SECTIONS 5230-5239 - California Statutes

CORPORATIONS CODE

SECTION 5230-5239

5230. (a) Any duties and liabilities set forth in this article
shall apply without regard to whether a director is compensated by
the corporation.
(b) Part 4 (commencing with Section 16000) of Division 9 of the
Probate Code does not apply to the directors of any corporation.

5231. (a) A director shall perform the duties of a director,
including duties as a member of any committee of the board upon which
the director may serve, in good faith, in a manner that director
believes to be in the best interests of the corporation and with such
care, including reasonable inquiry, as an ordinarily prudent person
in a like position would use under similar circumstances.
(b) In performing the duties of a director, a director shall be
entitled to rely on information, opinions, reports or statements,
including financial statements and other financial data, in each case
prepared or presented by:
(1) One or more officers or employees of the corporation whom the
director believes to be reliable and competent in the matters
presented;
(2) Counsel, independent accountants or other persons as to
matters which the director believes to be within that person's
professional or expert competence; or
(3) A committee upon which the director does not serve that is
composed exclusively of any or any combination of directors, persons
described in paragraph (1), or persons described in paragraph (2), as
to matters within the committee's designated authority, which
committee the director believes to merit confidence, so long as, in
any case, the director acts in good faith, after reasonable inquiry
when the need therefor is indicated by the circumstances and without
knowledge that would cause that reliance to be unwarranted.
(c) Except as provided in Section 5233, a person who performs the
duties of a director in accordance with subdivisions (a) and (b)
shall have no liability based upon any alleged failure to discharge
the person's obligations as a director, including, without limiting
the generality of the foregoing, any actions or omissions which
exceed or defeat a public or charitable purpose to which a
corporation, or assets held by it, are dedicated.

5232. (a) Section 5231 governs the duties of directors as to any
acts or omissions in connection with the election, selection, or
nomination of directors.
(b) This section shall not be construed to limit the generality of
Section 5231.

5233. (a) Except as provided in subdivision (b), for the purpose of
this section, a self-dealing transaction means a transaction to
which the corporation is a party and in which one or more of its
directors has a material financial interest and which does not meet
the requirements of paragraph (1), (2), or (3) of subdivision (d).
Such a director is an "interested director" for the purpose of this
section.
(b) The provisions of this section do not apply to any of the
following:
(1) An action of the board fixing the compensation of a director
as a director or officer of the corporation.
(2) A transaction which is part of a public or charitable program
of the corporation if it: (i) is approved or authorized by the
corporation in good faith and without unjustified favoritism; and
(ii) results in a benefit to one or more directors or their families
because they are in the class of persons intended to be benefited by
the public or charitable program.
(3) A transaction, of which the interested director or directors
have no actual knowledge, and which does not exceed the lesser of 1
percent of the gross receipts of the corporation for the preceding
fiscal year or one hundred thousand dollars ($100,000).
(c) The Attorney General or, if the Attorney General is joined as
an indispensable party, any of the following may bring an action in
the superior court of the proper county for the remedies specified in
subdivision (h):
(1) The corporation, or a member asserting the right in the name
of the corporation pursuant to Section 5710.
(2) A director of the corporation.
(3) An officer of the corporation.
(4) Any person granted relator status by the Attorney General.
(d) In any action brought under subdivision (c) the remedies
specified in subdivision (h) shall not be granted if:
(1) The Attorney General, or the court in an action in which the
Attorney General is an indispensable party, has approved the
transaction before or after it was consummated; or
(2) The following facts are established:
(A) The corporation entered into the transaction for its own
benefit;
(B) The transaction was fair and reasonable as to the corporation
at the time the corporation entered into the transaction;
(C) Prior to consummating the transaction or any part thereof the
board authorized or approved the transaction in good faith by a vote
of a majority of the directors then in office without counting the
vote of the interested director or directors, and with knowledge of
the material facts concerning the transaction and the director's
interest in the transaction. Except as provided in paragraph (3) of
this subdivision, action by a committee of the board shall not
satisfy this paragraph; and
(D) (i) Prior to authorizing or approving the transaction the
board considered and in good faith determined after reasonable
investigation under the circumstances that the corporation could not
have obtained a more advantageous arrangement with reasonable effort
under the circumstances or (ii) the corporation in fact could not
have obtained a more advantageous arrangement with reasonable effort
under the circumstances; or
(3) The following facts are established:
(A) A committee or person authorized by the board approved the
transaction in a manner consistent with the standards set forth in
paragraph (2) of this subdivision;
(B) It was not reasonably practicable to obtain approval of the
board prior to entering into the transaction; and
(C) The board, after determining in good faith that the conditions
of subparagraphs (A) and (B) of this paragraph were satisfied,
ratified the transaction at its next meeting by a vote of the
majority of the directors then in office without counting the vote of
the interested director or directors.
(e) Except as provided in subdivision (f), an action under
subdivision (c) must be filed within two years after written notice
setting forth the material facts of the transaction and the director'
s interest in the transaction is filed with the Attorney General in
accordance with such regulations, if any, as the Attorney General may
adopt or, if no such notice is filed, within three years after the
transaction occurred, except for the Attorney General, who shall have
10 years after the transaction occurred within which to file an
action.
(f) In any action for breach of an obligation of the corporation
owed to an interested director, where the obligation arises from a
self-dealing transaction which has not been approved as provided in
subdivision (d), the court may, by way of offset only, make any order
authorized by subdivision (h), notwithstanding the expiration of the
applicable period specified in subdivision (e).
(g) Interested directors may be counted in determining the
presence of a quorum at a meeting of the board which authorizes,
approves or ratifies a contract or transaction.
(h) If a self-dealing transaction has taken place, the interested
director or directors shall do such things and pay such damages as in
the discretion of the court will provide an equitable and fair
remedy to the corporation, taking into account any benefit received
by the corporation and whether the interested director or directors
acted in good faith and with intent to further the best interest of
the corporation. Without limiting the generality of the foregoing,
the court may order the director to do any or all of the following:
(1) Account for any profits made from such transaction, and pay
them to the corporation;
(2) Pay the corporation the value of the use of any of its
property used in such transaction; and
(3) Return or replace any property lost to the corporation as a
result of such transaction, together with any income or appreciation
lost to the corporation by reason of such transaction, or account for
any proceeds of sale of such property, and pay the proceeds to the
corporation together with interest at the legal rate. The court may
award prejudgment interest to the extent allowed in Section 3287 or
3288 of the Civil Code. In addition, the court may, in its
discretion, grant exemplary damages for a fraudulent or malicious
violation of this section.

5234. (a) No contract or other transaction between a corporation
and any domestic or foreign corporation, firm or association of which
one or more of its directors are directors is either void or
voidable because such director or directors are present at the
meeting of the board or a committee thereof which authorizes,
approves or ratifies the contract or transaction, if:
(1) The material facts as to the transaction and as to such
director's other directorship are fully disclosed or known to the
board or committee, and the board or committee authorizes, approves
or ratifies the contract or transaction in good faith by a vote
sufficient without counting the vote of the common director or
directors; or
(2) As to contracts or transactions not approved as provided in
paragraph (1) of this subdivision, the contract or transaction is
just and reasonable as to the corporation at the time it is
authorized, approved or ratified.
(b) This section does not apply to transactions covered by Section
5233.

5235. (a) The board may fix the compensation of a director, as
director or officer, and no obligation, otherwise valid, to pay such
compensation shall be voidable merely because the persons receiving
the compensation participated in the decision to pay it, unless it
was not just and reasonable as to the corporation at the time it was
authorized, ratified or approved.
(b) In the absence of fraud, any liability under this section
shall be limited to the amount by which the compensation exceeded
what was just and reasonable, plus interest from the date of payment.

5236. (a) A corporation shall not make any loan of money or
property to or guarantee the obligation of any director or officer,
unless approved by the Attorney General; provided, however, that a
corporation may advance money to a director or officer of the
corporation or of its parent or any subsidiary for expenses
reasonably anticipated to be incurred in the performance of the
duties of such officer or director, provided that in the absence of
such advance, such director or officer would be entitled to be
reimbursed for such expenses by such corporation, its parent, or any
subsidiary.
(b) The provisions of subdivision (a) do not apply to the payment
of premiums in whole or in part by a corporation on a life insurance
policy on the life of a director or officer so long as repayment to
the corporation of the amount paid by it is secured by the proceeds
of the policy and its cash surrender value.
(c) The provisions of subdivision (a) do not apply to a loan of
money to or for the benefit of an officer in circumstances where the
loan is necessary, in the judgment of the board, to provide financing
for the purchase of the principal residence of the officer in order
to secure the services or continued services of the officer and the
loan is secured by real property located in the state.

5237. (a) Subject to the provisions of Section 5231, directors of a
corporation who approve any of the following corporate actions shall
be jointly and severally liable to the corporation for:
(1) The making of any distribution.
(2) The distribution of assets after institution of dissolution
proceedings of the corporation, without paying or adequately
providing for all known liabilities of the corporation, excluding any
claims not filed by creditors within the time limit set by the court
in a notice given to creditors under Chapters 15 (commencing with
Section 6510), 16 (commencing with Section 6610) and 17 (commencing
with Section 6710).
(3) The making of any loan or guaranty contrary to Section 5236.
(b) A director who is present at a meeting of the board, or any
committee thereof, at which action specified in subdivision (a) is
taken and who abstains from voting shall be considered to have
approved the action.
(c) Suit may be brought in the name of the corporation to enforce
the liability:
(1) Under paragraph (1) of subdivision (a) against any or all
directors liable by the persons entitled to sue under subdivision (b)
of Section 5420;
(2) Under paragraph (2) or (3) of subdivision (a) against any or
all directors liable by any one or more creditors of the corporation
whose debts or claims arose prior to the time of the corporate action
who have not consented to the corporate action, whether or not they
have reduced their claims to judgment;
(3) Under paragraph (1), (2) or (3) of subdivision (a), by the
Attorney General.
(d) The damages recoverable from a director under this section
shall be the amount of the illegal distribution, or if the illegal
distribution consists of property, the fair market value of that
property at the time of the illegal distribution, plus interest
thereon from the date of the distribution at the legal rate on
judgments until paid, together with all reasonably incurred costs of
appraisal or other valuation, if any, of that property, or the loss
suffered by the corporation as a result of the illegal loan or
guaranty.
(e) Any director sued under this section may implead all other
directors liable and may compel contribution, either in that action
or in an independent action against directors not joined in that
action.
(f) Directors liable under this section shall also be entitled to
be subrogated to the rights of the corporation:
(1) With respect to paragraph (1) of subdivision (a), against the
persons who received the distribution.
(2) With respect to paragraph (2) of subdivision (a), against the
persons who received the distribution.
(3) With respect to paragraph (3) of subdivision (a), against the
person who received the loan or guaranty.
Any director sued under this section may file a cross-complaint
against the person or persons who are liable to the director as a
result of the subrogation provided for in this subdivision or may
proceed against them in an independent action.

5238. (a) For the purposes of this section, "agent" means any
person who is or was a director, officer, employee or other agent of
the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
foreign or domestic corporation, partnership, joint venture, trust or
other enterprise, or was a director, officer, employee or agent of a
foreign or domestic corporation which was a predecessor corporation
of the corporation or of another enterprise at the request of such
predecessor corporation; "proceeding" means any threatened, pending
or completed action or proceeding, whether civil, criminal,
administrative or investigative; and "expenses" includes without
limitation attorneys' fees and any expenses of establishing a right
to indemnification under subdivision (d) or paragraph (3) of
subdivision (e).
(b) A corporation shall have power to indemnify any person who was
or is a party or is threatened to be made a party to any proceeding
(other than an action by or in the right of the corporation to
procure a judgment in its favor, an action brought under Section
5233, or an action brought by the Attorney General or a person
granted relator status by the Attorney General for any breach of duty
relating to assets held in charitable trust) by reason of the fact
that such person is or was an agent of the corporation, against
expenses, judgments, fines, settlements and other amounts actually
and reasonably incurred in connection with such proceeding if such
person acted in good faith and in a manner such person reasonably
believed to be in the best interests of the corporation and, in the
case of a criminal proceeding, had no reasonable cause to believe the
conduct of such person was unlawful. The termination of any
proceeding by judgment, order, settlement, conviction or upon a plea
of nolo contendere or its equivalent shall not, of itself, create a
presumption that the person did not act in good faith and in a manner
which the person reasonably believed to be in the best interests of
the corporation or that the person had reasonable cause to believe
that the person's conduct was unlawful.
(c) A corporation shall have power to indemnify any person who was
or is a party or is threatened to be made a party to any threatened,
pending or completed action by or in the right of the corporation,
or brought under Section 5233, or brought by the Attorney General or
a person granted relator status by the Attorney General for breach of
duty relating to assets held in charitable trust, to procure a
judgment in its favor by reason of the fact that such person is or
was an agent of the corporation, against expenses actually and
reasonably incurred by such person in connection with the defense or
settlement of such action if such person acted in good faith, in a
manner such person believed to be in the best interests of the
corporation and with such care, including reasonable inquiry, as an
ordinarily prudent person in a like position would use under similar
circumstances. No indemnification shall be made under this
subdivision:
(1) In respect of any claim, issue or matter as to which such
person shall have been adjudged to be liable to the corporation in
the performance of such person's duty to the corporation, unless and
only to the extent that the court in which such proceeding is or was
pending shall determine upon application that, in view of all the
circumstances of the case, such person is fairly and reasonably
entitled to indemnity for the expenses which such court shall
determine;
(2) Of amounts paid in settling or otherwise disposing of a
threatened or pending action, with or without court approval; or
(3) Of expenses incurred in defending a threatened or pending
action which is settled or otherwise disposed of without court
approval unless it is settled with the approval of the Attorney
General.
(d) To the extent that an agent of a corporation has been
successful on the merits in defense of any proceeding referred to in
subdivision (b) or (c) or in defense of any claim, issue or matter
therein, the agent shall be indemnified against expenses actually and
reasonably incurred by the agent in connection therewith.
(e) Except as provided in subdivision (d), any indemnification
under this section shall be made by the corporation only if
authorized in the specific case, upon a determination that
indemnification of the agent is proper in the circumstances because
the agent has met the applicable standard of conduct set forth in
subdivision (b) or (c), by:
(1) A majority vote of a quorum consisting of directors who are
not parties to such proceeding;
(2) Approval of the members (Section 5034), with the persons to be
indemnified not being entitled to vote thereon; or
(3) The court in which such proceeding is or was pending upon
application made by the corporation or the agent or the attorney or
other person rendering services in connection with the defense,
whether or not such application by the agent, attorney or other
person is opposed by the corporation.
(f) Expenses incurred in defending any proceeding may be advanced
by the corporation prior to the final disposition of such proceeding
upon receipt of an undertaking by or on behalf of the agent to repay
such amount unless it shall be determined ultimately that the agent
is entitled to be indemnified as authorized in this section. The
provisions of subdivision (a) of Section 5236 do not apply to
advances made pursuant to this subdivision.
(g) No provision made by a corporation to indemnify its or its
subsidiary's directors or officers for the defense of any proceeding,
whether contained in the articles, bylaws, a resolution of members
or directors, an agreement or otherwise, shall be valid unless
consistent with this section. Nothing contained in this section shall
affect any right to indemnification to which persons other than such
directors and officers may be entitled by contract or otherwise.
(h) No indemnification or advance shall be made under this
section, except as provided in subdivision (d) or paragraph (3) of
subdivision (e), in any circumstance where it appears:
(1) That it would be inconsistent with a provision of the
articles, bylaws, a resolution of the members or an agreement in
effect at the time of the accrual of the alleged cause of action
asserted in the proceeding in which the expenses were incurred or
other amounts were paid, which prohibits or otherwise limits
indemnification; or
(2) That it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
(i) A corporation shall have power to purchase and maintain
insurance on behalf of any agent of the corporation against any
liability asserted against or incurred by the agent in such capacity
or arising out of the agent's status as such whether or not the
corporation would have the power to indemnify the agent against such
liability under the provisions of this section; provided, however,
that a corporation shall have no power to purchase and maintain such
insurance to indemnify any agent of the corporation for a violation
of Section 5233.
(j) This section does not apply to any proceeding against any
trustee, investment manager or other fiduciary of an employee benefit
plan in such person's capacity as such, even though such person may
also be an agent as defined in subdivision (a) of the employer
corporation. A corporation shall have power to indemnify such
trustee, investment manager or other fiduciary to the extent
permitted by subdivision (f) of Section 207.

5239. (a) There shall be no personal liability to a third party for
monetary damages on the part of a volunteer director or volunteer
executive officer of a nonprofit corporation subject to this part,
caused by the director's or officer's negligent act or omission in
the performance of that person's duties as a director or officer, if
all of the following conditions are met:
(1) The act or omission was within the scope of the director's or
executive officer's duties.
(2) The act or omission was performed in good faith.
(3) The act or omission was not reckless, wanton, intentional, or
grossly negligent.
(4) Damages caused by the act or omission are covered pursuant to
a liability insurance policy issued to the corporation, either in the
form of a general liability policy or a director's and officer's
liability policy, or personally to the director or executive officer.
In the event that the damages are not covered by a liability
insurance policy, the volunteer director or volunteer executive
officer shall not be personally liable for the damages if the board
of directors of the corporation and the person had made all
reasonable efforts in good faith to obtain available liability
insurance.
(b) "Volunteer" means the rendering of services without
compensation. "Compensation" means remuneration whether by way of
salary, fee, or other consideration for services rendered. However,
the payment of per diem, mileage, or other reimbursement expenses to
a director or executive officer does not affect that person's status
as a volunteer within the meaning of this section.
(c) "Executive officer" means the president, vice president,
secretary, or treasurer of a corporation, or such other individual
who serves in like capacity, who assists in establishing the policy
of the corporation.
(d) Nothing in this section shall limit the liability of the
corporation for any damages caused by acts or omissions of the
volunteer director or volunteer executive officer.
(e) This section does not eliminate or limit the liability of a
director or officer for any of the following:
(1) As provided in Section 5233 or 5237.
(2) In any action or proceeding brought by the Attorney General.
(f) Nothing in this section creates a duty of care or basis of
liability for damage or injury caused by the acts or omissions of a
director or officer.
(g) This section is only applicable to causes of action based upon
acts or omissions occurring on or after January 1, 1988.
(h) As used in this section as applied to nonprofit public benefit
corporations which have an annual budget of less than twenty-five
thousand dollars ($25,000) and that are exempt from federal income
taxation under Section 501(c)(3) of the Internal Revenue Code, the
condition of making "all reasonable efforts in good faith to obtain
available liability insurance" shall be satisfied by the corporation
if it makes at least one inquiry per year to purchase a general
liability insurance policy and that insurance was not available at a
cost of less than 5 percent of the previous year's annual budget of
the corporation. If the corporation is in its first year of
operation, this subdivision shall apply for as long as the budget of
the corporation does not exceed twenty-five thousand dollars
($25,000) in its first year of operation.
An inquiry pursuant to this subdivision shall obtain premium costs
for a general liability policy with an amount of coverage of at
least five hundred thousand dollars ($500,000).