16-6a-906. Determination and authorization of indemnification of directors

(1) (a) A nonprofit corporation may not indemnify a director under Section 16-6a-902 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 16-6a-902.
     (b) A nonprofit corporation may not advance expenses to a director under Section 16-6a-904 unless:
            (i) authorized in the specific case after the written affirmation and undertaking required by Subsections 16-6a-904(1)(a) and (1)(b) are received; and
            (ii) the determination required by Subsection 16-6a-904(1)(c) has been made.

(2) (a) The determinations required by Subsection (1) shall be made:
            (i) by the board of directors by a majority vote of those present at a meeting at which a quorum is present if only those directors not parties to the proceeding are counted in satisfying the quorum;
            (ii) if a quorum cannot be obtained under Subsection (2)(a)(i), by a majority vote of a committee of the board of directors:
                  (A) designated by the board of directors; and
                  (B) consisting of two or more directors not parties to the proceeding; or
            (iii) by persons listed in Subsection (3).
     (b) The directors who are parties to the proceeding may participate in the designation of directors for the committee described in Subsection (2)(a)(ii).

(3) (a) The determination required to be made by Subsection (1) shall be made by a person described in Subsection (3)(b) if:
            (i) (A) a quorum cannot be obtained in accordance with Subsection (2)(a)(i); and
                  (B) a committee cannot be established under Subsection (2)(a)(ii); or
            (ii) even if a quorum is obtained or a committee is designated, a majority of the directors constituting the quorum or committee directs.
     (b) If a condition described in Subsection (3)(a) is met, the determination required to be made by Subsection (1) shall be made:
            (i) by independent legal counsel selected by:
                  (A) a vote of the board of directors or the committee in the manner specified in Subsection (2)(a)(i) or (ii); or
                  (B) if a quorum of the full board cannot be obtained and a committee cannot be established, by independent legal counsel selected by a majority vote of the full board of directors; or
            (ii) by the voting members, but a voting member may not vote on the determination if the voting member is:
                  (A) a director; and
                  (B) at the time seeking indemnification.

(4) (a) Except as provided in Subsection (4)(b), an authorization of indemnification and advance of expenses shall be made in the same manner as the determination that indemnification or advance of expenses is permissible.
     (b) Notwithstanding Subsection (4)(a), if the determination that indemnification or advance of expenses is permissible is made by independent legal counsel, authorization of indemnification and advance of expenses shall be made by the body that selected the independent legal counsel. 


Enacted by Chapter 300, 2000 General Session

Comments by  Kimble Law PLLC

Comment 1:  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.").

Comment 2:  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.


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