We have collected on promissory notes, guarantees, and other commercial instruments.
Over the years, I have met with many individuals who are in the process of forming a corporation or limited liability company (LLC). Typically, those individuals have developed or acquired some business assets and are in the process of launching their business. Those assets may include cash, a building, equipment, vehicles, a patent, a trade name, or any other types of business asset. Often, the business owner owns some or all of the assets in his or her own name. So when he or she forms a corporation or LLC, an elemental question naturally comes up: How does my business asset become part of the corporation or LLC?
The simple answer is that you have to take action to put the asset into the corporation or LLC. Remember that a corporation or LLC is considered to be an artificial entity with an existence separate and apart from its owners; it is treated as if it is another person. So you have to enter into one or more agreements with your entity. It may feel like you are standing in front of a mirror talking to yourself. But in the eyes of the law, you are transacting business with a separate entity.
There are two main types of transactions in which you can place your business asset into your corporation. The first type of transaction is one in which you contribute a business asset to your corporation in exchange for equity, i.e., stock in the corporation. The person who created the corporation enters into a “subscription agreement” with the corporation whereby the corporation issues a certain number of shares of stock to the owner in exchange for cash or some other business asset. The process is similar for a LLC, except the LLC gives its owner a percentage ownership interest, which is sometimes called a membership interest, instead of shares of stock.
The other of type of transaction is a non-equity transaction in which the business owner sells a business asset to the corporation or LLC in exchange for cash or a promise to pay cash. Of course, the variations are limitless. Perhaps the owner leases or licenses the asset to the corporation instead of selling it. Also, the corporation might pay for the asset in some way other than cash.
In either of these scenarios, the idea is the same—the owner and the corporation (or LLC) enter into an agreement with each other to transfer the business assets into the entity.
You may be shocked to learn that some business owners neglect or delay to put the business assets into the corporation. Maybe the owner signed a building lease in his or her own name before forming the entity. Maybe the business owner runs all of the business transactions through his or her personal bank account instead of establishing and funding a corporate bank account. Needless to say, this is a mess and deprives the business owner of the benefits of having the corporation. This is an area where you can save a lot of money and trouble by consulting my office early in the formation process.
Also, if you are considering buying an interest in a corporation, part of your due diligence is to determine the precise assets that the corporation owns. You or your attorney has to look at the original contracts to find out what assets the corporation owns. Please call me before you invest. It is much less expensive to conduct this due diligence beforehand than it is to learn after the investment that the corporation in which you invested does not own what you thought it owned.
One of the Nevada statutes I turn to frequently is NRS 41.600, entitled “Actions by Victims of Fraud.” This statute allows any person who is a victim of “consumer fraud” to recover his or damages, equitable relief (which can include “rescinding” or unwinding the bad deal), and attorney’s fees. The statute gives a specialized definition of “consumer fraud.” The most important part of this definition is that “consumer fraud” includes any “deceptive trade practice” described in NRS 598.0915 to 598.0925.
Turning to the statutory definition of “deceptive trade practice” reveals multiple lists of conduct that counts as a deceptive trade practice and, therefore, consumer fraud. Some of the items are fairly specific and some are general. There are more than 57 separate items.
Whenever I encounter any kind of fraud or consumer dispute, I will review theses lists to see if one or more of the items match the situation with which I am dealing. Some particularly potent items on the statutory list of deceptive trade practices include:
- Knowingly making any false representation in a transaction, NRS 598.0915(15);
- failing to make delivery of goods or services for sale or lease within a reasonable time, NRS 598.092(4);
- knowingly misrepresenting the legal rights, obligations or remedies of a party to a transaction, NRS 598.092(8);
- conducting a business or occupation without all required state, county or city licenses, NRS 598.0923(1);
- failing to disclose a material fact in connection with the sale or lease of goods or services, NRS 598.0923(2); and
- violating a state or federal statute or regulation relating to the sale or lease of goods or services, NRS 598.0923(3).
Investors and those who market investments should pay particular attention to NRS 598.092(5), which says that a deceptive trade practice includes advertising or offering an opportunity for investment and:
- representing that the investment is guaranteed, secured or protected in a manner which he or she knows or has reason to know is false or misleading;
- representing that the investment will earn a rate of return which he or she knows or has reason to know is false or misleading;
- making any untrue statement of a material fact or omits to state a material fact which is necessary to make another statement, considering the circumstances under which it is made, not misleading;
- failing to maintain adequate records so that an investor may determine how his or her money is invested;
- failing to provide information to an investor after a reasonable request for information concerning his or her investment;
- failing to comply with any law or regulation for the marketing of securities or other investments; or
- representing that he or she is licensed by an agency of the State to sell or offer for sale investments or services for investments if he or she is not so licensed.
So when you are a consumer or investor with a question about your rights, check the statutory list of deceptive trade practices. If you are a business, please be aware that some of your customers may check this list as well. As always, I am more than happy to discuss with you any questions you might have about Nevada consumer fraud.
As an Out-of-State Attorney, How Do I Make My Appearance in a Nevada State Court or Administrative Proceeding?
An out-of-state attorney may not appear in a Nevada state court case without the court’s permission. Obtaining such permission requires a two step process. First, the attorney submits a completed Verified Application for Association of Counsel Under Nevada Supreme Court Rule 42 to the Nevada State Bar together with the attorney’s certificate(s) of good standing, and requests a Statement from the Nevada State Bar. Second, after receiving the requested Statement, the attorney’s local counsel files with the state court or administrative agency a Motion to Associate Counsel. The Motion to Associate Counsel includes a copy of the foregoing verified application, State Bar of Nevada Statement, and the attorney’s certificate(s) of good standing. The State Bar of Nevada Supreme publishes a form SCR 42 Pro Hac Vice Application.
To apply for permission, the out-of-state attorney must meet the following conditions:
(a) The lawyer is not a member of the State Bar of Nevada;
(b) The lawyer is not a resident of the State of Nevada;
(c) The lawyer is not regularly employed in the State of Nevada;
(d) The lawyer is not engaged in substantial business, professional, or other activities in the State of Nevada;
(e) The lawyer is a member in good standing and eligible to practice before the bar of any jurisdiction of the United States; and
(f) The lawyer associates an active member in good standing of the State Bar of Nevada as counsel of record in the action or proceeding.
The granting or denial of a motion to associate counsel under SCR 42 rule is discretionary. And The court, arbitrator, mediator, or administrative or governmental hearing officer may revoke the authority of the person permitted to appear as counsel under SCR 42 to make continued pro hac vice appearances. SCR 42(6).
During the proceeding, the out-of-state attorney must renew his or her pro hac vice admission annually by paying the applicable fee to the State Bar of Nevada. SCR 42(9).
SCR 42(16) states that “[t]he Nevada attorney of record shall be responsible for and actively participate in the representation of a client in any proceeding that is subject to this rule.” In addition, “[t]he Nevada attorney of record shall be present at all motions, pre-trials, or any matters in open court unless otherwise ordered by the court.”
Nevada Supreme Court Rule 42(1)(a)(3) dictates that an out-of-state attorney must be admitted pro hac vice to participate in “all arbitration, mediation, or alternative dispute resolution procedures in this state that are court annexed or court ordered, or that are mandated by statute or administrative rule.” Likewise, pro hac vice admission is necessary for “all services incident to any of these proceedings including, but not limited to, discovery and settlement negotiations.” SCR 42(1)(a)(4).
Nevertheless, “this rule does not apply to arbitration, mediation, or alternative dispute resolution procedures in which the parties engage voluntarily or by private agreement.” SCR 42(1)(b). Although the rule and exception have some ambiguity, I believe that, at a minimum, an attorney desiring to participate in a Nevada arbitration or mediation that has been ordered by a court should apply for pro hac vice admission.
What are the consequences of failing to associate local counsel and properly apply for permission to appear pro hac vice in Nevada federal court?
As stated in Local Rule IA 11-2(j), failure to comply timely with the rule may result in the striking of any and all documents previously filed by the out-of-state attorney, the imposition of other sanctions, or both.
As an Out-Of-State Attorney, May I Sign a Complaint or Answer in Nevada Federal Court Prior to Obtaining Nevada Local Counsel?
Per Local Rule IA 11-2(c), “[a]n attorney whose verified petition is pending must not take action in this case beyond filing the first pleading or motion. The first pleading or motion must state the attorney “has complied with LR IA 11-2” or “will comply with LR IA 11-2 within ___ days.” Until permission is granted, the clerk must not issue summons or other writ. Local IA 11-2(e) states that in civil cases, an attorney must comply with all provisions of the rule within 45 days of his or her first appearance.
An out-of-state attorney may not appear in a Nevada federal court case without the court’s permission. Local Rule IA 11-2(a) and (b) outline the requirements for such an appearance. The out-of-state attorney files a Verified Petition for Permission to Practice in this Case Only by Attorney Not Admitted to the Bar of this Court and Designation of Local Counsel using the court’s form. To apply for permission, the out-of-state attorney must meet the following conditions:
- The attorney is not a member of the State Bar of Nevada
- The attorney is not a resident of the State of Nevada
- The attorney is not regularly employed in the State of Nevada;
- The attorney is a member in good standing and eligible to practice before the bar of another jurisdiction of the United States; and
- The attorney associates an active member in good standing of the State Bar of Nevada as attorney of record in the action or proceeding.
Per Local Rule IA 11-2(d), the resident attorney must have authority to sign binding stipulations. Unless the court orders otherwise, the resident attorney need not personally attend all proceedings in court.
In Reno and Sparks, Nevada (Washoe County), a civil case is assigned to the business court docket if its primary subject matter is:
- A dispute concerning the validity, control, operation or governance of entities created under NRS Chapters 78-88 (corporations, limited liability companies, partnerships, limited parterships, and business trusts), including shareholder derivative actions;
- A dispute concerning a trade-mark or trade name;
- A claim asserted pursuant to the Nevada Trade Secrets Act;
- A claim asserted pursuant to the Nevada Securities Act;
- A claim asserted pursuant to the Nevada Deceptive Trade Practices Act;
- A claim involving investment securities; or,
- Any dispute among business entities if the presiding judge of the business court docket determines that the case would benefit from enhanced case management.
Every construction season, many contractors like you deal with collection issues on their jobs. You might even be surprised how many of colleagues and competitors in Nevada have gone through the payment issues that you deal with now. So we have prepared a free legal report called “How do contractors get paid in full for their Nevada construction work? Please get your copy on this website.