The Vermont Statutes Online

Title 11C: Mututal Benefit Enterprises

Chapter 008: Directors and Officers

• § 801. Board of directors

  (a) A mutual benefit enterprise shall have a board of directors of at least three individuals unless the enterprise has fewer than three members. If the enterprise has fewer than three members, the number of directors may not be fewer than the number of members.

  (b) The affairs of a mutual benefit enterprise shall be managed by or under the direction of the board of directors. The board may adopt policies and procedures that do not conflict with the organic rules or this title.

  (c) An individual is not an agent for a mutual benefit enterprise solely by being a director. (Added 2011, No. 84 (Adj. Sess.), § 1, eff. April 20, 2012.)

• § 802. No liability as director for mutual benefit enterprise’s obligations

  A debt, obligation, or other liability of a mutual benefit enterprise is solely that of the enterprise and is not a debt, obligation, or liability of a director solely by reason of being a director. An individual is not personally liable, directly or indirectly, for an obligation of an enterprise solely by reason of being a director. (Added 2011, No. 84 (Adj. Sess.), § 1, eff. April 20, 2012.)

• § 803. Qualifications of directors

  (a) Unless the organic rules otherwise provide, and subject to subsection (c) of this section, each director of a mutual benefit enterprise shall be an individual who is a member of the enterprise or an individual who is designated by a member that is not an individual for purposes of qualifying and serving as a director. Initial directors need not be members.

  (b) Unless the organic rules otherwise provide, a director may be an officer or employee of the mutual benefit enterprise.

  (c) If the organic rules provide for nonmember directors, the number of nonmember directors may not exceed:

  (1) one if there are two through four directors;

  (2) two if there are five through eight directors; or

  (3) one-third of the total number of directors if there are at least nine directors.

  (d) The organic rules may provide qualifications for directors in addition to those in this section. (Added 2011, No. 84 (Adj. Sess.), § 1, eff. April 20, 2012.)

• § 804. Election of directors and composition of board

  (a) Unless the organic rules require a greater number:

  (1) the number of directors that shall be patron members may not be fewer than:

  (A) one if there are two or three directors;

  (B) two if there are four or five directors;

  (C) three if there are six through eight directors; or

  (D) one-third of the directors if there are at least nine directors; and

  (2) a majority of the board of directors shall be elected exclusively by patron members.

  (b) Unless the organic rules otherwise provide, if a mutual benefit enterprise has investor members, the directors who are not elected exclusively by patron members are elected by the investor members.

  (c) Subject to subsection (a) of this section, the organic rules may provide for the election of all or a specified number of directors by one or more districts or classes of members.

  (d) Subject to subsection (a) of this section, the organic rules may provide for the nomination or election of directors by districts or classes, directly or by district delegates.

  (e) If a class of members consists of a single member, the organic rules may provide for the member to appoint a director or directors.

  (f) Unless the organic rules otherwise provide, cumulative voting for directors is prohibited.

  (g) Except as otherwise provided by the organic rules, subsection (e) of this section, or sections 303, 516, 517, and 809 of this title, member directors shall be elected at an annual members’ meeting. (Added 2011, No. 84 (Adj. Sess.), § 1, eff. April 20, 2012.)

• § 805. Term of director

  (a) Unless the organic rules otherwise provide and subject to subsections (c) and (d) of this section and subsection 303(c) of this title, the term of a director expires at the annual members’ meeting following the director’s election or appointment. The term of a director may not exceed three years.

  (b) Unless the organic rules otherwise provide, a director may be reelected.

  (c) Except as otherwise provided in subsection (d) of this section, a director continues to serve until a successor director is elected or appointed and qualifies or the director is removed, resigns, is adjudged incompetent, or dies.

  (d) Unless the organic rules otherwise provide, a director does not serve the remainder of the director’s term if the director ceases to qualify to be a director. (Added 2011, No. 84 (Adj. Sess.), § 1, eff. April 20, 2012.)

• § 806. Resignation of director

  A director may resign at any time by giving notice in a record to the mutual benefit enterprise. Unless the notice states a later effective date, a resignation is effective when the notice is received by the enterprise. (Added 2011, No. 84 (Adj. Sess.), § 1, eff. April 20, 2012.)

• § 807. Removal of director

  Unless the organic rules otherwise provide, the following rules apply:

  (1) Members may remove a director with or without cause.

  (2) A member or members holding at least 10 percent of the total voting power entitled to be voted in the election of a director may demand removal of the director by one or more signed petitions submitted to the officer of the mutual benefit enterprise charged with keeping its records.

  (3) Upon receipt of a petition for removal of a director, an officer of the enterprise or the board of directors shall:

  (A) call a special meeting of members to be held not later than 90 days after receipt of the petition by the enterprise; and

  (B) mail or otherwise transmit or deliver in a record to the members entitled to vote on the removal and to the director to be removed notice of the meeting which complies with section 508 of this title.

  (4) A director is removed if the votes in favor of removal are equal to or greater than the votes required to elect the director at the time of the vote. (Added 2011, No. 84 (Adj. Sess.), § 1, eff. April 20, 2012.)

• § 808. Suspension of director by board

  (a) A board of directors may suspend a director if, considering the director’s course of conduct and the inadequacy of other available remedies, immediate suspension is necessary for the best interests of the enterprise and if the director is engaging or has engaged in:

  (1) fraudulent conduct with respect to the enterprise or its members;

  (2) gross abuse of the position of director;

  (3) intentional or reckless infliction of harm on the enterprise; or

  (4) any other behavior, act, or omission as provided by the organic rules.

  (b)(1) A suspension under subsection (a) of this section is effective for 30 days unless the board of directors calls a special meeting of members for removal of the director before the end of the 30-day period, in which case the suspension is effective until adjournment of the meeting or the director is removed.

  (2) Upon call of a special meeting of members for removal of the director, an officer of the enterprise or the board of directors shall mail or otherwise transmit or deliver in a record to the members entitled to vote on the removal and to the director to be removed notice of the meeting that complies with section 508 of this title.

  (3) A director is removed if the votes in favor of removal are equal to or greater than the votes required to elect the director at the time of the vote. (Added 2011, No. 84 (Adj. Sess.), § 1, eff. April 20, 2012.)

• § 809. Vacancy on board

  (a) Unless the organic rules otherwise provide, a vacancy on the board of directors shall be filled:

  (1) notwithstanding subdivision 804(a)(2) and subsection 804(b) of this title, within a reasonable time by majority vote of the remaining directors until the next annual members’ meeting or a special meeting of members called to fill the vacancy; and

  (2) for the unexpired term by members at the next annual members’ meeting or a special meeting of members called to fill the vacancy.

  (b) Unless the organic rules otherwise provide, if a vacating director was elected or appointed by a class of members or a district:

  (1) the new director shall be of that class or district; and

  (2) the selection of the director for the unexpired term shall be conducted in the same manner as would the selection for that position without a vacancy.

  (c) If a member appointed a vacating director, the organic rules may provide for that member to appoint a director to fill the vacancy. (Added 2011, No. 84 (Adj. Sess.), § 1, eff. April 20, 2012.)

• § 810. Remuneration of directors

  Unless the organic rules otherwise provide, the board of directors may set the remuneration of directors and of nondirector committee members appointed under subsection 817(a) of this title. (Added 2011, No. 84 (Adj. Sess.), § 1, eff. April 20, 2012.)

• § 811. Meetings

  (a) A board of directors shall meet at least annually and may hold meetings inside or outside this State.

  (b) Unless the organic rules otherwise provide, a board of directors may permit directors to attend or conduct board meetings through the use of any means of communication if all directors attending the meeting can communicate with each other during the meeting. (Added 2011, No. 84 (Adj. Sess.), § 1, eff. April 20, 2012.)

• § 812. Action without meeting

  (a) Unless prohibited by the organic rules, any action that may be taken by a board of directors may be taken without a meeting if each director consents in a record to the action.

  (b) Consent under subsection (a) of this section may be withdrawn by a director in a record at any time before the mutual benefit enterprise receives consent from all directors.

  (c) A record of consent for any action under subsection (a) of this section may specify the effective date or time of the action. (Added 2011, No. 84 (Adj. Sess.), § 1, eff. April 20, 2012.)

• § 813. Meetings and notice

  (a) Unless the organic rules otherwise provide, a board of directors may establish a time, date, and place for regular board meetings, and notice of the time, date, place, or purpose of those meetings is not required.

  (b) Unless the organic rules otherwise provide, notice of the time, date, and place of a special meeting of a board of directors shall be given to all directors at least three days before the meeting, the notice shall contain a statement of the purpose of the meeting, and the meeting is limited to the matters contained in the statement. (Added 2011, No. 84 (Adj. Sess.), § 1, eff. April 20, 2012.)

• § 814. Waiver of notice of meeting

  (a) Unless the organic rules otherwise provide, a director may waive any required notice of a meeting of the board of directors in a record before, during, or after the meeting.

  (b) Unless the organic rules otherwise provide, a director’s participation in a meeting is a waiver of notice of that meeting unless:

  (1) the director objects to the meeting at the beginning of the meeting or promptly upon the director’s arrival at the meeting and does not thereafter vote in favor of or otherwise assent to the action taken at the meeting; or

  (2) the director promptly objects upon the introduction of any matter for which notice under section 813 of this title has not been given and does not thereafter vote in favor of or otherwise assent to the action taken on the matter. (Added 2011, No. 84 (Adj. Sess.), § 1, eff. April 20, 2012.)

• § 815. Quorum

  (a) Unless the articles of organization provide for a greater number, a majority of the total number of directors specified by the organic rules constitutes a quorum for a meeting of the directors.

  (b) If a quorum of the board of directors is present at the beginning of a meeting, any action taken by the directors present is valid even if withdrawal of directors originally present results in the number of directors being fewer than the number required for a quorum.

  (c) A director present at a meeting but objecting to notice under subdivision 814(b)(1) or (2) of this title does not count toward a quorum. (Added 2011, No. 84 (Adj. Sess.), § 1, eff. April 20, 2012.)

• § 816. Voting

  (a) Each director shall have one vote for purposes of decisions made by the board of directors.

  (b) Unless the organic rules otherwise provide, the affirmative vote of a majority of directors present at a meeting is required for action by the board of directors. (Added 2011, No. 84 (Adj. Sess.), § 1, eff. April 20, 2012.)

• § 817. Committees

  (a) Unless the organic rules otherwise provide, a board of directors may create one or more committees and appoint one or more individuals to serve on a committee.

  (b) Unless the organic rules otherwise provide, an individual appointed to serve on a committee of a mutual benefit enterprise need not be a director or member.

  (c) An individual who is not a director and is serving on a committee has the same rights, duties, and obligations as a director serving on the committee.

  (d) Unless the organic rules otherwise provide, each committee of a mutual benefit enterprise may exercise the powers delegated to it by the board of directors, but a committee may not:

  (1) approve allocations or distributions except according to a formula or method prescribed by the board of directors;

  (2) approve or propose to members action requiring approval of members; or

  (3) fill vacancies on the board of directors or any of its committees. (Added 2011, No. 84 (Adj. Sess.), § 1, eff. April 20, 2012.)

• § 818. Standards of conduct and liability

  (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 that 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 enterprise.

  (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 enterprise 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 2011, No. 84 (Adj. Sess.), § 1, eff. April 20, 2012.)

• § 819. Definitions

  For purposes of this section and sections 819a through 819c of this title:

  (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 enterprise or by an entity controlled by the enterprise 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 enterprise” means, for purposes of subdivision 819a(b)(3) of this title, that the transaction as a whole was beneficial to the enterprise, taking into appropriate account whether it was:

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

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

  (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 enterprise or an entity controlled by the enterprise, controlled by the director or any person specified in this subdivision (5);

  (E) a domestic or foreign:

  (i) business corporation, nonprofit corporation, or mutual benefit enterprise (other than the enterprise or an entity controlled by the enterprise) 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 who 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 819b of this title; or

  (B) if the transaction is not brought before the board of directors of the enterprise or its committee for action under section 819b of this title, at the time the enterprise or an entity controlled by the enterprise 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 2011, No. 84 (Adj. Sess.), § 1, eff. April 20, 2012.)

• § 819a. Judicial action

  (a) A transaction effected or proposed to be effected by the enterprise, or by an entity controlled by the enterprise, may not be the subject of equitable relief or give rise to an award of damages or other sanctions against a director of the enterprise in a proceeding by a member or by or in the right of the enterprise 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 enterprise in a proceeding by a member or by or in the right of the enterprise 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 819b of this title at any time; or

  (2) the members’ action respecting the transaction was taken in compliance with section 819c 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 enterprise. (Added 2011, No. 84 (Adj. Sess.), § 1, eff. April 20, 2012.)

• § 819b. Directors’ action

  (a) Directors’ action respecting a director’s conflicting interest transaction is effective for purposes of subdivision 819a(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 of 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 819(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 organization, the bylaws, or a provision of law, independent action to satisfy those authorization requirements shall be taken by the board of directors or a committee, in which action directors who are not qualified directors may participate. (Added 2011, No. 84 (Adj. Sess.), § 1, eff. April 20, 2012.)

• § 819c. Members’ action

  (a) Members’ action respecting a director’s conflicting interest transaction is effective for purposes of subdivision 819a(b)(2) of this title if a majority of the votes cast by the holders of all of the voting power of the members is in favor of the transaction after:

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

  (2) provision to the enterprise 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 members 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 members’ vote, inform the secretary or other officer or agent of the enterprise authorized to tabulate votes, in writing, of the voting power that the director knows is not qualified voting power under subsection (c) of this section and the identity of the holders of that power.

  (c) For purposes of this section, “qualified voting power” means the power entitled to be voted with respect to the transaction except for the voting power that the secretary or other officer or agent of the enterprise authorized to tabulate votes either knows, or under subsection (b) of this section is notified, is held by:

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

  (2) a person related to the director, excluding a person described in subdivision 819(5)(F) of this title.

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

  (e) If a member’s 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 member’s vote as the court considers appropriate in the circumstances.

  (f) Where members’ 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 organization, the bylaws, or a provision of law, independent action to satisfy those authorization requirements shall be taken by the members, in which action voting power that is not qualified voting power may participate. (Added 2011, No. 84 (Adj. Sess.), § 1, eff. April 20, 2012.)

• § 820. Other considerations of directors

  In determining what the director reasonably believes to be in the best interests of the enterprise, a director may consider:

  (1) the interests of the enterprise’s employees, suppliers, creditors, and customers;

  (2) the economy of the State, region, nation, and community, and societal considerations, including those of any community in which any offices or facilities of the enterprise are located; and

  (3) 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 enterprise and the long-term and short-term interests of the enterprise and its members, including the possibility that these interests may be best served by the continued independence of the enterprise. (Added 2011, No. 84 (Adj. Sess.), § 1, eff. April 20, 2012.)

• § 821. Right of director or committee member to information

  A director or a member of a committee appointed under section 817 of this title may obtain, inspect, and copy all information regarding the state of activities and financial condition of the mutual benefit enterprise and other information regarding the activities of the enterprise if the information is reasonably related to the performance of the director’s duties as director or the committee member’s duties as a member of the committee. Information obtained in accordance with this section may not be used in any manner that would violate any duty of or to the enterprise. (Added 2011, No. 84 (Adj. Sess.), § 1, eff. April 20, 2012.)

• § 822. Appointment and authority of officers

  (a) A mutual benefit enterprise has the officers:

  (1) provided in the organic rules; or

  (2) established by the board of directors in a manner not inconsistent with the organic rules.

  (b) The organic rules may designate or, if the rules do not designate, the board of directors shall designate one of the enterprise’s officers for preparing all records required by section 114 of this title and for the authentication of records.

  (c) Unless the organic rules otherwise provide, the board of directors shall appoint the officers of the mutual benefit enterprise.

  (d) Officers of a mutual benefit enterprise shall perform the duties the organic rules prescribe or as authorized by the board of directors not in a manner inconsistent with the organic rules.

  (e) The election or appointment of an officer of a mutual benefit enterprise does not of itself create a contract between the enterprise and the officer.

  (f) Unless the organic rules otherwise provide, an individual may simultaneously hold more than one office in a mutual benefit enterprise. (Added 2011, No. 84 (Adj. Sess.), § 1, eff. April 20, 2012.)

• § 823. Resignation and removal of officers

  (a) The board of directors may remove an officer at any time with or without cause.

  (b) An officer of a mutual benefit enterprise may resign at any time by giving notice in a record to the enterprise. Unless the notice specifies a later time, the resignation is effective when the notice is given. (Added 2011, No. 84 (Adj. Sess.), § 1, eff. April 20, 2012.)