CHAPTER 35. STANDARDS OF CONDUCT FOR DIRECTORS
IC 23-1-35
Chapter 35. Standards of Conduct for Directors
IC 23-1-35-1
Standards of conduct; liability; reaffirmation of corporate
governance rules; presumption
Sec. 1. (a) A director shall, based on facts then known to the
director, discharge the duties as a director, including the director's
duties as a member of a committee:
(1) in good faith;
(2) with the 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.
(b) In discharging the director's 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:
(1) one (1) or more officers or employees of the corporation
whom the director reasonably believes to be reliable and
competent in the matters presented;
(2) legal counsel, public accountants, or other persons as to
matters the director reasonably believes are within the person's
professional or expert competence; or
(3) a committee of the board of directors of which the director
is not a member if the director reasonably believes the
committee merits confidence.
(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 may, in considering the best interests of a
corporation, consider the effects of any action on shareholders,
employees, suppliers, and customers of the corporation, and
communities in which offices or other facilities of the corporation
are located, and any other factors the director considers pertinent.
(e) A director is not liable for any action taken as a director, or
any failure to take any action, regardless of the nature of the alleged
breach of duty, including alleged breaches of the duty of care, the
duty of loyalty, and the duty of good faith, unless:
(1) the director has breached or failed to perform the duties of
the director's office in compliance with this section; and
(2) the breach or failure to perform constitutes willful
misconduct or recklessness.
(f) In enacting this article, the general assembly established
corporate governance rules for Indiana corporations, including in this
chapter, the standards of conduct applicable to directors of Indiana
corporations, and the corporate constituent groups and interests that
a director may take into account in exercising the director's business
judgment. The general assembly intends to reaffirm certain of these
corporate governance rules to ensure that the directors of Indiana
corporations, in exercising their business judgment, are not required
to approve a proposed corporate action if the directors in good faith
determine, after considering and weighing as they deem appropriate
the effects of such action on the corporation's constituents, that such
action is not in the best interests of the corporation. In making such
determination, directors are not required to consider the effects of a
proposed corporate action on any particular corporate constituent
group or interest as a dominant or controlling factor. Without
limiting the generality of the foregoing, directors are not required to
render inapplicable any of the provisions of IC 23-1-43, to redeem
any rights under or to render inapplicable a shareholder rights plan
adopted pursuant to IC 23-1-26-5, or to take or decline to take any
other action under this article, solely because of the effect such
action might have on a proposed acquisition of control of the
corporation or the amounts that might be paid to shareholders under
such an acquisition. Certain judicial decisions in Delaware and other
jurisdictions, which might otherwise be looked to for guidance in
interpreting Indiana corporate law, including decisions relating to
potential change of control transactions that impose a different or
higher degree of scrutiny on actions taken by directors in response to
a proposed acquisition of control of the corporation, are inconsistent
with the proper application of the business judgment rule under this
article. Therefore, the general assembly intends:
(1) to reaffirm that this section allows directors the full
discretion to weigh the factors enumerated in subsection (d) as
they deem appropriate; and
(2) to protect both directors and the validity of corporate action
taken by them in the good faith exercise of their business
judgment after reasonable investigation.
(g) In taking or declining to take any action, or in making or
declining to make any recommendation to the shareholders of the
corporation with respect to any matter, a board of directors may, in
its discretion, consider both the short term and long term best
interests of the corporation, taking into account, and weighing as the
directors deem appropriate, the effects thereof on the corporation's
shareholders and the other corporate constituent groups and interests
listed or described in subsection (d), as well as any other factors
deemed pertinent by the directors under subsection (d). If a
determination is made with respect to the foregoing with the
approval of a majority of the disinterested directors of the board of
directors, that determination shall conclusively be presumed to be
valid unless it can be demonstrated that the determination was not
made in good faith after reasonable investigation.
(h) For the purposes of subsection (g), a director is disinterested
if:
(1) the director does not have a conflict of interest, within the
meaning of section 2 of this chapter, in connection with the
action or recommendation in question;
(2) in connection with matters described in IC 23-1-32 the
director is disinterested (as defined in IC 23-1-32-4(d));
(3) in connection with any matter involving or otherwise
affecting:
(A) a control share acquisition (as defined in IC 23-1-42-2)
or any matter related to a control share acquisition under
IC 23-1-42 or other provisions of this article;
(B) a business combination (as defined in IC 23-1-43-5) or
any matter related to a business combination under
IC 23-1-43 (including a person becoming an interested
shareholder) or other provisions of this article; or
(C) any transaction that may result in a change of control (as
defined in IC 23-1-22-4) of the corporation;
the director is not an employee of the corporation; and
(4) in connection with any matter involving or otherwise
affecting:
(A) a control share acquisition (as defined in IC 23-1-42-2)
or any matter related to a control share acquisition under
IC 23-1-42 or other provisions of this article;
(B) a business combination (as defined in IC 23-1-43-5) or
any matter related to a business combination under
IC 23-1-43 (including a person becoming an interested
shareholder) or other provisions of this article; or
(C) any transaction that may result in a change of control (as
defined in IC 23-1-22-4) of the corporation;
the director is not an affiliate or associate of, or was not
nominated or designated as a director by, a person proposing
any of the transactions described in clause (A), (B), or (C).
(i) A person may be disinterested under this section even though
the person is a director or shareholder of the corporation.
As added by P.L.149-1986, SEC.19. Amended by P.L.227-1989,
SEC.2; P.L.133-2009, SEC.27.
IC 23-1-35-2
Conflict of interest transaction
Sec. 2. (a) A conflict of interest transaction is a transaction with
the corporation in which a director of the corporation has a direct or
indirect interest. A conflict of interest transaction is not voidable by
the corporation solely because of the director's interest in the
transaction if any one (1) of the following is true:
(1) The material facts of the transaction and the director's
interest were disclosed or known to the board of directors or a
committee of the board of directors and the board of directors
or committee authorized, approved, or ratified the transaction.
(2) The material facts of the transaction and the director's
interest were disclosed or known to the shareholders entitled to
vote and they authorized, approved, or ratified the transaction.
(3) The transaction was fair to the corporation.
(b) For purposes of this section, a director of the corporation has
an indirect interest in a transaction if:
(1) another entity in which the director has a material financial
interest or in which the director is a general partner is a party to
the transaction; or
(2) another entity of which the director is a director, officer, or
trustee is a party to the transaction and the transaction is, or is
required to be, considered by the board of directors of the
corporation.
(c) For purposes of subsection (a)(1), a conflict of interest
transaction is authorized, approved, or ratified if it receives the
affirmative vote of a majority of the directors on the board of
directors (or on the committee) who have no direct or indirect
interest in the transaction, but a transaction may not be authorized,
approved, or ratified under this section by a single director. If a
majority of the directors who have no direct or indirect interest in the
transaction vote to authorize, approve, or ratify the transaction, a
quorum is present for the purpose of taking action under this section.
The presence of, or a vote cast by, a director with a direct or indirect
interest in the transaction does not affect the validity of any action
taken under subsection (a)(1) if the transaction is otherwise
authorized, approved, or ratified as provided in that subsection.
(d) For purposes of subsection (a)(2), shares owned by or voted
under the control of a director who has a direct or indirect interest in
the transaction, and shares owned by or voted under the control of an
entity described in subsection (b), may be counted in a vote of
shareholders to determine whether to authorize, approve, or ratify a
conflict of interest transaction.
As added by P.L.149-1986, SEC.19. Amended by P.L.107-1987,
SEC.12.
IC 23-1-35-3
Loan or guarantee to director
Sec. 3. (a) Except as provided by subsection (c), a corporation
may not lend money to or guarantee the obligation of a director of
the corporation unless:
(1) the particular loan or guarantee is approved by a majority of
the votes represented by the outstanding voting shares of all
classes, voting as a single voting group, except the votes of
shares owned by or voted under the control of the benefited
director; or
(2) the corporation's board of directors determines that the loan
or guarantee benefits the corporation and either approves the
specific loan or guarantee or a general plan authorizing loans
and guarantees.
(b) The fact that a loan or guarantee is made in violation of this
section does not affect the borrower's liability on the loan.
(c) This section does not apply to loans and guarantees authorized
by statute regulating any special class of corporations.
As added by P.L.149-1986, SEC.19.
IC 23-1-35-4
Unlawful distribution; liability; contribution
Sec. 4. (a) Subject to section 1(e) of this chapter, a director who
votes for or assents to a distribution made in violation of this article
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 this article or the articles of
incorporation.
(b) A director held liable for an unlawful distribution under
subsection (a) is entitled to contribution:
(1) from every other director who voted for or assented to the
distribution, subject to section 1(e) of this chapter; and
(2) from each shareholder for the amount the shareholder
accepted.
As added by P.L.149-1986, SEC.19. Amended by P.L.107-1987,
SEC.13.
IC 23-1-35-5
Directors and business opportunities; conflicts of interest
Sec. 5. (a) A director's taking advantage, directly or indirectly, of
a business opportunity may not be the subject of equitable relief, or
give rise to an award of damages or other sanctions against the
director, in a proceeding by or in the right of the corporation on the
ground that the opportunity should have first been offered to the
corporation, if one (1) or more of the following applies:
(1) The opportunity and all material facts concerning the
opportunity then known to the director were disclosed to or
known by the board of directors or a committee of the board of
directors before the director became legally obligated regarding
the opportunity, and the board of directors or committee of the
board of directors disclaimed the corporation's interest in the
opportunity.
(2) The opportunity and all material facts concerning the
business opportunity then known to the director were disclosed
to or known by the shareholders entitled to vote before the
director became legally obligated regarding the opportunity, and
the shareholders disclaimed the corporation's interest in the
opportunity.
(b) For purposes of subsection (a)(1), a business opportunity is
disclaimed if approved in the manner provided in section 2(c) of this
chapter as if the business opportunity were a conflict of interest
transaction.
(c) For purposes of subsection (a)(2), a business opportunity is
disclaimed if approved in the manner provided in section 2(d) of this
chapter as if the business opportunity were a conflict of interest
transaction.
(d) In any proceeding seeking equitable relief or other remedies
against a director for the director allegedly improperly taking
advantage of a business opportunity, the fact that the director did not
employ the procedure described in subsection (a) before taking
advantage of the opportunity does not create an inference that the
opportunity should have been first presented to the corporation or
alter the burden of proof otherwise applicable to establish that the
director breached a duty to the corporation under the circumstances.
As added by P.L.133-2009, SEC.28. Amended by P.L.1-2010,
SEC.92.