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Posted on January 8, 2020 in Firm News
Although shareholders, directors and officers are not usually personally liable for a debts of a corporation, Nevada has codified the common law “piercing the corporate veil” or “ alter ego” doctrine. NRS 78.747 provides that there is no such personal liability, unless that person acts as the “alter ego” of the corporation. A stockholder, director or officer acts as the alter ego of a corporation if:
(a) The corporation is influenced and governed by the stockholder, director or officer;
(b) There is such unity of interest and ownership that the corporation and the stockholder, director or officer are inseparable from each other; and
(c) Adherence to the corporate fiction of a separate entity would sanction fraud or promote a manifest injustice.
One of the factors that courts consider to determine if the shareholders, directors and officers have treated the corporation as nothing more than an extension of the individuals is whether they may have commingled funds, neglected to keep proper records or failed to keep proper distinctions between the corporation and themselves.
An often overlooked aspect of observing corporate formalities is holding regular annual shareholder meetings and director meetings. Meetings of the shareholders should take place at least annually in accordance with the corporation’s bylaws for the purpose of making resolutions electing and removing directors, amending the articles of incorporation or the bylaws, and approving transactions between the corporation and its directors. Likewise, meetings of the directors should take place at least annually for the purpose of making resolutions electing and removing officers, amending the articles of incorporation or the bylaws, and approving or ratifying transactions in which the corporation has entered such as large purchases, salaries, bonuses, dividends, benefits, and other similar transactions. Alternatively, unless otherwise provided in the articles of incorporation or the bylaws, any action required or permitted to be taken at these meetings may be taken without a meeting if the shareholders or directors sign a written consent. See NRS 78.315 and 78.320. Written consent resolutions tend to be much easier because there is no notice requirement since the meeting does not actually occur.
Remember, the failure to hold an annual meetings or execute written consents is a factor considered in determining whether the corporation is simply the “alter ego” of the shareholders as opposed to a separate entity. If your corporation’s records require updating for previous years, Ken R. Ashworth & Associates can assist you in bringing your corporation back into compliance with Nevada law.