Nevada Enacts Forum Selection Statute

Today is the 115th day of the 80th Session of the Nevada legislature, meaning that this session will end in just 5 days on Monday, June 3. Corporate practitioners, however, will not have to wait until next week for the denouement. Earlier this month, the Legislature passed, and the Governor approved, legislation, AB 207, making numerous changes to Nevada's private corporation and limited-liability company laws. As told by one of the bill's authors, Assemblyman Jason Frierson:

"Assembly Bill 207 is a culmination of efforts over several sessions to make Nevada more competitive when it comes to corporate formation. This bill will solidify Nevada's consistent ranking as one of the most business-friendly states in the Country, which is a clear advantage. With that distinction comes a commitment to constantly create and innovate in order to be competitive. It has been said Delaware's business environment is something that people strive toward. Assembly Bill 207 will make us more competitive than Delaware as an attractive prospect for business formation."

Today's post will address just one of the many changes effected by AB 207 - authorization of express authorization of forum selection provisions:

"The articles of incorporation or bylaws of a corporation may require, to the extent not inconsistent with any applicable jurisdictional requirements, that any, all or certain internal actions must be brought solely or exclusively in the court or courts specified in the requirement, which must include at least one court in this State. Unless otherwise expressly set forth in the articles of incorporation or bylaws, such a requirement must not be interpreted as prohibiting any corporation from consenting, or requiring any corporation to consent, to any alternative forum in any instance."

The new statute defines an "internal action" to include any action, suit or proceeding brought "in the name or right of the corporation or on its behalf, including without limitation, any action subject to NRS 41.520 [actions by stockholders to enforce secondary rights]". Although undoubtedly intended to allow corporations to require that derivative actions be brought in a specified court or courts, the definition of "internal action" is so broadly worded that a corporation would be required to bring non-derivative actions in the specified court(s) unless the forum selection clause is limited to "certain internal actions". If a corporation does not limit the scope of internal actions, it may find that it has entered into contracts specifying other fora. In which case, the corporation's entering into such an agreement will likely be considered to constitute its "consent" under the statute.