SECTIONS 9240-9247 - California Statutes

CORPORATIONS CODE

SECTION 9240-9247

9240. (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.
(c) A director, in making a good faith determination, may consider
what the director believes to be:
(1) The religious purposes of the corporation; and
(2) Applicable religious tenets, canons, laws, policies, and
authority.

9241. (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 such director
believes to be in the best interests of the corporation and with such
care, including reasonable inquiry, as is appropriate under the
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;
(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; or
(4) 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, 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) The provisions of this section, and not Section 9243, shall
govern any action or omission of a director in regard to the
compensation of directors, as directors or officers, or any loan of
money or property to or guaranty of the obligation of any director or
officer. No obligation, otherwise valid, shall be voidable merely
because directors who benefited by a board resolution to pay such
compensation or to make such loan or guaranty participated in making
such board resolution.
(d) Except as provided in Section 9243, 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
his or her obligations as a director, including, without limiting the
generality of the foregoing, any actions or omissions which exceed
or defeat any purpose to which the corporation, or assets held by it,
may be dedicated.

9242. (a) Section 9241 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 provisions of
Section 9241.

9243. (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), (3), or (4) of subdivision
(d). Such a director is an "interested director" for the purpose of
this section.
(b) This section does 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 or making any loan of
money or property to, or guaranteeing the obligation of, any director
or officer.
(2) A transaction which is part of a public, charitable or
religious program of the corporation if it (A) is approved or
authorized by the corporation in good faith and without unjustified
favoritism, and (B) 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, charitable or religious 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) 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; however, for the purpose of this paragraph the
provisions of Section 5710 shall apply to the action.
(2) A director of the corporation.
(3) An officer of the corporation.
(4) Any person authorized by the bylaws to bring an action.
(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 transaction is approved or ratified in good faith by the
members (Section 5034) other than the directors, after notice and
disclosure to the members of the material facts concerning the
transaction and the director's interest in the transaction; or
(3) The following facts are established:
(A) The corporation entered into the transaction for its own
benefit or for the benefit of the religious organization;
(B) The transaction was fair and reasonable as to the corporation
or was in furtherance of its religious purposes 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 (4),
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 either the corporation
could not have obtained a more advantageous arrangement with
reasonable effort under the circumstances or the transaction was in
furtherance of the corporation's religious purposes or (ii) in fact,
either the corporation could not have obtained a more advantageous
arrangement with reasonable effort under the circumstances or the
transaction was in furtherance of the corporation's religious
purposes; or
(4) 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 (3).
(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) 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) or Section 9230 shall be commenced within two years
after written notice setting forth the material facts of 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, five years after the cause of action has
accrued.
(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 the transaction, and pay
them to the corporation.
(2) Pay the corporation the value of the use of any of its
property used in the transactions.
(3) Return or replace any property lost to the corporation as a
result of the transaction, together with any income or appreciation
lost to the corporation by reason of the transaction, or account for
any proceeds of sale of the 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
Sections 3287 and 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.

9244. (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, taking into account its
religious purposes, or is in furtherance of its religious purposes at
the time it is authorized, approved or ratified.
(b) This section does not apply to transactions covered by Section
9243.

9245. (a) Subject to the provisions of Section 9241, 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 Section 9680 and those sections
made applicable to this part by Section 9680.
(3) The making of any loan or guaranty contrary to Section 9241.
(b) 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 9610;
(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.
(c) 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.
(d) 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.
(e) Directors liable under this section shall also be entitled to
be subrogated to the rights of the corporation as follows:
(1) With respect to paragraph (1) of subdivision (a), against
members who received the distribution.
(2) With respect to paragraph (2) of subdivision (a), against the
members 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.

9246. (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 precedessor 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
9243, or an action brought by the Attorney General pursuant to
Section 9230) 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 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 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 9243, or brought by the Attorney General
pursuant to Section 9230, 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 the person acted in good faith, in a manner in which such
person believed to be in the best interests of the corporation and
with such care, including reasonable inquiry, as an ordinary prudent
person in a like position would use under similar circumstances. No
idemnification 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
either 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.
(g) No provision made by a corporation to indemnify its or its
susidiary'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 that:
(1) 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) 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 9243.
(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.

9247. (a) There shall be no personal liability for monetary damages
to a third party 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 or 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 other individual serving
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 9243 or 9245.
(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.