16-6a-822. General standards of conduct for directors and officers

(1) (a) A director shall discharge the director's duties as a director, including the director's duties as a member of a committee of the board, in accordance with Subsection (2).
      (b) An officer with discretionary authority shall discharge the officer's duties under that authority in accordance with Subsection (2).

(2) A director or an officer described in Subsection (1) shall discharge the director or officer's duties:
      (a) in good faith;
      (b) with the care an ordinarily prudent person in a like position would exercise under similar circumstances; and
      (c) in a manner the director or officer reasonably believes to be in the best interests of the nonprofit corporation.

(3) In discharging duties, a director or officer is entitled to rely on information, opinions, reports, or statements, including financial statements and other financial data, if prepared or presented by:
      (a) one or more officers or employees of the nonprofit corporation whom the director or officer reasonably believes to be reliable and competent in the matters presented;
      (b) legal counsel, a public accountant, or another person as to matters the director or officer reasonably believes are within the person's professional or expert competence;
      (c) religious authorities or ministers, priests, rabbis, or other persons:
            (i) whose position or duties in the nonprofit corporation, or in a religious organization with which the nonprofit corporation is affiliated, the director or officer believes justify reliance and confidence; and
            (ii) who the director or officer believes to be reliable and competent in the matters presented; or
      (d) in the case of a director, a committee of the board of directors of which the director is not a member if the director reasonably believes the committee merits confidence.

(4) A director or officer is not acting in good faith if the director or officer has knowledge concerning the matter in question that makes reliance otherwise permitted by Subsection (3) unwarranted.

(5) A director, regardless of title, may not be considered to be a trustee with respect to any property held or administered by the nonprofit corporation including property that may be subject to restrictions imposed by the donor or transferor of the property.

(6) A director or officer is not liable to the nonprofit corporation, its members, or any conservator or receiver, or any assignee or successor-in-interest of the nonprofit corporation or member, for any action taken, or any failure to take any action, as an officer or director, as the case may be, unless:
      (a) the director or officer has breached or failed to perform the duties of the office as set forth in this section; and
      (b) the breach or failure to perform constitutes:
            (i) willful misconduct; or
            (ii) intentional infliction of harm on:
                  (A) the nonprofit corporation; or
                  (B) the members of the nonprofit corporation; or
            (iii) gross negligence.


Amended by Chapter 306, 2007 General Session

 

Comment 1:  Liability.  What liability do directors and officers have under the law?  None, if they act with what is commonly called "business judgment," which is carrying out of the director's duties:
      (1) in good faith,
      (2) with 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.

The law states that a director or officer is not liable to the nonprofit corporation or its members for any action taken, or any failure to take any action, as an officer or director, as the case may be, unless:
      (1) the director or officer has breached or failed to perform the duties of the office:
            (a) in good faith,
            (b) with the care an ordinarily prudent person in a like position would exercise under similar circumstances, and 
            (c) in a manner the director reasonably believes to be in the best interests of the corporation, and
      (2) the breach or failure to perform constitutes:
            (a) willful misconduct; or
            (b) intentional infliction of harm on the nonprofit corporation or the members; or
            (c) gross negligence.

(See Utah Code Subsections 16-6a-822(2) and (6)).

A director who relies on counsel of an attorney may be entitled to a stronger presumption that the director acted with "business judgment," and thus that the director is entitled to liability protection.  See Utah Code Subsections 16-6a-822(3).

For indemnification of directors and advance of defense expenses of directors, see Sections 16-6a-901 through 910.


Comment 2:  Indemnification Provisions - See Also.  Regarding provisions for indemnification and limitations on liability of board members, see also the following sections in the Condo Act and Community Association Act authorizing the association's rules to provide for indemnification of board members, and authorizing any of the documents related to the formation or operation of the nonprofit corporation to provide for liability limitation, as well as indemnification:

  • Utah Code Sections 57-8-8.1(5)(d) and 57-8a-218(13)(d) (2018) ("(13) Unless otherwise provided in the declaration, an association may by rule: . . . (d) provide for the indemnification of the association’s officers and board consistent with Title 16, Chapter 6a, Utah Revised Nonprofit Corporation Act." 57-8a-218(13)(d)).
  • Utah Code Sections 57-8-40(4) and 57-8a-228(4) (2018) ("Notwithstanding any conflict with the declaration or any recorded bylaws, the organizational documents of a nonprofit corporation or other entity formed in accordance with Subsection (2) may include an additional indemnification and liability limitation provision for: (a) board members or officers; or (b) similar persons in a position of control." 57-8a-228(4)).
  • Utah Code Section 57-8-10.3 (2018) (". . . the organizational documents of an association of unit owners may indemnify and limit management committee member and officer liability to the extent permitted by the law under which the association of unit owners is organized.").

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