organized under chapter 78 of NRS may become a close corporation pursuant to this chapter by signing, filing and recording, in accordance with NRS 78.390, a certificate of amendment of the articles of incorporation which must:

(a) Contain a statement that the corporation elects to become a close corporation; and

(b) Meet the requirements of paragraph (a) of subsection 2 of NRS 78A.020.

2. Except as otherwise provided in subsection 3, the amendment must be adopted in accordance with the requirements of NRS 78.380 or 78.390.

3. If an amendment is adopted in accordance with the requirements of NRS 78.390, it must be approved by a vote of the holders of record of at least two-thirds of the shares of each class of stock of the corporation that are outstanding and entitled to vote, unless the articles of incorporation or bylaws require approval by a greater proportion.

(Added to NRS by 1989, 941; A 1999, 1593; 2001, 1380, 3199; 2003, 3108; 2015, 3234)

SHARES OF STOCK

NRS 78A.040 Notice required on share certificates; effect of notice and restrictions on transfer of shares; shareholders to be provided with copies of provisions restricting rights.

1. The following statement must appear conspicuously on each share certificate issued by a close corporation:

The rights of stockholders in a close corporation may differ materially from the rights of shareholders in other corporations. Copies of the articles of incorporation, bylaws, shareholders’ agreements and other records, any of which may restrict transfers of stock and affect voting and other rights, may be obtained by a shareholder on written request to the corporation.

2. A person claiming an interest in the shares of a close corporation that has complied with the requirement of subsection 1 is bound by the records referred to in the notice. A person claiming an interest in the shares of a close corporation that has not complied with the requirement of subsection 1 is bound by any record that he or she or a person through whom he or she claims has knowledge or notice.

3. A close corporation shall provide to any shareholder upon his or her written request and without charge, copies of the provisions that restrict transfer or affect voting or other rights of shareholders appearing in the articles of incorporation, bylaws, shareholders’ agreements or voting trust agreements filed with the corporations.

4. Except as otherwise provided in subsection 5, the close corporation may refuse to register the transfer of stock into the name of a person to whom the stock of a close corporation has been transferred if the person has, or is presumed to have, notice that the transfer of the stock is in violation of a restriction on the transfer of stock. If the close corporation refuses to register the transfer of stock into the name of the transferee, the close corporation must notify the transferee of its refusal and state the reasons therefor.

5. Subsection 4 does not apply if:

(a) The transfer of stock, even if contrary to the restrictions on transfer of stock, has been consented to by all the stockholders of the close corporation; or

(b) The close corporation has amended its articles of incorporation in accordance with NRS 78A.180.

6. The provisions of this section do not impair any rights of a transferee to:

(a) Rescind the transaction by which the transferee acquired the stock; or

(b) Recover under any applicable warranty.

7. As used in this section, “transfer” is not limited to a transfer for value.

(Added to NRS by 1989, 941; A 2003, 3109; 2015, 3234)

NRS 78A.050 Transfer of shares prohibited; exceptions.

1. An interest in the shares of a close corporation may not be transferred, except to the extent permitted by the articles of incorporation, the bylaws, a shareholders’ agreement or a voting trust agreement.

2. Except as otherwise provided by the articles of incorporation, the provisions of this section do not apply to a transfer:

(a) To the corporation or to any other shareholder of the same class or series of shares.

(b) To heirs at law.

(d) To an executor or administrator upon the death of a shareholder or to a trustee or receiver as a result of a bankruptcy, insolvency, dissolution or similar proceeding brought by or against a shareholder.

(e) By merger or share exchange or an exchange of existing shares for other shares of a different class or series in the corporation.

(f) By a pledge as collateral for a loan that does not grant the pledgee any voting rights possessed by the pledgor.

(g) Made after the termination of the status of the corporation as a close corporation.

(Added to NRS by 1989, 942; A 2015, 3235)

NRS 78A.060 Effect of attempt to transfer shares in violation of prohibition.

1. An attempt to transfer shares in a close corporation in violation of a prohibition against such a transfer is ineffective.

2. An attempt to transfer shares in a close corporation in violation of a prohibition against transfer that is not binding on the transferee because:

(a) The notice required by NRS 78A.040 was not given; or

(b) The prohibition is held unenforceable by a court of competent jurisdiction,

Ê gives the corporation an option to purchase the shares from the transferee for the same price and on the same terms that the transferee purchased them. To exercise the option, the corporation must give the transferee written notice within 30 days after they receive a share certificate for registration in the name of the transferee.

(Added to NRS by 1989, 943)

POWERS AND DUTIES

NRS 78A.070 Shareholders’ agreements: Authority to enter; effect; amendment.

1. All shareholders of a close corporation who are entitled to vote may agree in writing to regulate the exercise of the corporate powers and the management of the business and affairs of the corporation or the relationship among the shareholders of the corporation.

2. An agreement authorized by this section is effective even if the agreement:

(a) Eliminates a board of directors.

(b) Restricts the discretion or powers of the board of directors or authorizes director proxies or weighted voting rights.

(d) Creates a relationship among the shareholders or between the shareholders and the corporation that would otherwise be appropriate among partners.

3. If the corporation has a board of directors, an agreement authorized by this section that restricts the discretion or powers of the board of directors:

(a) Relieves directors of liability imposed by law; and

(b) Imposes that liability on each person in whom the discretion or power of the board is vested,

Ê to the extent that the discretion or power of the board of directors is governed by the agreement.

4. A provision eliminating a board of directors in an agreement authorized by this section is not effective unless the articles of incorporation contain a statement to that effect.

5. A provision entitling one or more shareholders to dissolve the corporation under NRS 78A.160 is effective if a statement of this right is contained in the articles of incorporation.

6. To amend an agreement authorized by this section, all shareholders entitled to vote must approve the amendment in writing, unless the agreement provides otherwise.

7. Subscribers for shares may act as shareholders with respect to an agreement authorized by this section if shares are not issued when the agreement was made.

8. This section does not prohibit any other agreement between or among shareholders in a close corporation.

(Added to NRS by 1989, 944)

NRS 78A.080 Shareholders’ agreements: Validity. A written agreement among stockholders of a close corporation or any provision of the articles of incorporation or of the bylaws of the corporation that relates to any phase of the affairs of the corporation, including, but not limited to, the management of its business, the declaration and payment of dividends or other division of profits, the election of directors or officers, the employment of stockholders by the corporation or the arbitration of disputes is not invalid on the ground that it is an attempt by the parties to the agreement or by the stockholders of the corporation to treat the corporation as if it were a partnership or to arrange relations among the stockholders or between the stockholders and the corporation in a manner that would be appropriate only among partners.

(Added to NRS by 1989, 947; A 2015, 3235)

NRS 78A.090 Operation without board of directors; elimination and reinstatement of board.

1. A close corporation may operate without a board of directors if the articles of incorporation contain a statement to that effect.

2. An amendment to the articles of incorporation eliminating a board of directors must be approved:

(a) By all the shareholders of the corporation, whether or not otherwise entitled to vote on amendments; or

(b) If no shares have been issued, by all subscribers for shares, if any, or if none, by the incorporators.

3. While a corporation is operating without a board of directors as authorized by subsection 1:

(a) All corporate powers must be exercised by or under the authority of, and the business and affairs of the corporation managed under the direction of, the shareholders.

(b) Unless the articles of incorporation provide otherwise:

(1) Action requiring the approval of the board of directors or of both the board of directors and the shareholders is authorized if approved by the shareholders; and

(2) Action requiring a majority or greater percentage vote of the board of directors is authorized if approved by the majority or greater percentage of votes of the shareholders entitled to vote on the action.

(c) A requirement by a state or the United States that a record delivered for filing contain a statement that specified action has been taken by the board of directors is satisfied by a statement that the corporation is a close corporation without a board of directors and that the action was approved by the shareholders.

(d) The shareholders by resolution may appoint one or more shareholders to sign records as designated directors.

4. An amendment to the articles of incorporation that deletes the provision which eliminates a board of directors must be approved by the holders of at least two-thirds of the votes of each class or series of shares of the corporation, voting as separate voting groups, whether or not otherwise entitled to vote on amendments. The amendment must specify the number, names and mailing addresses of the directors of the corporation or describe who will perform the duties of the board of directors.

(Added to NRS by 1989, 944; A 1999, 1593; 2001, 101, 2723; 2003, 3109; 2015, 3236)

NRS 78A.100 Annual meeting. A close corporation shall hold an annual meeting if one or more shareholders delivers a written notice to the corporation requesting a meeting. Upon receipt of a notice, the close corporation must hold a meeting within 30 days.

(Added to NRS by 1989, 945)

NRS 78A.110 Records signed, acknowledged or verified by person acting in more than one capacity. Notwithstanding any law to the contrary, a person who holds more than one office in a close corporation may sign, acknowledge or verify in more than one capacity any record required to be signed, acknowledged or verified by the holders of two or more offices.

(Added to NRS by 1989, 945; A 2003, 3110)

NRS 78A.120 Limitation on liability of shareholders. Personal liability may not be imposed upon shareholders of a close corporation solely as a result of the failure of the close corporation to observe the usual corporate formalities or requirements relating to the exercise of corporate powers or management of its business and affairs, where such failure results from the distinct nature and permissible functioning of a close corporation.

(Added to NRS by 1989, 945)

NRS 78A.130 Merger or share exchange; sale, lease or exchange of assets.

1. A plan of merger or share exchange that if effected would:

(a) Terminate the close corporation status must be approved by the holders of at least two-thirds of the votes of each class or series of shares of the close corporation, voting as separate voting groups, whether or not the holders are entitled to vote on the plan.

(b) Create the surviving corporation as a close corporation must be approved by the holders of at least two-thirds of the votes of each class or series of shares of the surviving corporation, voting as separate voting groups, whether or not the holders are entitled to vote on the plan.

2. If not made in the usual and regular course of business, a sale, lease, exchange or other disposition of all or substantially all of the property of a close corporation must be approved by the holders of at least two-thirds of the votes of each class or series of shares of the corporation, voting as separate voting groups, whether or not the holders are entitled to vote on the transaction.

(Added to NRS by 1989, 945)

NRS 78A.140 Appointment of custodian, receiver or provisional director.

1. Upon application of a stockholder, the court may appoint one or more persons to be custodians and, if the corporation is insolvent, to be receivers of any close corporation when:

(a) The business and affairs of the close corporation are managed by the stockholders who are so divided that the business of the corporation is suffering or is threatened with irreparable injury and any remedy with respect to such a deadlock provided in the articles of incorporation or bylaws or in any written agreement of the stockholders has failed; or

(b) The petitioning stockholder has the right to the dissolution of the corporation under a provision of the articles of incorporation permitted by NRS 78A.160.

2. If the court determines that it would be in the best interest of the corporation, the court may appoint a provisional director in lieu of appointing a custodian or receiver for a close corporation. Such an appointment does not preclude any subsequent order of the court appointing a custodian or receiver for the corporation.

(Added to NRS by 1989, 946; A 2015, 3236)

NRS 78A.150 Provisional director: Requirements for appointment; qualifications, rights and powers; compensation.

1. Notwithstanding any contrary provision of the articles of incorporation, the bylaws or an agreement of the stockholders, the court may appoint a provisional director for a close corporation if the shareholders or directors, if any, are so divided concerning the management of the business and affairs of the corporation that the votes required for action by the board of directors cannot be obtained, with the consequence that the business and affairs of the corporation cannot be conducted to the advantage of the stockholders generally.

2. An application for relief pursuant to this section must be filed:

(a) By at least one-half of the number of directors then in office;

(b) By the holders of at least one-third of all stock then entitled to elect directors; or

(c) If there is more than one class of stock then entitled to elect one or more directors, by the holders of two-thirds of the stock of each class.

Ê The articles of incorporation of a close corporation may provide that a lesser proportion of the directors, the stockholders or a class of stockholders may apply for relief under this section.

3. A provisional director:

(a) Must be an impartial person who is not a stockholder or a creditor of the corporation or of any subsidiary or affiliate of the corporation and whose further qualifications, if any, may be determined by the court.

(b) Is not a custodian or receiver of the corporation and does not have the title and powers of a custodian or receiver appointed under NRS 78A.140.

(c) Has the rights and powers of an elected director of the corporation, including the right to notice of and to vote at meetings of directors, until such time as the provisional director may be removed by order of the court.

4. The compensation of a provisional director must be determined by agreement between the provisional director and the corporation subject to the approval of the court, which may fix the compensation in the absence of agreement or in the event of disagreement between the provisional director and the corporation.

(Added to NRS by 1989, 946; A 2015, 3237)

NRS 78A.160 Option of stockholder to dissolve corporation: Inclusion in articles of incorporation; exercise of option; notice on stock certificate.

1. The articles of incorporation of any close corporation may include a provision granting to any stockholder or to the holder of any specified number or percentage of shares of any class of stock an option to have the corporation dissolved at will or upon the occurrence of any specified event or contingency. Whenever any option to dissolve is exercised, the stockholders who exercise the option shall give written notice thereof to all other stockholders. Thirty days after the notice is sent, the dissolution of the corporation must proceed as if the required number of stockholders having voting power consented in writing to dissolution of the corporation as provided by NRS 78.320.

2. If the articles of incorporation as originally filed do not contain a provision authorized by subsection 1, the articles may be amended to include such a provision if adopted by the affirmative vote of the holders of all the outstanding stock, whether or not otherwise entitled to vote, unless the articles of incorporation specifically authorize such an amendment by a vote which is not less than two-thirds of all the outstanding stock, whether or not otherwise entitled to vote.

3. Each stock certificate in any corporation whose articles of incorporation authorize dissolution as permitted by this section must conspicuously note on the face of the certificate the existence of the provision or the provision is ineffective.

(Added to NRS by 1989, 947; A 2015, 3237)

TERMINATION OF STATUS AS CLOSE CORPORATION

NRS 78A.170 Time of termination of status. A close corporation is subject to the provisions of this chapter until:

1. The corporation files with the Secretary of State a certificate of amendment deleting from the articles of incorporation the provisions required or permitted by NRS 78A.020, to be stated in the articles of incorporation; or

2. A provision or condition required or permitted by NRS 78A.020 to be stated in the articles of incorporation has been breached and the corporation or any stockholder has not acted pursuant to NRS 78A.190 to prevent the loss of status or remedy the breach.

(Added to NRS by 1989, 941; A 2015, 3238)

NRS 78A.180 Voluntary termination of status.

1. A corporation may voluntarily terminate its status as a close corporation, and cease to be subject to the provisions of this chapter, by amending the articles of incorporation to delete therefrom the additional provisions required or permitted by NRS 78A.020 to be stated in the articles of incorporation of a close corporation. An amendment must be adopted and become effective in accordance with NRS 78.390, except that it must be approved by a vote of the holders of record of at least two-thirds of the voting shares of each class of stock of the corporation that are outstanding.

2. The articles of incorporation of a close corporation may provide that on any amendment to terminate the status as a close corporation, a vote greater than two-thirds or a vote of all shares of any class may be required. If the articles of incorporation contain such a provision, that provision may not be amended, repealed or modified by any vote less than that required to terminate the status of the corporation as a close corporation.

3. An amendment filed pursuant to this section is effective at the time of the filing of the amendment with the Secretary of State or upon a later date and time as specified in the amendment, which date must not be more than 90 days after the date on which the amendment is filed. If the amendment specifies a later effective date but does not specify an effective time, the amendment becomes effective at 12:01 a.m. in the Pacific time zone on the specified later date.

(Added to NRS by 1989, 943; A 2005, 2186; 2011, 2794; 2015, 3238)

NRS 78A.190 Involuntary termination of status; intervention by court.

1. The status of a corporation as a close corporation terminates if one or more of the provisions or conditions of this chapter cease to exist or be fulfilled unless:

(a) Within 30 days after the occurrence of the event, or within 30 days after the event has been discovered by the corporation, whichever is later, the corporation files with the Secretary of State a signed certificate stating that a specified provision or condition included in the articles of incorporation to qualify the corporation as a close corporation has ceased to be applicable and furnishes a copy of the certificate to each stockholder; and

(b) The corporation, concurrently with the filing of a certificate, takes such steps as are necessary to correct the situation that threatens the status as a close corporation, including the refusal to register the transfer of stock which has been wrongfully transferred as provided by NRS 78A.050 or commencing a proceeding under subsection 2.

2. Upon the suit of the close corporation or any stockholder, the court has jurisdiction to:

(a) Issue all orders necessary to prevent the corporation from losing its status as a close corporation.

(b) Restore the status of the corporation as a close corporation by enjoining or setting aside any act or threatened act on the part of the corporation or a stockholder that would be inconsistent with any of the provisions or conditions required or permitted by this chapter to be stated in the articles of incorporation of a close corporation, unless it is an act approved in accordance with NRS 78A.050.

(c) Enjoin or set aside any transfer or threatened transfer of stock of a close corporation that is contrary to the terms of the articles of incorporation or of any permitted restriction on transfer.

(d) Enjoin any public offering or threatened public offering of stock of the close corporation.

(Added to NRS by 1989, 943; A 1999, 1594; 2003, 3110; 2015, 3238)

NRS 78A.200 Effect of termination of status.

1. A corporation that terminates its status as a close corporation is subject to the provisions of chapter 78 of NRS.

2. Termination of the status of a close corporation does not affect any right of a shareholder or of the corporation under an agreement or the articles of incorporation unless invalidated by law.

(Added to NRS by 1989, 946)