NRS 78.197—Rights of persons holding obligations of corporation

If you own part (or all) of a corporation, you’re a stockholder, right?  In Nevada, the answer to that question is, “Not necessarily.” Let’s look at another unique provision of Nevada corporate law:

NRS 78.197 Rights of persons holding obligations of corporation.

A corporation may provide in its articles of incorporation that the holder of a bond, debenture or other obligation of the corporation may have any of the rights of a stockholder in the corporation.

With this provision written into your Articles of Incorporation, you “may have any of the rights of a stockholder”—without owning stock! Thus, the holder of a note COULD own the corporation and could even be afforded the same VOTING RIGHTS as a stockholder—without being a stockholder.  And in the absence of stockholders—in cases where no stock has been issued—presumably, the holder of a promissory note of the corporation could have 100% of the voting rights at any meeting.

If such a provision related to NRS 78.197 is NOT in your current Articles of Incorporation, check and see if the following standard clause exists under an Article relating to Amendments:

Except with respect to amending the non-assessability of shares per Article IV, this corporation reserves the right to amend, alter, change or repeal any provision contained in these Articles of Incorporation or its Bylaws in the manner now or hereafter prescribed by statute or by these Articles of Incorporation or by the corporation’s Bylaws, and all rights conferred upon the stockholders are granted subject to this reservation.

If so, the corporation may “amend... these Articles of Incorporation... in the manner prescribed by... the corporation’s Bylaws”. In other words, the Articles of Incorporation are modified by the Bylaws.  If such a provision exists in your Articles of Incorporation, we suggest that you amend the Bylaws to reflect wording such as NRS 78.197 suggests for the Articles of Incorporation.

If neither of these provisions exists in your corporation’s Articles, you might want to file an Amendment of the Articles of Incorporation. We can handle such a filing with the Secretary of State for you, just ask.

Next week, we’ll look at what might be called a “turnip” or “prickly pear” clause in the Nevada Revised Statutes: NRS 78.7502.A