The Vermont Statutes Online

Title 11A: Vermont Business Corporations

Chapter 008: Directors and Officers

• Subchapter 001: BOARD OF DIRECTORS

• § 8.01. Requirement for and duties of board of directors

  (a) Except as provided in subsection (c) of this section, each corporation must have a board of directors.

  (b) All corporate powers shall be exercised by or under the authority of, and the business and affairs of the corporation managed under the direction of, its board of directors, subject to any limitation set forth in the articles of incorporation.

  (c) A close corporation may dispense with or limit the authority of a board of directors by describing in its articles of incorporation who will perform some or all of the duties of a board of directors, pursuant to section 20.09 of this title. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

• § 8.02. Qualifications of directors

  The articles of incorporation or bylaws may prescribe qualifications for directors. A director need not be a resident of this State or a shareholder of the corporation unless the articles of incorporation or bylaws so prescribe. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

• § 8.03. Number and election of directors

  (a) A board of directors of a corporation which is not a close corporation dispensing with a board of directors pursuant to section 20.08 of this title must consist of one or more individuals, with the number specified in or fixed in accordance with the articles of incorporation or bylaws. The number of directors may be increased or decreased from time to time by amendment to, or in the manner provided in, the articles of incorporation or the bylaws.

  (b) Directors are elected at the first annual shareholders’ meeting and at each annual meeting thereafter unless their terms are staggered under section 8.06 of this title.

  (c) The articles of incorporation or bylaws may establish a variable range for the size of the board of directors by fixing a minimum and a maximum number of members, and shall state the manner in which the positions so created are to be filled. Prior to the issuance of shares the directors may adopt or change such a provision; subsequent to the issuance of shares only the shareholders may do so. If a variable range is established, the number of directors may be fixed or changed from time to time, within the minimum and maximum, by the shareholders or the board of directors. With respect to a close corporation, only the shareholders may fix or change the number of directors. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994; amended 2007, No. 190 (Adj. Sess.), § 92, June 6, 2008.)

• § 8.04. Election of directors by certain classes of shareholders

  If the articles of incorporation authorize dividing the shares into classes, the articles may also authorize the election of all or a specified number of directors by the holders of one or more authorized classes of shares. A class (or classes) of shares entitled to elect one or more directors is a separate voting group for purposes of the election of directors. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

• § 8.05. Terms of directors generally

  (a) The terms of the initial directors of a corporation expire at the first shareholders’ meeting at which directors are elected.

  (b) The terms of all other directors expire at the next annual shareholders’ meeting following their election unless their terms are staggered under section 8.06 of this title.

  (c) A decrease in the number of directors does not shorten an incumbent director’s term.

  (d) The term of a director elected to fill a vacancy shall be elected for the unexpired term of the director’s predecessor in office.

  (e) Despite the expiration of a director’s term, the director continues to serve until the director’s successor is elected and qualifies or until there is a decrease in the number of directors. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

• § 8.06. Staggered terms for directors

  The articles of incorporation may provide for staggering their terms by dividing the total number of directors into two, three, four, or five groups, with each group containing one-half, one-third, one-quarter, or one-fifth of the total, as near as may be. In that event, the terms of directors in the first group expire at the first annual shareholders’ meeting after their election, the terms of the second group expire at the second annual shareholders’ meeting after their election, and the terms of the third group, fourth group, and fifth group, if any, expire at the third, fourth, or fifth annual shareholders’ meeting after their election. At each annual shareholders’ meeting held thereafter, directors shall be chosen for a term not to exceed five years, as the case may be, to succeed those whose terms expire. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

• § 8.07. Resignation of directors

  (a) A director may resign at any time by delivering written notice to the board of directors, its chair, or to the president or other officer responsible for recording the minutes of the meetings of the shareholders and directors of the corporation.

  (b) A resignation is effective when the notice is delivered unless the notice specifies a later effective date. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

• § 8.08. Removal of directors by shareholders

  (a) The shareholders may remove one or more directors with or without cause unless the articles of incorporation provide that directors may be removed only for cause.

  (b) If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove the director.

  (c) If cumulative voting is authorized, a director may not be removed if the number of votes sufficient to elect the director under cumulative voting is voted against the director’s removal. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove the director exceeds the number of votes cast not to remove the director.

  (d) A director may be removed by the shareholders only at a meeting called for the purpose of removing the director and the meeting notice must state that the purpose, or one of the purposes, of the meeting is removal of the director. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

• § 8.09. Removal of directors by judicial proceeding

  (a)(1) The Superior Court may remove a director of the corporation from office in a proceeding commenced either by the corporation or by its shareholders holding at least ten percent of the outstanding shares of any class if the court finds that:

  (A) the director engaged in fraudulent or dishonest conduct relating to the corporation, or in a gross abuse of authority or discretion relating to the corporation; and

  (B) removal is in the best interest of the corporation.

  (2) The petition for removal shall be filed:

  (A) in the county where the corporation’s principal office is located;

  (B) in the county where the corporation’s registered office is located if the corporation has no principal office in this State; or

  (C) in the Washington County Superior Court where the corporation has no principal office or registered office in this State.

  (b) The court that removes a director may bar the director from reelection for a period prescribed by the court.

  (c) If shareholders commence a proceeding under subsection (a) of this section, they shall make the corporation a party defendant. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

• § 8.10. Vacancy on board

  (a)(1) If a vacancy occurs on the board of directors, including a vacancy resulting from an increase in the number of directors:

  (A) the shareholders may fill the vacancy;

  (B) the board of directors may fill the vacancy; or

  (C) if the directors remaining in office constitute fewer than a quorum of the board, they may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office.

  (2) The articles of incorporation may require that the manner of filling a vacancy on the board of directors shall be limited to any one or more of the methods authorized by subdivision (1) of this subsection.

  (b) If the vacant office was held by a director elected by a voting group of shareholders, only the holders of shares of that voting group are entitled to vote to fill the vacancy if it is filled by the shareholders.

  (c) A vacancy that will occur at a specific later date (by reason of a resignation effective at a later date under subsection 8.07(b) of this title or otherwise) may be filled before the vacancy occurs but the new director may not take office until the vacancy occurs. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

• § 8.11. Compensation of directors

  Unless the articles of incorporation or bylaws provide otherwise, the board of directors may fix the compensation of directors. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

• Subchapter 002: MEETINGS AND ACTION OF THE BOARD

• § 8.20. Meetings

  (a) The board of directors may hold regular or special meetings, as defined in subdivision 1.40(26) of this title, in or outside this State.

  (b) The board of directors may permit any or all directors to participate in a regular or special meeting by, or conduct the meeting through the use of, any means of communication, including an electronic, telecommunications, and video- or audio-conferencing conference telephone call, by which all directors participating may simultaneously or sequentially communicate with each other during the meeting. A director participating in a meeting by this means is deemed to be present in person at the meeting. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994; amended 2007, No. 190 (Adj. Sess.), § 93; 2011, No. 52, § 18, eff. May 27, 2011.)

• § 8.21. Action without meeting

  (a) Unless the articles of incorporation or bylaws preclude the taking of action required or permitted by this title without a meeting of the board of directors, action required or permitted by this title to be taken at a board of directors’ meeting may be taken without a meeting if the action is taken by all members of the board. Each action must be evidenced by one or more written consents describing the action taken, signed by each director, and included in the minutes or filed with the corporate records reflecting the action taken.

  (b) Action taken under this section is effective when the last director signs the consent, unless the consent specifies a different effective date.

  (c) A consent signed under this section has the effect of a meeting vote and may be described as such in any document. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

• § 8.22. Notice of meeting

  (a) Unless the articles of incorporation or bylaws provide otherwise, regular meetings of the board of directors may be held without notice of the date, time, place, or purpose of the meeting.

  (b) Unless the articles of incorporation or bylaws provide for a longer or shorter period, special meetings of the board of directors must be preceded by at least two business days’ notice of the date, time, and place of the meeting. The notice need not describe the purpose of the special meeting unless required by the articles of incorporation or bylaws. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

• § 8.23. Waiver of notice

  (a) A director may waive any notice required by this title, the articles of incorporation, or bylaws before or after the date and time stated in the notice. Except as provided by subsection (b) of this section, the waiver must be in writing, signed by the director entitled to the notice, and filed with the minutes or corporate records.

  (b) A director’s attendance at or participation in a meeting waives any required notice to the director of the meeting unless the director at the beginning of the meeting (or promptly upon the director’s arrival) objects to holding the meeting or transacting business at the meeting and does not thereafter vote for or assent to action taken at the meeting. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

• § 8.24. Quorum and voting

  (a) Unless the articles of incorporation or bylaws require a greater number, a quorum of a board of directors consists of:

  (1) a majority of the fixed number of directors if the corporation has a fixed board size; or

  (2) a majority of the number of directors prescribed, or if no number is prescribed the number in office immediately before the meeting begins, if the corporation has a variable-range size board.

  (b) If a quorum is present when a vote is taken, the affirmative vote of a majority of directors present is the act of the board of directors unless the articles of incorporation or bylaws require the vote of a greater number of directors.

  (c) A director who is present at a meeting of the board of directors or a committee of the board of directors when corporate action is taken is deemed to have assented to the action taken unless:

  (1) the director objects at the beginning of the meeting (or promptly upon the director’s arrival) to holding it or transacting business at the meeting;

  (2) the director’s dissent or abstention from the action taken is entered in the minutes of the meeting; or

  (3) the director delivers written notice of the director’s dissent or abstension to the presiding officer of the meeting before its adjournment of the meeting. The right of dissent or abstention is not available to a director who votes in favor of the action taken. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

• § 8.25. Committees

  (a) Unless the articles of incorporation or bylaws provide otherwise, a board of directors may create one or more committees and appoint members of the board of directors to serve on them. Each committee must have two or more members, who serve at the pleasure of the board of directors.

  (b) The creation of a committee and appointment of members to it must be approved by the greater of:

  (1) a majority of all the directors in office when the action is taken; or

  (2) the number of directors required by the articles of incorporation or bylaws to take action under section 8.24 of this title.

  (c) Sections 8.20 through 8.24 of this title, which govern meetings, action without meetings, notice and waiver of notice, and quorum and voting requirements of the board of directors, apply to committees and their members as well.

  (d) To the extent specified by the board of directors or in the articles of incorporation or bylaws, each committee may exercise the authority of the board of directors under section 8.01 of this title.

  (e) A committee may not, however:

  (1) authorize distributions;

  (2) approve or propose to shareholders action that this title requires be approved by shareholders;

  (3) fill vacancies on the board of directors or on any of its committees;

  (4) amend articles of incorporation pursuant to section 10.02 of this title;

  (5) adopt, amend, or repeal bylaws;

  (6) approve a plan of merger not requiring shareholder approval;

  (7) authorize or approve reacquisition of shares, except according to a formula or method prescribed by the board of directors; or

  (8) authorize or approve the issuance or sale or contract for sale of shares, or determine the designation and relative rights, preferences, and limitations of a class or series of shares, except that the board of directors may authorize a committee (or a senior executive officer of the corporation) to do so within limits specifically prescribed by the board of directors.

  (f) The creation of, delegation of authority to, or action by a committee does not alone constitute compliance by a director with the standards of conduct described in section 8.30 of this title. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

• Subchapter 003: STANDARD OF CONDUCT

• § 8.30. General standards for directors

  (a) A director shall discharge his or her duties as a director, including the director’s duties as a member of a committee:

  (1) In good faith.

  (2) With the care an ordinarily prudent person in a like position would exercise under similar circumstances.

  (3) In a manner the director reasonably believes to be in the best interests of the corporation. In determining what the director reasonably believes to be in the best interests of the corporation, a director of a corporation which has a class of voting stock registered under section 12 of the Securities Exchange Act of 1934, as the same may be amended from time to time, may, in addition, consider the interests of the corporation’s employees, suppliers, creditors and customers, the economy of the State, region and nation, community and societal considerations, including those of any community in which any offices or facilities of the corporation are located, and any other factors the director in his or her discretion reasonably considers appropriate in determining what he or she reasonably believes to be in the best interests of the corporation, and the long-term and short-term interests of the corporation and its stockholders, and including the possibility that these interests may be best served by the continued independence of the corporation; provided that nothing in this subdivision shall affect in any way the interests that may be considered by the director of a corporation which does not have a class of voting stock registered under section 12 of the Securities Exchange Act of 1934, as the same may be amended from time to time, in determining what such director reasonably believes to be in the best interests of the corporation.

  (b) In discharging his or her duties a director is entitled to rely on information, opinions, reports, or statements, including financial statements and other financial data, if prepared or presented by:

  (1) one or more officers or employees of the corporation whom the director reasonably believes to be reliable and competent in the matters presented;

  (2) legal counsel, public accountants, or other persons as to matters the director reasonably believes are within the person’s professional or expert competence; or

  (3) a committee of the board of directors of which the director is not a member if the director reasonably believes the committee merits confidence.

  (c) A director is not acting in good faith if he or she has knowledge concerning the matter in question that makes reliance permitted by subsection (b) of this section unwarranted.

  (d) A director is not liable for any action taken as a director, or any failure to take any action, if the director performed the duties of his or her office in compliance with this section. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994; amended 1997, No. 102 (Adj. Sess.), § 15a, eff. April 16, 1998.)

• §§ 8.31, 8.32. [Reserved]

• § 8.33. Liability for unlawful distributions; statute of limitations

  (a) A director who votes for or assents to a distribution made in violation of section 6.40 of this title or the articles of incorporation is personally liable to the corporation for the amount of the distribution that exceeds what could have been distributed without violating section 6.40 or the articles of incorporation if it is established that the director did not perform his or her duties in compliance with section 8.30 of this title.

  (b) A director held liable under subsection (a) of this section for an unlawful distribution is entitled to contribution:

  (1) from every other director who could be held liable under subsection (a) for the unlawful distribution; and

  (2) from each shareholder for the amount the shareholder accepted knowing the distribution was made in violation of section 6.40 of this title or the articles of incorporation.

  (c) A proceeding under this section is barred unless it is commenced within six years after the date on which the effect of the distribution was measured under section 6.40(e) of this title. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

• Subchapter 004: OFFICERS

• § 8.40. Officers

  (a) A corporation has the officers described in its bylaws or appointed by the board of directors in accordance with the bylaws.

  (b) The board of directors may elect individuals to fill one or more offices of the corporation. An officer may appoint one or more officers or assistant officers if authorized by the bylaws or the board of directors.

  (c) The bylaws or the board of directors shall assign to one of the officers responsibility for preparing the minutes of the directors’ and shareholders’ meetings and for authenticating and maintaining the records of the corporation required to be kept under subsections 16.01(a) and (e) of this title.

  (d) The same individual may simultaneously hold more than one office in a corporation.

  (e) [Repealed.] (Added 1993, No. 85, § 2, eff. Jan. 1, 1994; amended 2001, No. 77 (Adj. Sess.), § 5; 2007, No. 190 (Adj. Sess.), § 94, eff. June 6, 2008.)

• § 8.41. Duties of officers

  Each officer has the authority and shall perform the duties set forth in the bylaws or, to the extent consistent with the bylaws, the duties prescribed by the board of directors or by direction of an officer authorized by the board of directors to prescribe the duties of other officers. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

• § 8.42. [Reserved]

• § 8.43. Resignation and removal of officers

  (a) An officer may resign at any time by delivering notice to the president or other officer responsible for recording the minutes of the meetings of the shareholders and directors of the corporation. A resignation is effective when the notice is delivered unless the notice specifies a later effective date. If a resignation is made effective at a later date and the corporation accepts the future effective date, its board of directors may fill the pending vacancy before the effective date if the board of directors provides that the successor does not take office until the effective date.

  (b) A board of directors may remove any officer at any time with or without cause. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

• § 8.44. Contract rights of officers

  (a) The appointment of an officer does not itself create contract rights.

  (b) An officer’s removal does not affect the officer’s contract rights, if any, with the corporation. An officer’s resignation does not affect the corporation’s contract rights, if any, with the officer. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

• Subchapter 005: INDEMNIFICATION

• § 8.50. Subchapter definitions

  In this subchapter:

  (1) “Corporation” includes any domestic or foreign predecessor entity of a corporation in a merger or other transaction in which the predecessor’s existence ceased upon the consummation of the transaction.

  (2) “Director” means an individual who is or was a director of a corporation or an individual who, while a director of a corporation, is or was serving at the corporation’s request as a director, officer, partner, trustee, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise. A director is considered to be serving an employee benefit plan at the corporation’s request if the director’s duties to the corporation also impose duties on, or otherwise involve services by, the director to the plan or to participants in or beneficiaries of the plan. “Director” includes, unless the context requires otherwise, the estate or personal representative of a director.

  (3) “Expenses” mean the reasonable costs incurred in connection with a proceeding, including reasonable attorney’s fees.

  (4) “Liability” means the obligation to pay a judgment, settlement, penalty, fine (including an excise tax assessed with respect to an employee benefit plan), or reasonable expenses incurred with respect to a proceeding.

  (5) “Official capacity” means:

  (A) When used with respect to a director, the office of director in a corporation.

  (B) When used with respect to an individual other than a director, as contemplated in section 8.56 of this title, the office in a corporation held by the officer or the employment or agency relationship undertaken by the employee or agent on behalf of the corporation. “Official capacity” does not include service for any other foreign or domestic corporation or any partnership, joint venture, trust employee benefit plan, or other enterprise.

  (6) “Party” includes an individual who was, is, or is threatened to be made a named defendant or respondent in a proceeding.

  (7) “Proceeding” means any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative and whether formal or informal.

  (8) “Special legal counsel” means counsel that has never been an employee of the corporation and who has not, and whose firm has not, performed legal services for the corporation pertaining to the matter for which indemnification is sought for a period of at least two years before retention as special counsel. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

• § 8.51. Authority to indemnify

  (a) Except as provided in subsection (d) of this section, a corporation may indemnify an individual made a party to a proceeding because the individual is or was a director against liability incurred in the proceeding if:

  (1) the director conducted himself or herself in good faith; and

  (2) the director reasonably believed:

  (A) in the case of conduct in the director’s official capacity with the corporation, that the director’s conduct was in its best interests; and

  (B) in all other cases, that the director’s conduct was at least not opposed to its best interests; and

  (3) in the case of any proceeding brought by a governmental entity, the director had no reasonable cause to believe his or her conduct was unlawful, and the director is not finally found to have engaged in a reckless or intentional unlawful act.

  (b) A director’s conduct with respect to an employee benefit plan for a purpose the director reasonably believed to be in the interests of the participants in and beneficiaries of the plan is conduct that satisfies the requirement of subdivision (a)(2)(B) of this section.

  (c) The termination of a proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent is not, of itself, determinative that the director did not meet the standard of conduct described in this section.

  (d) A corporation may not indemnify a director under this section:

  (1) in connection with a proceeding by or in the right of the corporation in which the director was adjudged liable to the corporation; or

  (2) in connection with any other proceeding charging improper personal benefit to the director, whether or not involving action in the director’s official capacity, in which the director was adjudged liable on the basis that personal benefit was improperly received by the director.

  (e) Indemnification permitted under this section in connection with a proceeding by or in the right of the corporation is limited to reasonable expenses incurred in connection with the proceeding. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

• § 8.52. Mandatory indemnification

  Unless limited by its articles of incorporation, a corporation shall indemnify a director who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which the director was a party because the director is or was a director of the corporation against reasonable expenses incurred by the director in connection with the proceeding. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

• § 8.53. Advance for expenses

  (a) A corporation may pay for or reimburse the reasonable expenses incurred by a director who is a party to a proceeding in advance of final disposition of the proceeding if:

  (1) the director furnishes the corporation a written affirmation of his or her good faith belief that the director has met the standard of conduct described in section 8.51 of this title;

  (2) the director furnishes the corporation a written undertaking, executed personally or on the director’s behalf, to repay the advance if it is ultimately determined that the director did not meet the standard of conduct; and

  (3) a determination is made that the facts then known to those making the determination would not preclude indemnification under this subchapter.

  (b) The undertaking required by subdivision (a)(2) of this section must be an unlimited general obligation of the director but need not be secured and may be accepted without reference to financial ability to make repayment.

  (c) Determinations and authorizations of payments under this section shall be made in the manner specified in section 8.55 of this title. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

• § 8.54. Court-ordered indemnification

  A director of the corporation who is a party to a proceeding may apply for indemnification to the court conducting the proceeding or to another court of competent jurisdiction. On receipt of an application, the court after giving any notice the court considers necessary may order indemnification if it determines:

  (1) the director is entitled to mandatory indemnification under section 8.52 of this title, in which case the court shall also order the corporation to pay the director’s reasonable expenses incurred to obtain court-ordered indemnification; or

  (2) the director is fairly and reasonably entitled to indemnification in view of all the relevant circumstances, whether or not the director met the standard of conduct set forth in section 8.51 of this title or was adjudged liable as described in subsection 8.51(d), but if the director was adjudged so liable the director’s indemnification is limited to reasonable expenses incurred. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

• § 8.55. Determination and authorization of indemnification

  (a) Except as provided in section 8.53 of this title, a corporation may not indemnify a director under section 8.51 of this title prior to the final resolution of a proceeding, whether by judgment, order, settlement, conviction, plea, or otherwise, and unless authorized in the specific case after a determination has been made that indemnification of the director is permissible in the circumstances because the director has met the standard of conduct set forth in section 8.51.

  (b) The determination required by subsection (a) of this section, in accordance with the terms of section 8.51 of this title, shall be made:

  (1) by the board of directors by majority vote of a quorum consisting of directors not at the time parties to the proceeding;

  (2) if a quorum cannot be obtained under subdivision (1) of this subsection, by majority vote of a committee duly designated by the board of directors (in which designation directors who are parties may participate), consisting solely of two or more directors not at the time parties to the proceeding;

  (3) by written opinion of special legal counsel:

  (A) selected by the board of directors or its committee in the manner prescribed in subdivision (1) or (2) of this subsection; or

  (B) if a quorum of the board of directors cannot be obtained under subdivision (1) and a committee cannot be designated under subdivision (2), selected by majority vote of the full board of directors (in which selection directors who are parties may participate); or

  (4) by the shareholders, but shares owned by or voted under the control of directors who are at the time parties to the proceeding may not be voted on the determination.

  (c) Authorization of indemnification and evaluation as to reasonableness of expenses shall be made in the same manner as the determination that indemnification is permissible, except that if the determination is made by special legal counsel, authorization of indemnification and evaluation as to reasonableness of expenses shall be made by those entitled under subdivision (b)(3) of this section to select counsel. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

• § 8.56. Indemnification of officers, employees, and agents

  Unless a corporation’s articles of incorporation limit indemnification of an officer, employee, or agent of the corporation:

  (1) an officer of the corporation who is not a director is entitled to mandatory indemnification under section 8.52 of this title, and is entitled to apply for court-ordered indemnification under section 8.54 of this title, in each case to the same extent as a director;

  (2) the corporation may indemnify and advance expenses under this subchapter to an officer, employee, or agent of the corporation who is not a director to the same extent as a director. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

• § 8.57. Insurance

  A corporation may purchase and maintain insurance on behalf of an individual who is or was a director, officer, employee, or agent of the corporation, or who, while a director, officer, employee, or agent of the corporation, is or was serving at the request of the corporation as a director, officer, partner, trustee, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise, against liability asserted against or incurred by him or her in that capacity or arising from his or her status as a director, officer, employee, or agent, whether or not the corporation would have power to indemnify him or her against the same liability under section 8.51 or 8.52 of this title. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

• § 8.58. Application of subchapter

  (a) A provision treating a corporation’s indemnification of or advance for expenses to directors that is contained in its articles of incorporation, bylaws, a resolution of its shareholders or board of directors, or in a contract or otherwise, is valid only if and to the extent the provision is consistent with this subchapter. If articles of incorporation limit indemnification or advance for expenses, indemnification and advance for expenses are valid only to the extent consistent with the articles.

  (b) This subchapter does not limit a corporation’s power to pay or reimburse expenses incurred by a director in connection with the director’s appearance as a witness in a proceeding at a time when the director has not been made a named defendant or respondent to the proceeding. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

• Subchapter 006: DIRECTORS CONFLICTING INTEREST TRANSACTIONS

• § 8.60. Definitions

  For purposes of this subchapter:

  (1) “Control” including the term “controlled by” means:

  (A) having the power, directly or indirectly, to elect or remove a majority of the members of the board of directors or other governing body of an entity whether through the ownership of voting shares or interests, by contract, or otherwise; or

  (B) being subject to a majority of the risk of loss from the entity’s activities or entitled to receive a majority of the entity’s residual returns.

  (2) “Director’s conflicting interest transaction” means a transaction effected or proposed to be effected by the corporation or by an entity controlled by the corporation that at the relevant time the director:

  (A) was a party to; or

  (B) had knowledge of and a material financial interest known to the director; or

  (C) knew that a related person was a party or had a material financial interest.

  (3) “Fair to the corporation” means, for purposes of subdivision 8.61(b)(3) of this title, that the transaction as a whole was beneficial to the corporation, taking into appropriate account whether it was:

  (A) fair in terms of the director’s dealings with the corporation; and

  (B) comparable to what might have been obtainable in an arm’s length transaction, given the consideration paid or received by the corporation.

  (4) “Material financial interest” means a financial interest in a transaction that would reasonably be expected to impair the objectivity of the director’s judgment when participating in action on the authorization of the transaction.

  (5) “Related person” means:

  (A) the director’s spouse;

  (B) a child, stepchild, grandchild, parent, stepparent, grandparent, sibling, step sibling, half sibling, aunt, uncle, niece, or nephew (or spouse of any thereof) of the director or of the director’s spouse;

  (C) an individual living in the same home as the director;

  (D) an entity, other than the corporation or an entity controlled by the corporation, controlled by the director or any person specified in this subdivision;

  (E) a domestic or foreign:

  (i) business or nonprofit corporation (other than the corporation or an entity controlled by the corporation) of which the director is a director;

  (ii) unincorporated entity of which the director is a general partner or a member of the governing body; or

  (iii) individual, trust, or estate for whom or of which the director is a trustee, guardian, personal representative, or like fiduciary; or

  (F) a person that is, or an entity that is controlled by, an employer of the director.

  (6) “Relevant time” means:

  (A) the time at which the directors’ action respecting the transaction is taken in compliance with section 8.62 of this title; or

  (B) if the transaction is not brought before the board of directors of the corporation or its committee for action under section 8.62 of this title, at the time the corporation, or an entity controlled by the corporation, becomes legally obligated to consummate the transaction.

  (7) “Required disclosure” means disclosure of:

  (A) the existence and nature of the director’s conflicting interest; and

  (B) all facts known to the director respecting the subject matter of the transaction that a director free of such conflicting interest would reasonably believe to be material in deciding whether to proceed with the transaction. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994; amended 2007, No. 190 (Adj. Sess.), § 95, June 6, 2008.)

• § 8.61. Judicial action

  (a) A transaction effected or proposed to be effected by the corporation, or by an entity controlled by the corporation, may not be the subject of equitable relief, or give rise to an award of damages or other sanctions against a director of the corporation, in a proceeding by a shareholder or by or in the right of the corporation, on the ground that the director has an interest respecting the transaction, if it is not a director’s conflicting interest transaction.

  (b) A director’s conflicting interest transaction may not be the subject of equitable relief, or give rise to an award of damages or other sanctions against a director of the corporation, in a proceeding by a shareholder, or by or in the right of the corporation, on the ground that the director has an interest respecting the transaction, if:

  (1) the directors’ action respecting the transaction was taken in compliance with section 8.62 of this title at any time;

  (2) the shareholders’ action respecting the transaction was taken in compliance with section 8.63 of this title at any time; or

  (3) the transaction, judged according to the circumstances at the relevant time, is established to have been fair to the corporation. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994; amended 2007, No. 190 (Adj. Sess.), § 96, eff. June 6, 2008.)

• § 8.62. Directors’ action

  (a) Directors’ action respecting a director’s conflicting interest transaction is effective for purposes of subdivision 8.61(b)(1) of this title if the transaction has been authorized by the affirmative vote of a majority, but no fewer than two, of the qualified directors who voted on the transaction after required disclosure by the conflicted director of information not already known by such qualified directors, or after modified disclosure in compliance with subsection (b) of this section, provided that:

  (1) the qualified directors have deliberated and voted outside the presence of and without the participation by any other director; and

  (2) where the action has been taken by a committee, all members of the committee were qualified directors, and either:

  (A) the committee was composed of all the qualified directors on the board of directors; or

  (B) the members of the committee were appointed by the affirmative vote of a majority of the qualified directors on the board.

  (b) Notwithstanding subsection (a) of this section, when a transaction is a director’s conflicting interest transaction only because a related person described in subdivisions 8.60(5)(E) and (F) of this title is a party to or has a material financial interest in the transaction, the conflicted director is not obligated to make required disclosure to the extent that the director reasonably believes that doing so would violate a duty imposed under law, a legally enforceable obligation of confidentiality, or a professional ethics rule, provided that the conflicted director discloses to the qualified directors voting on the transaction:

  (1) all information required to be disclosed that is not so violative;

  (2) the existence and nature of the director’s conflicting interest; and

  (3) the nature of the conflicted director’s duty not to disclose the confidential information.

  (c) A majority, but no fewer than two, of all the qualified directors on the board of directors or on the committee constitutes a quorum for purposes of action that complies with this section.

  (d) Where directors’ action under this section does not satisfy a quorum or voting requirement applicable to the authorization of the transaction by reason of the articles of incorporation, the bylaws, or a provision of law, independent action to satisfy those authorization requirements must be taken by the board of directors or a committee, in which action directors who are not qualified directors may participate. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994; amended 2007, No. 190 (Adj. Sess.), § 97, eff. June 6, 2008.)

• § 8.63. Shareholders’ action

  (a) Shareholders’ action respecting a director’s conflicting interest transaction is effective for purposes of subdivision 8.61(b)(2) of this title if a majority of the votes cast by the holders of all qualified shares is in favor of the transaction after:

  (1) notice to shareholders describing the action to be taken respecting the transaction;

  (2) provision to the corporation of the information referred to in subsection (b) of this section; and

  (3) communication of the information that is the subject of required disclosure to the shareholders entitled to vote on the transaction, to the extent the information is not known by them.

  (b) A director who has a conflicting interest respecting the transaction shall, before the shareholders’ vote, inform the secretary or other officer or agent of the corporation authorized to tabulate votes, in writing, of the number of shares that the director knows are not qualified shares under subsection (c) of this section and the identity of the holders of those shares.

  (c) For purposes of this section:

  (1) “Holder” means and “held by” refers to shares held by both a record shareholder, as defined in subdivision 13.01(5) of this title, and a beneficial shareholder, as defined in subdivision 13.01(6) of this title.

  (2) “Qualified shares” means all shares entitled to be voted with respect to the transaction except for shares that the secretary or other officer or agent of the corporation authorized to tabulate votes either knows, or under subsection (b) of this section is notified, are held by:

  (A) a director who has a conflicting interest respecting the transaction; or

  (B) a related person of the director, excluding a person described in subdivision 8.60(5)(F) of this title.

  (d) A majority of the votes entitled to be cast by the holders of all qualified shares constitutes a quorum for purposes of compliance with this section. Subject to the provisions of subsection (e) of this section, shareholders’ action that otherwise complies with this section is not affected by the presence of holders, or by the voting, of shares that are not qualified shares.

  (e) If a shareholders’ vote does not comply with subsection (a) of this section solely because of a director’s failure to comply with subsection (b) of this section, and if the director establishes that the failure was not intended to influence and did not in fact determine the outcome of the vote, the court may take such action respecting the transaction and the director, and may give such effect, if any, to the shareholders’ vote, as the court considers appropriate in the circumstances.

  (f) Where shareholders’ action under this section does not satisfy a quorum or voting requirement applicable to the authorization of the transaction by reason of the articles of incorporation, the bylaws, or a provision of law, independent action to satisfy those authorization requirements must be taken by the shareholders, in which action shares that are not qualified shares may participate. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994; amended 2007, No. 190 (Adj. Sess.), § 98, eff. June 6, 2008.)