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There is a national trend developing where people are steadfastly refusing to serve on the board of directors of corporations because of their exposure to stockholders and the public. Gone are the days in which someone tries to embellish their resume by listing all of the corporations for which they serve as a director or vice-president. People are slowly realizing the liability exposure that they have in those situations.
In 1987, the Nevada Legislature passed a revolutionary law that allows corporations to place provisions in their articles of incorporation that eliminate the personal liability of officers and directors to the stockholders of Nevada corporations. Delaware and a few other states soon adopted lesser verions of Nevada's law, but Nevada's remains among the most thorough and comprehensive in the country.
Contained in the Nevada Revised Statutes (78.037), the law in part reads as follows:
"The articles of incorporation may also contain:
1. A provision eliminating or limiting the personal liability of a director or officer to the corporation or its stockholders for damages for breach of fiduciary duty as a director or officer, but such provision must not eliminate or limit the liability of a director or officer for:
(a) Acts or omissions which involve intentional misconduct, fraud or a knowing violation of the law"
Additionally, Nevada's Corporation Code allows for the indemnification of all officers, directors, employees, stockholders, or agents of the corporation for all actions that they take on behalf of the corporation that they had reasonable cause to believe was legal. This indemnification can include any civil, criminal and administrative action. (See NRS 78.751.) These two laws can provide comprehensive protection for the officers and directors of Nevada corporations as long as they act prudently in their roles.
Additionally, Nevada law allows a corporation to make "financial arrangements" to provide a buffer against any possible liability that an officer or director may incur. These "financial arrangements" are described under the statute as "(1) the creation of a trust fund; (2) the establishment of a program of self-insurance; (3) securing the obligation by granting a lien on corporate assets; or (4) the establishment of a letter of credit, guaranty, or other surety."
