Nevada Revises Its Charging Order Statutes for Corporations

As previously discussed, with the passage of Senate Bill 405, Nevada became just one of two states (the other being Wyoming) to extend charging order protection to single member limited liability companies (SMLLCs).  Following on the heels of decisions such as Olmstead and Albright that created doubt about the asset protection efficacy of SMLLCs, Senate Bill 405 has garnered much attention for its SMLLC charging order provisions.  However, the bill, which became effective on the first of October, also amended Nevada’s charging order laws concerning single shareholder corporations.

In July 2007, Section 43.5 of Senate Bill 242 revised Chapter 78 of the Nevada Revised Statutes (NRS) to make the charging order “the exclusive remedy by which a judgment creditor of a stockholder…may satisfy a judgment out of the stockholder’s stock of the corporation.”  By doing so, Nevada became the first state to extend charging order protection to corporate stock.  Nevertheless, the charging order protection provisions of Senate Bill 242 did not apply to all Nevada corporations—rather, only to those with “more than 1” stockholder.

Senate Bill 405, which passed in the Senate by a vote of 21-0 and the Assembly by a vote of 42-0, specifically addresses this limitation.  The bill removes the “more than 1” stockholder language from NRS 78.746, thereby resulting in the charging order being the exclusive remedy for single shareholder corporations.  However, one exception is that a court may continue to apply the alter ego equitable remedy to corporations (as opposed to LLCs) under NRS 78.747.  In addition, for the charging order provisions to apply, the corporation must have fewer than 100 stockholders of record at any time.