Dummy Officers Are A Dumb Idea

If you incorporate a corporation in Nevada, you will be required to file an annual list of officers and directors with the Nevada Secretary of State.  NRS 78.150(c).  There is nothing terribly unusual about this.  California has a similar requirement.  Cal. Corp. Code § 1502.  As I discussed in this earlier post, the Nevada Secretary of State has even developed an application that allows you to obtain this information on you smart phone.

To avoid these public disclosures, some Nevada resident agents have developed and marketed the bizarre concept of nominee directors and officers.  For a fee, these service companies will include the names of directors and officers in the annual list, thereby hiding from public view the identities of the real managers of the corporation.  Apparently, the idea is that these dummy directors and officers don’t know the identities of the real owners or management and therefore cannot reveal what they do not know.

It is hard to imagine any business with a legitimate need to hide the identity of its directors and officers.  Rather than promote asset protection and privacy, the use of dummy directors and officers invites suspicion and further scrutiny.  Owners who try to play this thimblerig, should understand that even though the directors and officers purport to act as “dummies” for the “real” management, they will have apparent, if not actual authority, to take corporate actions.  Should a dispute arise, it could be an expensive proposition to regain control of the corporation.

Nevada’s remarkable success in attracting corporations continues to generate scholarly interest.  In an article published last month in the Virginia Law Review, Professor Michal Barzuza argues that the standard paradigm of state competition for charters is inapposite to Nevada.  She argues that Nevada’s success is better understood as market segmentation:

Nevada’s strategy is no less remarkable than the success it has achieved. It has been widely thought that Nevada was following the Delaware legal regime closely.  Yet, this Section will show that over time Nevada has differentiated itself from Delaware by applying a strikingly lax corporate law to its corporations and aggressively advertising its lax policies as a reason to incorporate there.

98 Va. L. Rev. 935 (2012) (footnote omitted).

 

Published In: Business Organization Updates, General Business Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Allen Matkins Leck Gamble Mallory & Natsis LLP | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »