Usurping States Rights has become a way of life for Harry Reid and his fellow Democrats.
Tucked into the 1,336-page “Restoring American Financial Stability Act of 2010,” which was sent out of committee on a party-line vote in March, are provisions that would shackle Nevada and the entrepreneurs who set up corporations in the state. A small section of the bill with the stated aim of “strengthening corporate governance” would put states like Nevada at a competitive disadvantage by federalizing state rules for incorporation.
For about 150 years, States have made laws governing a corporation’s structure and have competed on the efficiency of their incorporation processes. In the early 20th century, New Jersey led the pack. Then Delaware got the lead and remained the top incorporation state.
Starting in the ’90s, Nevada began positioning itself as the “Delaware of the West.” It is now second only to Delaware in the incorporation fees it receives. Those fees have recently totaled $83 million a year.
The businesses that incorporate in Nevada range from tiny firms to publicly held companies that trade on stock exchanges and the Nasdaq Stock Market. On WhyNevada.com, the Web site created by Democratic Secretary of State Ross Miller, the state government advertises the advantages of incorporating here, including the fact that “Nevada grants directors more flexibility.”
But the Dodd bill would take much of this flexibility from states like Nevada and those public firms that incorporate there. Section 971 of the bill mandates that a public company’s directors be elected by a majority of shareholders, rather than the plurality standard that Nevada and Delaware have.
And Section 972 pushes through a scheme called “proxy access,” in which public companies would be forced to subsidize the campaigns of alternate corporate directors nominated by a little as 1 percent of the firm’s shareholders. Firms would be required to put the names of these director nominees on the official proxy ballots they mail out to shareholders.
If this federal takeover of corporate law goes into effect, there will be fewer reasons for out-of-state firms to incorporate in Nevada. Why should they, when they would still have live with the federal government’s new rigid rules regarding director elections?
You may view the full text of the latest post athttp://www.nevadanewsbureau.
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