The Vermont Statutes Online

Title 11B: Nonprofit Corporations

Chapter 008: Directors and Officers

• Subchapter 001: BOARD OF DIRECTORS

• § 8.01. Requirement for and duties of board

  (a) Each corporation must have a board of directors.

  (b) Except as provided in this title or subsection (c) of this section, all corporate powers shall be exercised by or under the authority of, and the affairs of the corporation managed under the direction of, its board.

  (c) The articles of incorporation may authorize a person or persons to exercise some or all of the powers which would otherwise be exercised by a board. To the extent so authorized, any such person or persons shall have the duties and responsibilities of the directors, and the directors shall be relieved to that extent from such duties and responsibilities. (Added 1995, No. 179 (Adj. Sess.), § 1, eff. Jan. 1, 1997.)

• § 8.02. Qualifications of directors

  All directors must be individuals. The articles of incorporation or bylaws may prescribe other qualifications for directors. A director need not be a resident of this State or a member of the corporation unless the articles of incorporation or bylaws so prescribe. (Added 1995, No. 179 (Adj. Sess.), § 1, eff. Jan. 1, 1997.)

• § 8.03. Number of directors

  (a) A board of directors must consist of three or more individuals, with the number specified in or fixed in accordance with the articles of incorporation or bylaws.

  (b) The number of directors may be increased or decreased (but to no fewer than three) from time to time by amendment to or in the manner prescribed in the articles of incorporation or bylaws. (Added 1995, No. 179 (Adj. Sess.), § 1, eff. Jan. 1, 1997.)

• § 8.04. Election, designation, and appointment of directors

  (a) If the corporation has members, all the directors (except the initial directors) shall be elected at the first annual meeting of members, and at each annual meeting thereafter, unless the articles of incorporation or bylaws provide some other time or method of election, or provide that some of the directors are appointed by some other person or designated.

  (b) If the corporation does not have members, all the directors (except the initial directors) shall be elected, appointed, or designated as provided in the articles of incorporation or bylaws. If no method of designation or appointment is set forth in the articles of incorporation or bylaws, the directors (other than the initial directors) shall be elected by the board. (Added 1995, No. 179 (Adj. Sess.), § 1, eff. Jan. 1, 1997.)

• § 8.05. Terms of directors generally

  (a) The articles of incorporation or bylaws must specify the terms of directors. Except for designated or appointed directors, the term of directors may not exceed six years. In the absence of any term specified in the articles of incorporation or bylaws, the term of each director shall be one year. Directors may be elected for successive terms.

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

  (c) Except as provided in the articles of incorporation or bylaws:

  (1) the term of a director filling a vacancy in the office of a director elected by members expires at the next election of directors by members; and

  (2) the term of a director filling any other vacancy expires at the end of the unexpired term which such director is filling.

  (d) Despite the expiration of a director’s term, the director continues to serve until the director’s successor is elected, designated, or appointed and qualifies, or until there is a decrease in the number of directors. (Added 1995, No. 179 (Adj. Sess.), § 1, eff. Jan. 1, 1997.)

• § 8.06. Staggered terms for directors

  The articles of incorporation or bylaws may provide for staggering the terms of directors by dividing the total number of directors into two, three, four, five, or six groups, with each group containing one-half, one-third, one-quarter, one-fifth or one-sixth of the total, as near as may be. In that event, the terms of the directors in the first group expire at the first annual members’ meeting after their election, the terms of the second group expire at the second members’ meeting after their election, and the terms of the third group, fourth group, fifth group, and sixth group, if any, expire at the third, fourth, fifth, or sixth annual members’ meeting after their election. At each annual members’ meeting held thereafter, directors shall be chosen for a term not to exceed six years, as the case may be, to succeed those whose terms expire. (Added 1995, No. 179 (Adj. Sess.), § 1, eff. Jan. 1, 1997.)

• § 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 directors of the corporation.

  (b) A resignation is effective when the notice is effective unless the notice specifies a later effective date. If a resignation is made effective at a later date, the board may fill the pending vacancy before the effective date if the board provides that the successor does not take office until the effective date. (Added 1995, No. 179 (Adj. Sess.), § 1, eff. Jan. 1, 1997.)

• § 8.08. Removal of directors elected by members or directors

  (a) The members may remove one or more directors elected by them without cause.

  (b) If a director is elected by a class, chapter, or other organizational unit, or by region or other geographic grouping, the director may be removed only by the members of that class, chapter, unit or grouping.

  (c) Except as provided in subsection (i) of this section, a director may be removed under subsection (a) or (b) of this section only if the number of votes cast to remove the director would be sufficient to elect the director at a meeting to elect directors.

  (d) If cumulative voting is authorized, a director may not be removed if the number of votes, or if the director was elected by a class, chapter, unit, or grouping of members, the number of votes of that class, chapter, unit, or grouping, sufficient to elect the director under cumulative voting is voted against the director’s removal.

  (e) A director elected by members may be removed by the members 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.

  (f) In computing whether a director is protected from removal under subsections (b) through (d) of this section, it should be assumed that the votes against removal are cast in an election for the number of directors of the class to which the director to be removed belonged on the date of that director’s election.

  (g) An entire board of directors may be removed under subsections (a) through (e) of this section.

  (h) The board of directors of a corporation may remove a director without cause who has been elected by the board by the vote of two-thirds of the directors then in office or such greater number as is set forth in the articles of incorporation or bylaws.

  (i) If at the beginning of a director’s term on the board, the articles of incorporation or bylaws provide that the director may be removed for missing a specified number of board meetings, the board may remove the director for failing to attend the specified number of meetings. The director may be removed only if a majority of the directors then in office votes for the removal. (Added 1995, No. 179 (Adj. Sess.), § 1, eff. Jan. 1, 1997.)

• § 8.09. Removal of designated or appointed directors

  (a) A designated director may be removed by an amendment to the articles of incorporation or bylaws deleting or changing the designation.

  (b) Appointed directors:

  (1) Except as otherwise provided in the articles of incorporation or bylaws, an appointed director may be removed without cause by the person appointing the director.

  (2) The person removing the director shall do so by giving written notice of the removal to the director and either the presiding officer of the board or the corporation’s president or secretary.

  (3) A removal is effective when the notice is effective unless the notice specifies a future effective date. (Added 1995, No. 179 (Adj. Sess.), § 1, eff. Jan. 1, 1997.)

• § 8.10. Removal of directors by judicial proceeding

  (a)(1) The Superior Court may remove any director of the corporation from office in a proceeding commenced either by the corporation, its members holding at least 10 percent of the voting power of any class, or the Attorney General in the case of a public benefit corporation if the court finds that:

  (A) the director engaged in fraudulent or dishonest conduct, or gross abuse of authority or discretion, with respect to the corporation, that the provisions of section 8.13 of this title have been violated, or a final judgment has been entered finding that the director has violated a duty set forth in sections 8.30 through 8.33 of this title; 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 Superior Court of Washington County 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 serving on the board for a period prescribed by the court.

  (c) If members or the Attorney General commence a proceeding under subsection (a) of this section, the corporation shall be made a party defendant.

  (d) If a public benefit corporation or its members commence a proceeding under subsection (a) of this section, they shall give the Attorney General written notice of the proceeding. (Added 1995, No. 179 (Adj. Sess.), § 1, eff. Jan. 1, 1997.)

• § 8.11. Vacancy on board

  (a) Unless the articles of incorporation or bylaws provide otherwise, and except as provided in subsections (b) and (c) of this section, if a vacancy occurs on the board of directors, including a vacancy resulting from an increase in the number of directors:

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

  (2) 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.

  (b) Unless the articles of incorporation or bylaws provide otherwise, if a vacant office was held by an appointed director, only the person who appointed the director may fill the vacancy.

  (c) If a vacant office was held by a designated director, the vacancy shall be filled as provided in the articles of incorporation or bylaws. In the absence of an applicable article or bylaw provision the vacancy may not be filled by the board.

  (d) 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 1995, No. 179 (Adj. Sess.), § 1, eff. Jan. 1, 1997.)

• § 8.12. Compensation of directors

  Unless the articles of incorporation or bylaws provide otherwise, a board of directors may fix the compensation of directors. (Added 1995, No. 179 (Adj. Sess.), § 1, eff. Jan. 1, 1997.)

• § 8.13. Financially disinterested majority—Public benefit corporations

  (a) No more than 49 percent of the individuals serving on the board of any public benefit corporation may be financially interested persons.

  (b) For the purposes of this section, “financially interested persons” means:

  (1) individuals who have received or are entitled to receive compensation, directly or indirectly, from the corporation for services rendered to it within the previous 12 months, whether as full- or part-time employees, independent contractors, consultants, or otherwise, excluding any reasonable payments made to directors for serving as directors; or

  (2) any spouse, brother, sister, parent, or child of any such individual.

  (c) The failure to comply with the provisions of this section shall not affect the validity or enforceability of any transaction entered into by a corporation. (Added 1995, No. 179 (Adj. Sess.), § 1, eff. Jan. 1, 1997.)

• Subchapter 002: MEETINGS AND ACTION OF THE BOARD

• § 8.20. Regular and special meetings

  (a) If the time and place of a directors’ meeting is fixed by the bylaws or the board, the meeting is a regular meeting. All other meetings are special meetings.

  (b) A board of directors may hold regular or special meetings in or outside this State.

  (c) Unless the articles of incorporation or bylaws provide otherwise, a board 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 1995, No. 179 (Adj. Sess.), § 1, eff. Jan. 1, 1997; amended 2009, No. 78 (Adj. Sess.), § 36, eff. April 15, 2010; 2011, No. 52, § 19, eff. May 27, 2011.)

• § 8.21. Action without meeting

  (a) Unless the articles of incorporation or bylaws provide otherwise, 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 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 1995, No. 179 (Adj. Sess.), § 1, eff. Jan. 1, 1997.)

• § 8.22. Call and notice of meetings

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

  (b) Unless the articles of incorporation, bylaws, or subsection (c) of this section provide otherwise, special meetings of the board must be preceded by at least two business days’ notice to each director 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.

  (c) In corporations without members, any board action to remove a director or to approve a matter which would require approval by the members if the corporation had members, shall not be valid unless each director is given at least seven days’ written notice that the matter will be voted upon at a directors’ meeting or unless notice is waived pursuant to section 8.23 of this title.

  (d) Unless the articles of incorporation or bylaws otherwise provide, the presiding officer of the board, the president, or 20 percent of the directors then in office may call and give notice of a meeting of the board. (Added 1995, No. 179 (Adj. Sess.), § 1, eff. Jan. 1, 1997.)

• § 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 in 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 the 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, upon arriving at the meeting or prior to the vote on a matter not noticed in conformity with this title, the articles of incorporation, or bylaws, objects to lack of notice and does not thereafter vote for or assent to the objected to action. (Added 1995, No. 179 (Adj. Sess.), § 1, eff. Jan. 1, 1997.)

• § 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 this title, 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 abstention 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 1995, No. 179 (Adj. Sess.), § 1, eff. Jan. 1, 1997.)

• § 8.25. Committees of the board

  (a) Unless prohibited or limited by the articles of incorporation or bylaws, a board of directors may create one or more committees and appoint members of the board to serve on them. Each committee shall 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 of the board may not, however:

  (1) authorize distributions;

  (2) approve or recommend to members dissolution, merger, or the sale, pledge, or transfer of all or substantially all of the corporation’s assets;

  (3) elect, appoint, or remove directors or fill vacancies on the board or on any of its committees; or

  (4) adopt, amend, or repeal the articles of incorporation or bylaws.

  (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 1995, No. 179 (Adj. Sess.), § 1, eff. Jan. 1, 1997.)

• 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; and

  (3) in a manner the 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, as to matters within its jurisdiction, if the director reasonably believes the committee merits confidence.

  (c) A director is not acting in good faith if the director has knowledge or a substantial reason to believe concerning the matter in question that makes reliance otherwise permitted by subsection (b) of this section unwarranted.

  (d) A director is not liable for the performance of the duties of his or her office if the director acted in compliance with this section.

  (e) A director shall not be deemed to be a trustee with respect to the corporation or with respect to any property held or administered by the corporation, including without limit, property that may be subject to restrictions imposed by the donor or transferor of such property. (Added 1995, No. 179 (Adj. Sess.), § 1, eff. Jan. 1, 1997.)

• § 8.31. Director conflict of interest

  (a) A conflict of interest transaction is a transaction with the corporation in which a director of the corporation has a direct or indirect interest. A conflict of interest transaction is not voidable or the basis for imposing liability on the director if the transaction was fair at the time it was entered into or is approved as provided in subsection (b) or (c) of this section.

  (b) A transaction in which a director of a public benefit corporation has a conflict of interest may be approved:

  (1) in advance by the vote of the board of directors or a committee of the board if:

  (A) the material facts of the transaction and the director’s interest are disclosed or known to the board or committee of the board; and

  (B) the directors approving the transaction in good faith reasonably believe that the transaction is fair to the corporation; or

  (2) before or after it is consummated by obtaining approval of the:

  (A) Attorney General; or

  (B) Superior Court in an action in which the Attorney General is joined as party.

  (c) A transaction in which a director of a mutual benefit corporation has a conflict of interest may be approved if:

  (1) the material facts of the transaction and the director’s interest were disclosed or known to the board of directors or a committee of the board and the board or committee of the board authorized, approved, or ratified the transaction; or

  (2) the material facts of the transaction and the director’s interest were disclosed or known to the members and they authorized, approved, or ratified the transaction.

  (d) For the purposes of this section, a director of the corporation has an indirect interest in a transaction if:

  (1) another entity in which the director has a material interest or in which the director is a general partner is a party to the transaction; or

  (2) another entity of which the director is a director, officer, or trustee is a party to the transaction.

  (e) For purposes of subsections (b) and (c) of this section, a conflict of interest transaction is authorized, approved, or ratified if it receives the affirmative vote of a majority of the directors on the board or on the committee who have no direct or indirect interest in the transaction, but a transaction may not be authorized, approved, or ratified under this section by a single director. If a majority of the directors on the board who have no direct or indirect interest in the transaction vote to authorize, approve, or ratify the transaction, a quorum is present for the purpose of taking action under this section. The presence of, or a vote cast by, a director with a direct or indirect interest in the transaction does not affect the validity of any action taken under subdivision (b)(1) or (c)(1) of this section if the transaction is otherwise approved as provided in subsection (b) or (c) of this section.

  (f) For purposes of subdivision (c)(2) of this section, a conflict of interest transaction is authorized, approved, or ratified by the members if it receives a majority of the votes entitled to be counted under this subsection. Votes cast by or voted under the control of a director who has a direct or indirect interest in the transaction, and votes cast by or voted under the control of an entity described in subdivision (d)(1) of this section, may not be counted in a vote of members to determine whether to authorize, approve, or ratify a conflict of interest transaction under subdivision (c)(2) of this section. The vote of these members, however, is counted in determining whether the transaction is approved under other sections of this title. A majority of the voting power, whether or not present, that is entitled to be counted in a vote on the transaction under this subsection constitutes a quorum for the purpose of taking action under this section.

  (g) The articles of incorporation, bylaws, or a resolution of the board may impose additional requirements on conflict of interest transactions. (Added 1995, No. 179 (Adj. Sess.), § 1, eff. Jan. 1, 1997.)

• § 8.32. Loans to or guarantees for directors and officers

  (a) A corporation may not lend money to or guarantee the obligation of a director or officer of the corporation.

  (b) The fact that a loan or guarantee is made in violation of this section does not affect the borrower’s liability on the loan. (Added 1995, No. 179 (Adj. Sess.), § 1, eff. Jan. 1, 1997.)

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

  (a) A director who votes for or assents to a distribution made in violation of this title is personally liable to the corporation for the amount of the distribution that exceeds what could have been distributed without violating this title 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 for an unlawful distribution under subsection (a) of this section is entitled to contribution:

  (1) from every other director who voted for or assented to the distribution without complying with the applicable standards of conduct described in section 8.30 of this title; and

  (2) from each person who received an unlawful distribution for the amount of the distribution whether or not the person receiving the distribution knew it was made in violation of this title.

  (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 this title. (Added 1995, No. 179 (Adj. Sess.), § 1, eff. Jan. 1, 1997.)

• Subchapter 004: OFFICERS

• § 8.40. Required officers

  (a) Unless otherwise provided in the articles or bylaws, a corporation shall have a president, a secretary, a treasurer, and such other officers as are appointed by the board.

  (b) The bylaws or the board shall delegate to one of the officers responsibility for preparing minutes of the directors’ and members’ meetings and for authenticating records of the corporation.

  (c) The same individual may simultaneously hold more than one office in a corporation, except that a person may not simultaneously hold the office of president and secretary. (Added 1995, No. 179 (Adj. Sess.), § 1, eff. Jan. 1, 1997.)

• § 8.41. Duties and authority of officers

  Each officer has the authority and shall perform the duties set forth in the bylaws. In addition, each officer, to the extent consistent with the bylaws, has the authority and shall perform the duties prescribed in a resolution of the board. The board may authorize an officer, pursuant to a resolution of the board and to the extent consistent with the bylaws, to prescribe the duties and authority of other officers. (Added 1995, No. 179 (Adj. Sess.), § 1, eff. Jan. 1, 1997.)

• § 8.42. Standards of conduct for officers

  (a) An officer with discretionary authority shall discharge his or her duties under that authority:

  (1) in good faith;

  (2) with the care an ordinarily prudent person in a like position would exercise under similar circumstances; and

  (3) in a manner the officer reasonably believes to be in the best interests of the corporation and its members, if any.

  (b) In discharging his or her duties, an officer 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 officer reasonably believes to be reliable and competent in the matters presented; or

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

  (c) An officer is not acting in good faith if the officer has knowledge concerning the matter in question that makes reliance otherwise permitted by subsection (b) of this section unwarranted, or has a substantial reason to believe reliance is unwarranted.

  (d) An officer is not liable to the corporation, any member, or other person for any action taken or not taken as an officer if the officer acted in compliance with this section. (Added 1995, No. 179 (Adj. Sess.), § 1, eff. Jan. 1, 1997.)

• § 8.43. Resignation and removal of officers

  (a) An officer may resign at any time by delivering notice to the corporation. A resignation is effective when the notice is effective unless the notice specifies a future effective date. If a resignation is made effective at a future 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 provides that the successor does not take office until the effective date.

  (b) A board may remove any officer at any time with or without cause. (Added 1995, No. 179 (Adj. Sess.), § 1, eff. Jan. 1, 1997.)

• § 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 1995, No. 179 (Adj. Sess.), § 1, eff. Jan. 1, 1997.)

• § 8.45. Officers’ authority to execute documents

  Any contract or other instrument in writing executed or entered into between a corporation and any other person is not invalidated as to the corporation by any lack of authority of the signing officers in the absence of actual knowledge on the part of the other person that the signing officers had no authority to execute the contract or other instrument if it is signed by either the presiding officer of the board of directors and the president or, if the corporation has no president, or if they are the same person, then by the executive director of the corporation and any other officer. (Added 1995, No. 179 (Adj. Sess.), § 1, eff. Jan. 1, 1997.)

• Subchapter 005: INDEMNIFICATION

• § 8.50. Subchapter definitions

  As used 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 business or nonprofit 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 actually 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; and

  (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 business or nonprofit 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 1995, No. 179 (Adj. Sess.), § 1, eff. Jan. 1, 1997.)

• § 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 the individual:

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

  (2) reasonably believed:

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

  (B) in all other cases, that his or her conduct was not in opposition to the corporation’s 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 criminal 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 requirements 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 his or her 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 1995, No. 179 (Adj. Sess.), § 1, eff. Jan. 1, 1997.)

• § 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 he or she is or was a director of the corporation against reasonable expenses, reasonably incurred by the director in connection with the proceeding. (Added 1995, No. 179 (Adj. Sess.), § 1, eff. Jan. 1, 1997.)

• § 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 he or she 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 1995, No. 179 (Adj. Sess.), § 1, eff. Jan. 1, 1997.)

• § 8.54. Court-ordered indemnification

  Unless limited by a corporation’s articles of incorporation, 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 in the amount it considers proper 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 subsection 8.51(a) of this title or was adjudged liable as described in subsection 8.51(d) of this title, but if the director was adjudged so liable, indemnification is limited to reasonable expenses incurred. (Added 1995, No. 179 (Adj. Sess.), § 1, eff. Jan. 1, 1997.)

• § 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 as set forth in section 8.51 of this title.

  (b) The determination 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 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 cannot be obtained under subdivision (1) of this subsection and a committee cannot be designated under subdivision (2) of this subsection, selected by majority vote of the full board in which selections directors who are parties may participate; or

  (4) by the members of a mutual benefit corporation, but directors who are at the time parties to the proceeding may not vote 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.

  (d) A director of a public benefit corporation may not be indemnified until 20 days after the effective date of written notice to the Attorney General of the proposed indemnification. (Added 1995, No. 179 (Adj. Sess.), § 1, eff. Jan. 1, 1997.)

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

  Unless limited by a corporation’s articles of incorporation:

  (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; and

  (3) a corporation may also indemnify and advance expenses to an officer, employee, or agent who is not a director to the extent, consistent with public policy, that may be provided by its articles of incorporation, bylaws, general or specific action of its board of directors, or contract. (Added 1995, No. 179 (Adj. Sess.), § 1, eff. Jan. 1, 1997.)

• § 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 business or nonprofit 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 the person against the same liability under section 8.51 or 8.52 of this title. (Added 1995, No. 179 (Adj. Sess.), § 1, eff. Jan. 1, 1997.)

• § 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 members 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 appearing 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 1995, No. 179 (Adj. Sess.), § 1, eff. Jan. 1, 1997.)