NRS 78.235:  “Issuing Stock” Without a Certificate

Another special provision of Nevada’s corporate laws is the ability to use what the statutes refer to as “uncertificated” stock. That’s right, here in Nevada it is perfectly permissible to have “phantom” stock certificates. And now you know why our Budget kit leaves out the stock certificates, which are not needed to operate your corporation fully within the law.

As a general rule of good Nevada corporation management (maintaining privacy of ownership), it is often better to not issue stock, relying on NRS 78.197 (which specifies that debt holders may have the rights of stockholders). But when stock must be issued, why not issue phantom certificates? Note that Section 5 of NRS 78.235 (excerpts below) requires that the corporation “shall send the stockholder a written statement containing the information required on the certificates”.  This provision is obviously intended to protect the interests of the stockholders for other than one-person corporations and it is hard to imagine running into any problems for failing to notify yourself in writing once a year if that is not the case. Note that the corporation’s bylaws could be written to waive any penalty for failure of notification.

NRS 78.235 Stock certificates: Validation; facsimile signatures; uncertificated shares and informational statements; replacement.

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4. Unless otherwise provided in the articles of incorporation or bylaws, the board of directors may authorize the issuance of uncertificated shares of some or all of the shares of any or all of its classes or series. The issuance of uncertificated shares has no effect on existing certificates for shares until surrendered to the corporation, or on the respective rights and obligations of the stockholders. Unless otherwise provided by a specific statute, the rights and obligations of stockholders are identical whether or not their shares of stock are represented by certificates.

5. Within a reasonable time after the issuance or transfer of shares without certificates, the corporation shall send the stockholder a written statement containing the information required on the certificates pursuant to subsection 1. At least annually thereafter, the corporation shall provide to its stockholders of record, a written statement confirming the information contained in the informational statement previously sent pursuant to this subsection....

When added to the mix of other privacy-of-ownership provisions available in Nevada, it is easy to see why it is impossible for anyone on the outside of the corporation to know who owns it—unless the owner tells them.  Combining “uncertificated” stock with the concept of bearer shares, it is fully understandable how ownership of a Nevada corporation can change hands merely through entries made in its stock ledger, without any need for recourse to stock certificates.

In the next “Tip of the Week” we will discuss the benefits of “attorney-client privilege”.