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| Home > Statutes > Usa-Arizona |
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USA Statutes : arizona
Title : Corporations and Associations
Chapter : DIRECTORS AND OFFICERS-NONPROFIT CORPORATIONS
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10-3801 Requirement for and duties of board
A. Each corporation shall have a board of directors.
B. All corporate powers shall be exercised by or under the authority of and the
affairs of the corporation shall be managed under the direction of its board of
directors, subject to any limitation set forth in the articles of incorporation.
C. The articles of incorporation may authorize one or more members, delegates or
other persons to exercise some or all of the powers which would otherwise be exercised by
a board. To the extent so authorized the authorized person or persons shall have the
duties and responsibilities of the directors, and the directors shall be relieved to that
extent from those duties and responsibilities.
10-3802 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 member of the
corporation unless the articles of incorporation or bylaws so prescribe.
10-3803 Number of directors
A. A board of directors shall consist of one or more individuals, with the number
specified in or fixed in accordance with the articles of incorporation or bylaws.
B. The articles of incorporation or bylaws may establish a variable range for the
size of the board of directors by fixing a minimum and maximum number of directors. 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 members or the board of directors.
10-3804 Election, designation and appointment of directors
A. If the corporation has members, the members shall elect all the directors except
the initial directors at the first annual meeting of members, and at each annual meeting
after the first annual meeting, unless either:
1. The terms of the directors are staggered pursuant to section 10-3806.
2. The articles of incorporation or bylaws provide some other time or method of
election.
3. The articles of incorporation or bylaws provide that some of the directors are
appointed by some other person or some of the directors are 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 board of directors shall elect the directors
other than the initial directors.
10-3805 Terms of directors generally
A. The terms of the initial directors of a corporation expire at the first
election, appointment or designation of directors as provided in section 10-3804.
B. The articles of incorporation or bylaws shall specify the terms of
directors. In the absence of any term specified in the articles of incorporation or
bylaws, the term of each director is one year. Unless otherwise provided in the articles
of incorporation or bylaws, directors may be elected for successive terms.
C. A decrease in the number of directors or term of office does not shorten the
term of any incumbent director.
D. Except as provided in the articles of incorporation or bylaws:
1. The term of a director elected to fill a vacancy in the office of a director
elected by members expires at the next election of directors by members.
2. The term of a director elected to fill any other vacancy expires at the end of
the unexpired term that the director is filling.
E. Despite the expiration of a director's term, a director shall continue to hold
office until the director's successor is elected, designated or appointed and qualifies,
until the director's resignation or removal or until there is a decrease in the number of
directors.
10-3806 Staggered terms for directors
The articles of incorporation or bylaws may provide for staggering the directors'
terms of office by dividing the total number of directors into two or more groups. The
terms of office of the several groups need not be uniform.
10-3807 Resignation of directors
A. A director may resign at any time by delivering written notice to the board of
directors, its presiding officer or the corporation.
B. A resignation is effective when the notice is delivered unless the notice
specifies a later effective date or event. 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.
10-3808 Removal of directors elected by members or directors
A. A director may be removed from office pursuant to any procedure provided in the
articles of incorporation or bylaws.
B. If the articles of incorporation or bylaws do not provide a procedure for
removal of a director from office:
1. The members may remove one or more directors elected by them with or without
cause unless the articles of incorporation provide that directors may be removed only for
cause.
2. If a director is elected by a class, chapter, region or other organizational or
geographic unit or grouping only the members of that class, chapter, region, unit or
grouping may participate in the vote to remove the director.
3. Except as provided in paragraph 9, a director may be removed under paragraph 1
or 2 only if the number of votes cast to remove the director would be sufficient to elect
the director at a meeting to elect directors.
4. 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, region, unit or grouping of
members, the number of votes of that class, chapter, region, unit or grouping, sufficient
to elect the director under cumulative voting is voted against the director's removal.
5. A director elected by members may be removed by the members at a meeting by
written consent or by written ballot of the members authorized to vote on such
removal. If the removal is to occur at a meeting, the meeting notice shall state that
the purpose or one of the purposes of the meeting is removal of the director.
6. In computing whether a director is protected from removal under paragraphs 2
through 4, it is 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.
7. An entire board of directors may be removed under paragraphs 1 through 5.
8. Except as provided in subsection C, a director elected by the board may be
removed with or without cause by the vote of two-thirds of the directors then in office
or any greater number as is set forth in the articles of incorporation or bylaws.
9. If, at the beginning of a director's term on the board of directors, the
articles of incorporation or bylaws provide that the director may be removed for missing
a specified number of meetings of the board of directors, the board of directors 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 vote for the removal.
C. Notwithstanding subsection B, paragraph 8, a director elected by the board to
fill the vacancy of a director elected by the members may be removed with or without
cause by the members, but not by the board of directors.
10-3809 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. Except as otherwise provided in the articles of incorporation or bylaws, an
appointed director may be removed with or without cause by the person appointing the
director. The person removing the director shall give written notice of the removal to
the director and either the board of directors, its presiding officer or the
corporation. A removal is effective when the notice is delivered unless the notice
specifies a later effective date or event.
10-3810 Removal of directors by judicial proceeding
A. The court in the county where a corporation's known place of business or, if
none in this state, its statutory agent is located may remove a director of the
corporation from office in a proceeding commenced either by the corporation or by its
members holding at least twenty-five per cent of the voting power of any class, if the
court finds that both:
1. The director engaged in fraudulent conduct or intentional criminal conduct with
respect to the corporation.
2. Removal is in the best interests of the corporation.
B. The court that removes a director may bar the director from serving on the board
for a period prescribed by the court, but in no event may the period exceed five years.
C. If members commence a proceeding under subsection A, they shall make the
corporation a party defendant, unless the corporation elects to become a party plaintiff.
D. The articles of incorporation or bylaws of a corporation organized for religious
purposes may limit or prohibit the application of this section.
10-3811 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 a board of
directors, including a vacancy resulting from an increase in the number of directors,
either:
1. The members, if any, may fill the vacancy.
2. The board of directors may fill the vacancy.
3. If the directors remaining in office constitute fewer than a quorum of the board
of directors, 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 the vacant
office was held by a director elected by a class, chapter, region or other organizational
or geographic unit or grouping, only members of the class, chapter, region, unit or
grouping are entitled to vote to fill the vacancy if it is filled by the members.
C. 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.
D. 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.
E. A vacancy that will occur at a specific later date by reason of a resignation
effective at a later date under section 10-3807, subsection B or otherwise may be filled
before the vacancy occurs, but the new director may not take office until the vacancy
occurs.
F. If at any time by reason of death or resignation or other cause a corporation
has no directors in office, any officer or any member may call a special meeting of
members.
10-3812 Compensation of directors
Unless the articles of incorporation or bylaws provide otherwise, the board of
directors may fix the compensation of directors.
10-3820 Regular and special meetings
A. If the time and place of a directors' meeting is fixed by the bylaws or the
board of directors, 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 out of this
state.
C. Unless the articles of incorporation or bylaws provide otherwise, 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 by which all
directors participating may simultaneously hear each other during the meeting. A
director participating in a meeting by this means is deemed to be present in person at
the meeting.
10-3821 Action without meeting
A. Unless the articles of incorporation or bylaws provide otherwise, action
required or permitted by chapters 24 through 40 of this title to be taken at a directors'
meeting may be taken without a meeting if the action is taken by all of the
directors. The 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. The consent signed under this section has the effect of a meeting vote and may
be described as such in any document.
D. Any director may revoke a consent by delivering a signed revocation of the
consent to the president or secretary before the date the last director signs the
consent.
E. For the purposes of this section, a consent may be signed using an electronic
signature as defined in section 44-7002. 10-3822 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 of directors 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 of directors shall be preceded by at
least two 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.
C. In corporations without members any board action to remove a director or to
approve a matter that would require approval by the members if the corporation had
members is not valid unless each director is given at least two days' written notice that
the matter will be voted on at a directors' meeting or unless notice is waived pursuant
to section 10-3823.
D. Unless the articles of incorporation or bylaws provide otherwise, the presiding
officer of the board of directors, the president or twenty per cent of the directors then
in office may call and give notice of a meeting of the board.
10-3823 Waiver of notice A. A director may waive any notice required by chapters 24 through 40 of 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 shall be in writing and signed by the director entitled to the notice, or by electronic mail 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 on the director's arrival at the meeting 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. C. For the purposes of this section, a waiver may be signed using an electronic signature as defined in section 44-7002. 10-3824 Quorum and voting
A. Unless the articles of incorporation or bylaws require a different number, a
quorum of a board of directors consists of either:
1. A majority of the fixed number of directors if the corporation has a fixed board
size.
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. The articles of incorporation or bylaws may authorize a quorum of a board of
directors to consist of at least one-third of the fixed or prescribed number of directors
determined under subsection A.
C. The articles of incorporation or bylaws may specify that, if a quorum is present
when a meeting is convened, the quorum shall be deemed to exist until the meeting is
adjourned, notwithstanding the departure of one or more directors.
D. 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.
E. 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 either:
1. The director objects at the beginning of the meeting or promptly on 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.
3. The director delivers written notice of the director's dissent or abstention to
the presiding officer of the meeting before its adjournment or to the corporation before
5:00 p.m. on the next business day after the meeting.
F. The right of dissent or abstention is not available to a director who votes in
favor of the action taken.
G. The articles of incorporation or bylaws may authorize a director to vote in
person or by proxy. The following provisions apply to voting by proxy:
1. A director may appoint a proxy to vote or otherwise act for the director by
signing an appointment form, either personally or by the director's
attorney-in-fact. The appointment does not relieve the director of liability for acts or
omissions imposed by law on directors.
2. An appointment of a proxy is effective when received by the secretary. An
appointment is valid for one month unless a different period is expressly provided in the
appointment form.
3. An appointment of a proxy is revocable by the director.
4. The death or incapacity of the director appointing a proxy does not affect the
right of the corporation to accept the proxy's authority unless written notice of the
death or incapacity is received by the secretary before the proxy exercises its authority
under the appointment.
5. Subject to any express limitation on the proxy's authority appearing on the face
of the appointment form, a corporation is entitled to accept the proxy's vote or other
action as of the shareholder making the appointment.
10-3825 Committees of the board
A. Unless the articles of incorporation or bylaws provide otherwise, the board of
directors may create one or more committees and appoint members of the board of directors
to serve on them. Each committee shall have one or more members, and each member of a
committee shall serve at the pleasure of the board of directors.
B. The creation of a committee and appointment of members of the board of directors
to it must be approved by the greater of:
1. A majority of all the directors in office when the action is taken.
2. The number of directors required by the articles of incorporation or bylaws to
take action under section 10-3824.
C. Sections 10-3820 through 10-3824 governing meetings, action without meetings and
notice, waiver of notice, quorum and voting requirements of the board of directors also
apply to committees and their members.
D. Subject to the limitations set forth in subsection E of this section, each
committee of the board may exercise the authority of the board of directors under section
10-3801 to the extent specified by the board of directors or in the articles of
incorporation or bylaws.
E. A committee shall not take any of the following actions:
1. Authorize distributions.
2. Approve or recommend to members any action that requires the members' approval
under this chapter.
3. Fill vacancies on the board of directors or on any of its committees.
4. Adopt, amend or repeal bylaws.
5. Fix the compensation of directors for serving on the board of directors or any
committee of 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 10-3830.
G. The board of directors may designate one or more directors as alternate members
of any committee who may replace any absent member at any meeting of the committee.
10-3830 General standards for directors
A. A director's duties, including duties as a member of a committee, shall be
discharged:
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.
B. In discharging 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 any of the following:
1. One or more officers or employees of the corporation whom the director
reasonably believes are reliable and competent in the matters presented.
2. Legal counsel, public accountants or other person as to matters the director
reasonably believes are within the person's professional or expert competence.
3. A committee of or appointed by the board of directors of which the director is
not a member if the director reasonably believes the committee merits confidence.
4. In the case of corporations organized for religious purposes, religious
authorities and ministers, priests, rabbis or other persons whose position or duties in
the religious organization the director believes justify reliance and confidence and whom
the director believes to be reliable and competent in the matters presented.
C. A director is not acting in good faith if the director has knowledge concerning
the matter in question that makes reliance otherwise permitted by subsection B
unwarranted.
D. A director is not liable for any action taken as a director or any failure to
take any action if the director's duties were performed in compliance with this
section. In any proceeding commenced under this section or any other provision of this
chapter, a director has all of the defenses and presumptions ordinarily available to a
director. A director is presumed in all cases to have acted, failed to act or otherwise
discharged such director's duties in accordance with subsection A. The burden is on the
party challenging a director's action, failure to act or other discharge of duties to
establish by clear and convincing evidence facts rebutting the presumption.
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
property that may be subject to restrictions imposed by the donor or transferor of that
property.
10-3833 Liability for unlawful distributions
A. A director who votes for or assents to a distribution made in violation of
sections 10-11301 and 10-11302 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 sections 10-11301 and 10-11302 or the articles of
incorporation if it is established that the director's duties were not performed in
compliance with section 10-3830.
B. A director of a corporation who is present at a meeting of its board of
directors at which action on any distribution in violation of section 10-11301 is taken
is presumed to have assented to the action taken unless his dissent is entered in the
minutes of the meeting or unless he files his written dissent to the action with the
secretary of the meeting before the adjournment of the meeting or forwards the dissent by
registered or certified mail to the secretary of the corporation before 5:00 p.m. of the
next business day after the adjournment of the meeting. The right to dissent does not
apply to a director who voted in favor of the action.
C. A director who is held liable under subsection A of this section for an unlawful
distribution is entitled to contribution from:
1. Every other director who could be held liable under subsection A of this section
for the unlawful distribution.
2. 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 sections 10-11301 and 10-11302 or the articles of incorporation.
D. A proceeding under this section is barred unless it is commenced within two
years after the date on which the distribution is made.
10-3840 Officers
A. A corporation shall have the officers described in its articles of incorporation
or bylaws or appointed by the board of directors in accordance with the articles of
incorporation or bylaws.
B. A duly appointed 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 delegate to one of the officers
responsibility for preparing minutes of the directors' and members' meetings and for
authenticating records of the corporation.
D. The same individual may simultaneously hold more than one office in a
corporation.
10-3841 Duties and authority 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 and authority prescribed by the
board of directors or by direction of an officer authorized by the board of directors to
prescribe the duties and authority of other officers.
10-3842 Standards of conduct for officers
A. If an officer has discretionary authority with respect to any duties, an
officer's duties shall be discharged under that authority:
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 officer reasonably believes to be in the best interests of the
corporation.
B. In discharging 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 either:
1. One or more officers or employees of the corporation whom the officer reasonably
believes to be reliable and competent in the matters presented.
2. Legal counsel, public accountants or other persons as to matters the officer
reasonably believes are within the person's professional or expert competence.
3. In the case of corporations organized for religious purposes, religious
authorities and ministers, priests, rabbis or other persons whose position or duties in
the religious organization the officer believes justify reliance and confidence and who
the officer believes to be reliable and competent in the matters presented.
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
unwarranted.
D. An officer is not liable for any action taken as an officer or any failure to
take any action if the officer's duties were performed in compliance with this
section. In any proceeding commenced under this section or any other provision of this
chapter, an officer has all of the defenses and presumptions ordinarily available to an
officer. An officer is presumed in all cases to have acted, failed to act or otherwise
discharged such officer's duties in accordance with subsection A. The burden is on the
party challenging an officer's action, failure to act or other discharge of duties to
establish by clear and convincing evidence facts rebutting the presumption.
10-3843 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 delivered unless the notice specifies a later
effective date or event. If a resignation is made effective at a later date or event and
the corporation accepts the later 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.
10-3844 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.
10-3845 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 two individuals who are either:
1. Both the presiding officer of the board of directors and the president.
2. Either the presiding officer of the board of directors or the president, and one
of the following:
(a) A vice-president.
(b) The secretary.
(c) The treasurer.
(d) The executive director.
10-3850 Definitions
In this article, unless the context otherwise requires:
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 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
entity. 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 the estate or personal representative of a
director and includes ex officio members of the board.
3. "Expenses" include attorney fees and other costs and expenses reasonably related
to a proceeding.
4. "Liability" means the obligation to pay a judgment, settlement, penalty or fine,
including an excise tax assessed with respect to an employee benefit plan, or reasonable
expenses actually incurred with respect to a proceeding and includes obligations and
expenses that have not yet been paid by the indemnified persons but that have been or may
be incurred.
5. "Officer" means an individual who is or was an officer of a corporation or an
individual who, while an officer 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
entity. An officer is considered to be serving an employee benefit plan at the
corporation's request if the officer's duties to the corporation also impose duties on or
otherwise involve services by the officer to the plan or to participants in or
beneficiaries of the plan. Officer includes the estate or personal representative of an
officer.
6. "Official capacity" means if used with respect to a director, the office of
director in a corporation and, if used with respect to an officer as contemplated in
section 10-3856, the office in a corporation held by the officer. Official capacity does
not include service for any other foreign or domestic corporation or any partnership,
joint venture, trust, employee benefit plan, or other entity.
7. "Outside director" means a director who, when serving as a director, is not or
was not a compensated officer, employee or member holding more than ten per cent of the
voting power of the corporation or any affiliate of the corporation or an officer,
employee or holder of more than ten per cent of the voting power of such a member or any
affiliate of that member.
8. "Party" includes an individual who was, is or is threatened to be made a named
defendant or respondent in a proceeding.
9. "Proceeding" means any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative and whether formal
or informal.
10-3851 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 either:
1. The individual is or was a director against liability incurred in the proceeding
if all of the following conditions exist:
(a) The individual's conduct was in good faith.
(b) The individual reasonably believed:
(i) In the case of conduct in an official capacity with the corporation, that the
conduct was in its best interests.
(ii) In all other cases, that the conduct was at least not opposed to its best
interests.
(c) In the case of any criminal proceedings, the individual had no reasonable cause
to believe the conduct was unlawful.
2. The director engaged in conduct for which broader indemnification has been made
permissible or obligatory under a provision of the articles of incorporation pursuant to
section 10-3202, subsection B, paragraph 2.
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 subsection A,
paragraph 1, subdivision (a) of this section.
C. The termination of a proceeding by judgment, order, settlement or conviction or
on a plea of no contest 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 either:
1. In connection with a proceeding by or in the right of the corporation in which
the director was adjudged liable to the corporation.
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.
10-3852 Mandatory indemnification
A. Unless limited by its articles of incorporation, a corporation shall indemnify a
director who was the prevailing party, 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.
B. Unless limited by its articles of incorporation, section 10-851, subsection D or
subsection C of this section, a corporation shall indemnify an outside director against
liability. Unless limited by its articles of incorporation or subsection C of this
section, a corporation shall pay an outside director's expenses in advance of a final
disposition of a proceeding, if the director furnishes the corporation with a written
affirmation of the director's good faith belief that the director has met the standard of
conduct described in section 10-851, subsection A and the director furnishes the
corporation with 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. The undertaking required by this subsection is an unlimited general
obligation of the director but need not be secured and shall be accepted without
reference to the director's financial ability to make repayment.
C. A corporation shall not provide the indemnification or advancement of expenses
described in subsection B of this section if a court of competent jurisdiction has
determined before payment that the outside director failed to meet the standards
described in section 10-851, subsection A, and a court of competent jurisdiction does not
otherwise authorize payment under section 10-854. A corporation shall not delay payment
of indemnification or expenses under subsection B of this section for more than sixty
days after a request is made unless ordered to do so by a court of competent
jurisdiction.
10-3853 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 both of the following conditions exist:
1. The director furnishes to the corporation a written affirmation of the
director's good faith belief that the director has met the standard of conduct described
in section 10-3851 or that the proceeding involves conduct for which liability has been
eliminated under a provision of the articles of incorporation pursuant to section
10-3202, subsection B, paragraph 1.
2. The director furnishes the corporation with a written undertaking, executed
personally or on the director's behalf, to repay the advance if the director is not
entitled to mandatory indemnification under section 10-3852 and it is ultimately
determined that the director did not meet the standard of conduct.
B. The undertaking required by subsection A, paragraph 2 of this section is 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. Authorizations of payments under this section shall be made in a manner
consistent with section 10-3830 or 10-3842.
D. This section does not apply to advancement of expenses to or for the benefit of
an outside director. Advances to outside directors shall be made pursuant to section
10-3852.
10-3854 Court ordered indemnification
Unless a corporation's articles of incorporation provide otherwise, a director of
the corporation who is a party to a proceeding may apply for indemnification or an
advance for expenses 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 advances for expenses if it
determines either:
1. The director is entitled to mandatory indemnification under section 10-3852, in
which case the court shall also order the corporation to pay the director's reasonable
expenses incurred to obtain court ordered indemnification.
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 10-3851 or was adjudged liable as described in section 10-3851,
subsection D, but if the director was adjudged liable under section 10-3851, subsection
D, indemnification is limited to reasonable expenses incurred.
10-3855 Determination and authorization of indemnification
A. A corporation may not indemnify a director under section 10-3851 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 10-3851.
B. The determination shall be made either:
1. By the board of directors by a majority vote of the directors not at the time
parties to the proceeding.
2. By special legal counsel:
(a) Selected by majority vote of the disinterested directors.
(b) If there are no disinterested directors, selected by majority vote of the board
of directors.
3. By the members, but directors who are at the time parties to the proceeding may
not vote on the determination.
C. Neither special legal counsel nor any member has any liability whatsoever for a
determination made pursuant to this section. In voting pursuant to subsection B of this
section, directors shall discharge their duty in accordance with section 10-3830.
D. 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 subsection B, paragraph 2 of this section to select counsel.
10-3856 Indemnification of officers
A. A corporation may indemnify and advance expenses under this article to an
officer of the corporation who is a party to a proceeding because the individual is or
was an officer of the corporation as follows:
1. To the same extent as a director.
2. If the individual is an officer but not a director, to the further extent as may
be provided by the articles of incorporation, the bylaws, a resolution of the board of
directors, or contract except for:
(a) Liability in connection with a proceeding by or in the right of the corporation
other than for reasonable expenses incurred in connection with the proceeding.
(b) Liability arising out of conduct that constitutes:
(i) Receipt by the officer of a financial benefit to which the officer is not
entitled.
(ii) An intentional infliction of harm on the corporation or the members.
(iii) An intentional violation of criminal law.
B. Subsection A, paragraph 2 of this section applies to an officer who is also
director if the basis on which the officer is made a party to the proceeding is an act or
omission solely as an officer.
C. An officer of a corporation who is not a director is entitled to mandatory
indemnification under section 10-3852, subsection A and may apply to a court under
section 10-3854 for indemnification or an advance for expenses, in each case to the same
extent to which a director is entitled to indemnification or advance for expenses under
those sections.
10-3857 Insurance
A corporation may purchase and maintain insurance on behalf of an individual who is
or was a director or officer of the corporation or who, while a director or officer 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 entity, against
liability asserted against or incurred by the individual in that capacity or arising from
the individual's status as a director or officer, whether or not the corporation would
have power to indemnify or advance expenses to the person against the same liability
under this article.
10-3858 Application of article
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 a contract or otherwise is valid only if and to the
extent the provision is consistent with this article. If the articles of incorporation
limit indemnification or advances for expenses, indemnification and advances for expenses
are valid only to the extent consistent with the articles of incorporation.
B. This article 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.
C. This article does not limit a corporation's power to indemnify, advance expenses
or maintain insurance on behalf of an employee or agent.
10-3860 Definitions
In this article, unless the context otherwise requires:
1. "Conflicting interest" with respect to a corporation means the interest a
director of the corporation has respecting a transaction effected or proposed to be
effected by the corporation, by a subsidiary of the corporation or by any other entity in
which the corporation has a controlling interest if either:
(a) Whether or not the transaction is brought before the board of directors of the
corporation for action, the director knows at the time of commitment that the director or
a related person either:
(i) Is a party to the transaction.
(ii) Has a beneficial financial interest in or is so closely linked to the
transaction and of such financial significance to the director or a related person that
the interest would reasonably be expected to exert an influence on the director's
judgment if he were called on to vote on the transaction.
(b) The transaction is brought or is of such character and significance to the
corporation that it would in the normal course be brought before the board of directors
of the corporation for action, and the director knows at the time of commitment that any
of the following persons is either a party to the transaction or has a beneficial
financial interest in or is so closely linked to the transaction and of such financial
significance to the person that the interest would reasonably be expected to exert an
influence on the director's judgment if the director were called on to vote on the
transaction:
(i) An entity, other than the corporation, of which the director is a director,
general partner, agent or employee.
(ii) A person that controls one or more of the entities specified in item (i) of
this subdivision or an entity that is controlled by or is under common control with one
or more of the entities specified in item (i) of this subdivision.
(iii) An individual who is a general partner, principal or employer of the
director.
2. "Director's conflicting interest transaction" with respect to a corporation
means a transaction effected or proposed to be effected by the corporation, by a
subsidiary of the corporation or by any other entity in which the corporation has a
controlling interest respecting which a director of the corporation has a conflicting
interest.
3. "Related person" of a director means either:
(a) The spouse, or a parent or sibling of the spouse, of the director, a child,
grandchild, sibling, parent or spouse of a child, grandchild, sibling or parent, of the
director, an individual having the same home as the director or a trust or estate of
which an individual specified in this subdivision is a substantial beneficiary.
(b) A trust, estate, incompetent, conservatee or minor of which the director is a
fiduciary.
4. "Required disclosure" means disclosure by the director who has a conflicting
interest of both:
(a) The existence and nature of the conflicting interest.
(b) All facts known to the director respecting the subject matter of the
transaction that an ordinarily prudent person would reasonably believe to be material to
a judgment about whether or not to proceed with the transaction.
5. "Time of commitment" respecting a transaction means the time when the
transaction is consummated or, if made pursuant to contract, the time when the
corporation, or its subsidiary or the entity in which it has a controlling interest,
becomes contractually obligated so that its unilateral withdrawal from the transaction
would entail significant loss, liability or other damage.
10-3861 Judicial action
A. A transaction that is effected or proposed to be effected by a corporation, or
by a subsidiary of the corporation or any other entity in which the corporation has a
controlling interest, and that is not a director's conflicting interest transaction shall
not be enjoined, be set aside or give rise to an award of damages or other sanctions in a
proceeding by a member or by or in the right of the corporation, because a director of
the corporation, or any person with whom or with which the director has a personal,
economic or other association, has an interest in the transaction.
B. A director's conflicting interest transaction shall not be enjoined, be set
aside or give rise to an award of damages or other sanctions in a proceeding by a member
by or in the right of the corporation, because the director, or any person with whom or
with which the director has a personal, economic or other association, has an interest in
the transaction, if either:
1. Directors' action respecting the transaction was taken at any time in compliance
with section 10-3862.
2. Members' action respecting the transaction was taken at any time in compliance
with section 10-3863.
3. The transaction, judged according to the circumstances at the time of
commitment, is established to have been fair to the corporation.
C. Any person seeking to have a director's conflicting interest transaction
enjoined, set aside or give rise to an award of damages or other sanctions shall first
prove by clear and convincing evidence that subsection B of this section is not
applicable.
10-3862 Directors' action; definition
A. Directors' action respecting a transaction is effective for purposes of section
10-3861, subsection B, paragraph 1 if the transaction received the affirmative vote of a
majority, but at least two, of those qualified directors on the board of directors or on
a duly empowered committee of the board who voted on the transaction after either
required disclosure to them, to the extent the information was not known by them, or
compliance with subsection B of this section. Action by a committee is effective under
this section only if both:
1. All of its members are qualified directors.
2. Members are either all of the qualified directors on the board or are appointed
by the affirmative vote of a majority of the qualified directors or the board.
B. If a director has a conflicting interest regarding a transaction but neither the
director nor a related person of the director specified in section 10-3860, paragraph 3,
subdivision (a) is a party to the transaction and if the director has a duty under law or
professional canon or a duty of confidentiality to another person, respecting information
relating to the transaction such that the director may not make the disclosure described
in section 10-3860, paragraph 4, subdivision (b), disclosure is sufficient for purposes
of subsection A of this section if the director both:
1. Discloses to the directors voting on the transaction the existence and nature of
the conflicting interest and informs them of the character and limitations imposed by
that duty before their vote on the transaction.
2. Plays no part, directly or indirectly, in their deliberations or vote.
C. A majority, but at least two, of all of the qualified directors on the board of
directors or on the committee is a quorum for purposes of action that complies with this
section. Directors' action that otherwise complies with this section is not affected by
the presence or vote of a director who is not a qualified director.
D. For purposes of this section, "qualified director" means, with respect to a
director's conflicting transaction, any director who does not have either:
1. A conflicting interest respecting the transaction.
2. A familial, financial, professional or employment relationship with a second
director who does have a conflicting interest respecting the transaction, which
relationship would, in the circumstances, reasonably be expected to exert an influence on
the first director's judgment when voting on the transaction.
10-3863 Members' action; definition
A. Members' action respecting a transaction is effective for purposes of section
10-3861, subsection B, paragraph 2 if a majority of the votes entitled to be cast by the
holders of all qualified membership interests was cast in favor of the transaction after
all of the following:
1. Notice to members describing the director's conflicting interest transaction.
2. Provision of the information referred to in subsection C of this section.
3. Required disclosure to the members who voted on the transaction, to the extent
the information was not known by them.
B. A majority of the votes entitled to be cast by the holders of all qualified
membership interests is a quorum for the purposes of action that complies with this
section. Subject to subsections C and D of this section, members' action that otherwise
complies with this section is not affected by the presence of members or the voting of
membership interests that are not qualified membership interests.
C. For purposes of compliance with subsection A of this section, a director who has
a conflicting interest respecting the transaction shall inform, before the members' vote,
the secretary, or other officer or agent of the corporation authorized to tabulate votes,
of the number and the identity of persons holding or controlling the vote of all
membership interests that the director knows are beneficially owned, or the voting of
which is controlled, by the director or by a related person of the director, or both.
D. If a member's vote does not comply with subsection A of this section solely
because of a failure of a director to comply with subsection C of this section and if the
director establishes that his failure did not determine and was not intended by him to
influence the outcome of the vote, the court, with or without further proceedings
respecting section 10-3861, subsection B, paragraph 3, may take such action, respecting
the transaction and the director and give such effect, if any, to the members' vote, as
it considers appropriate in the circumstances.
E. For purposes of this section, "qualified membership interests" means any
membership interests entitled to vote with respect to the director's conflicting interest
transaction except membership interests that, to the knowledge, before the vote, of the
secretary or other officer or agent of the corporation authorized to tabulate votes, are
beneficially owned, or the voting of which is controlled, by a director who has a
conflicting interest respecting the transaction or by a related person of the director,
or both.
10-3864 Conflict of interest policy; exceptions
A. The board of directors of a corporation shall adopt a policy regarding
transactions between the corporation and interested persons, including the sale, lease or
exchange of property to or from interested persons and the corporation, the lending or
borrowing of monies to or from interested persons by the corporation or the payment of
compensation by the corporation for services provided by interested persons. For the
purposes of this subsection, "interested person" means an officer or director of a
corporation or any other corporation, firm, association or entity in which an officer or
director of a corporation is a member, officer or director or has a financial interest.
B. The requirements of this section do not apply to any of the following:
1. A corporation that had assets at the end of its last fiscal year with a book
value of less than ten million dollars, net of accumulated depreciation, or had gross
receipts or revenues of less than two million dollars in its last fiscal year.
2. A corporation that offers goods or services only to members who are entitled to
vote for its board of directors.
3. A corporation organized for religious purposes that does not have, as a
substantial portion of its business, the offering of goods or services on a regular basis
to the public for remuneration.
4. A corporation organized by or on behalf of the United States, this state, a
political subdivision of this state or an agency or instrumentality of such a
governmental entity.
5. A hospital, medical, dental or optometric service corporation licensed pursuant
to title 20, chapter 4, article 3.
C. For the purposes of subsection B, paragraph 3:
1. Goods and services include medical, hospital, dental or counseling or social
services offered on a regular basis to the public for remuneration.
2. A corporation organized for religious purposes includes a corporation or foreign
corporation that controls or is controlled directly or indirectly by a corporation or
foreign corporation organized for religious purposes.
D. The exemption provided by subsection B, paragraph 4 does not apply to a
corporation that provides services to or operates assets of the governmental entity
pursuant to a lease or contract.
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