Want To Reduce The Costs Of Controlling Cheating By Corporate Agents? Paper Suggests Incorporating In Nevada

Last month, I mentioned a recent article by Professor Michal Barzuza which described Nevada as applying ”a strikingly lax corporate law to its corporations”. Michal Barzuza, Market Segmentation: The Rise of Nevada as a Liability-Free Jurisdiction, 98 Va. Law Rev. 935 (2012). Now, Professor Bruce Kobayashi and the late Professor Larry Ribstein have published an article that suggests that while Nevada’s law may be lax, it is not “suboptimally lax”. They suggest that firm managers aren’t choosing Nevada so that they can take advantage of these lax standards to cheat. Rather, they speculate that firms may incorporate in Nevada so that they can reduce their costs of controlling cheating. In other words, the rational decision might be to trade the higher cost of an increased risk of cheating for the lower costs of controlling cheating.

If you happen to be interested in the corporate law of Nevada, I can think of no better resource than my book, Bishop & Zucker on Nevada Corporations and Limited Liability Companies.