In Honor Of Nevada Day – A Transaction You Can Do In Nevada, But Not Delaware

Unlike the monks of Mt. Athos, I don’t adhere to the Julian Calendar (today is October 17, 2013).  However, I do remain a traditionalist when it comes to Nevada Day.  October 31 is the original date on which Nevada Day was celebrated.  In 1999, however, the Nevada legislature made the unfortunate and ahistoric decision to move the celebration to the last Friday of October.  NRS 236.015(1).

In honor of Nevada Day, today’s blog is about an acquisition technique that is possible under Nevada law, but not Delaware – the statutory share exchange.  A share exchange is similar to a merger, but there is no requirement that any party to the transaction disappear.  In a share exchange a foreign (NRS 92A.055) or domestic (NRS 92A.020) entity (NRS 92A.045) may acquire either of the following of another entity:

  • All of an owner’s interests (e.g., all of the stock of a corporation); or
  • One or more classes or series of an owner’s interests.

NRS 92A.050.  A share exchange achieves a result that is similar to a reverse triangular merger inasmuch as the target entity survives.  While it is possible in both Nevada and Delaware for owners to exchange interests voluntarily, the Nevada statutory procedure becomes binding on all of the members of a class once a plan of exchange has been adopted and approved.  While the term “share exchange” implies that shares must be exchanged, other consideration (including cash) may be exchanged.

I’m leaving a lot of details out here, so please consult Bishop & Zucker on Nevada Corporations and Limited Liability Companies for a more detailed explanation of the procedure.