Scholars Ask “Just How Lax Is Nevada Corporate Law?”

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Explore:  Corporate Charters

As someone who has been writing for decades about Nevada corporate law, it is has been refreshing to see so much academic interest in the state’s corporate law. Last year, Professor Michal Barzuza at the University of Virginia published Market Segmentation: The Rise of Nevada as a Liability-Free Jurisdiction, 98 Va. Law Rev. 935 (2012) in which she described Nevada’s corporate law as “shockingly lax”. Previously Professor Barzuza co-authored with David C. Smith What Happens in Nevada? Self-Selecting into a Lax Law, Fifth Annual Conference on Empirical Legal Studies (2011). Among other things, the two professors concluded:

“Our results suggest that Nevada corporate law attracts a certain class of firms that are prone to financial reporting failures and that these failures are followed by significant losses to shareholder value.”

Now, Professor Jens Dammann at the University of Texas School of Law has published a brief essay that takes issue with Professor Barzuza’s conclusions, Just How Lax is Nevada Corporate Law? A Response to Professor Barzuza, 99 Va. Law Rev. In Brief 1 (2013).

In this post on the Truth on the Market blog, the late Professor Larry E. Ribstein agreed with Professors Barzuza and Smith that Nevada appeals to a different demographic but argued:

Nevada removes from its statute the sources of legal indeterminacy that Delaware has been criticized for. This enables Nevada to offer a legal package that is attractive to some firms without the costly legal infrastructure required to apply Delaware’s open-ended good-faith and loyalty standards.

All of this high powered academic interest confirms one thing. Nevada is a player in the market for corporate charters.