31 §654. Indemnification of managers, members, employees and agents; insurance (WHOLE SECTION TEXT EFFECTIVE UNTIL 7/1/11)
Title 31: PARTNERSHIPS AND ASSOCIATIONS
Chapter 13: LIMITED LIABILITY COMPANIES
Subchapter 4: RIGHTS AND DUTIES OF MEMBERS AND MANAGERS
§654. Indemnification of managers, members, employees and agents; insurance
(CONTAINS TEXT WITH VARYING EFFECTIVE DATES)
(WHOLE SECTION TEXT EFFECTIVE UNTIL 7/1/11)
1. Indemnification of parties. A limited liability company may indemnify or, if provided in the articles of organization or an operating agreement, shall in all cases indemnify a person who was or is a party or is threatened to be made a party to a threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, because that person is or was a manager, member, employee or agent of that limited liability company or is or was serving at the request of that limited liability company as a director, officer, trustee, partner, fiduciary, employee or agent of another corporation, partnership, joint venture, trust, pension or other employee benefit plan or other enterprise, against expenses, including attorneys' fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by that person in connection with such an action, suit or proceeding; provided that no indemnification may be provided for a person with respect to a matter for which that person is finally adjudicated:
A. Not to have acted honestly or in the reasonable belief that that person's action was in or not opposed to the best interests of a limited liability company or its members or, in the case of a person serving as a fiduciary of an employee benefit plan or trust, in or not opposed to the best interests of that plan or trust or its participants or beneficiaries; or [1993, c. 718, Pt. A, §1 (NEW).]
B. With respect to a criminal action or proceeding, to have had reasonable cause to believe that that person's conduct was unlawful. [1993, c. 718, Pt. A, §1 (NEW).]
The termination of an action, suit or proceeding by judgment, order or conviction adverse to that person, or by settlement or plea of nolo contendere or its equivalent, does not of itself create a presumption that that person did not act honestly or in the reasonable belief that that person's action was in or not opposed to the best interests of a limited liability company or its members or, in the case of a person serving as a fiduciary of an employee benefit plan or trust, in or not opposed to the best interests of that plan or trust or its participants or beneficiaries and, with respect to a criminal action or proceeding, had reasonable cause to believe that that person's conduct was unlawful.
[ 1993, c. 718, Pt. A, §1 (NEW) .]
2. Indemnification prohibited if party liable to limited liability company; exception. Notwithstanding any provision of subsection 1, a limited liability company does not have the power to indemnify a person with respect to a claim, issue or matter asserted by or in the right of that limited liability company for which that person is finally adjudicated to be liable to that limited liability company unless the court in which the action, suit or proceeding was brought determines that, in view of all the circumstances of the case, that person is fairly and reasonably entitled to indemnity for such amounts as the court determines reasonable.
[ 1993, c. 718, Pt. A, §1 (NEW) .]
3. Indemnification for expenses of successful party. Any provision of subsection 1, 2 or 4 to the contrary notwithstanding, to the extent that a manager, member, employee or agent of a limited liability company has been successful on the merits or otherwise in defense of an action, suit or proceeding referred to in subsection 1 or 2, or in defense of a claim, issue or matter referred to in subsection 1 or 2, that limited liability company shall indemnify that manager, member, employee or agent against expenses, including attorney's fees, actually and reasonably incurred by that manager, member, employee or agent in connection with the action, suit or proceeding. The right to indemnification granted by this subsection may be enforced by a separate action against that limited liability company if an order for indemnification is not entered by a court in the action, suit or proceeding in which that manager, member, employee or agent was successful on the merits or otherwise.
[ 1993, c. 718, Pt. A, §1 (NEW) .]
4. Indemnification proper and in the best interests of the limited liability company. Any indemnification under subsection 1, unless ordered by a court or required by the articles of organization or operating agreement, may be made by the limited liability company only as authorized in the specific case upon a determination that indemnification of the manager, member, employee or agent is proper in the circumstances and in the best interests of the limited liability company. If the articles of organization vest management in a manager or managers, that determination must be made by the manager or managers by a majority vote of a quorum consisting of managers who were not parties to that action, suit or proceeding, or if such a quorum is not obtainable, or even if obtainable, if a quorum of disinterested managers so directs, by independent legal counsel in a written opinion or by the members. If the articles of organization do not vest management in a manager or managers, the members shall make that determination by majority vote of a quorum consisting of members who were not parties to that action, suit or proceeding. Such a determination once made may not be revoked and upon the making of that determination the manager, member, employee or agent may enforce the indemnification against the limited liability company by a separate action notwithstanding any attempted or actual subsequent action by the manager, managers or members.
[ 1993, c. 718, Pt. A, §1 (NEW) .]
5. Payment of expenses in advance. Expenses incurred in defending a civil, criminal, administrative or investigative action, suit or proceeding may be authorized and paid by a limited liability company in advance of the final disposition of that action, suit or proceeding upon a determination made in accordance with the procedure established in subsection 4 that, based solely on the facts then known to those making the determination and without further investigation, the person seeking indemnification satisfied the standard of conduct prescribed by subsection 1, or if so provided in the articles of organization or an operating agreement, these expenses must in all cases be authorized and paid by that limited liability company in advance of the final disposition of that action, suit or proceeding upon receipt by that limited liability company of:
A. A written undertaking by or on behalf of the manager, member, employee or agent to repay that amount if that person is finally adjudicated:
(1) Not to have acted honestly or in the reasonable belief that that person's action was in or not opposed to the best interests of a limited liability company or its members or, in the case of a person serving as a fiduciary of an employee benefit a plan or trust, in or not opposed to the best interests of such a plan or trust or its participants or beneficiaries;
(2) With respect to a criminal action or proceeding, to have had reasonable cause to believe that the person's conduct was unlawful; or
(3) With respect to a claim, issue or matter asserted in an action, suit or proceeding brought by or in the right of a limited liability company, to be liable to that limited liability company, unless the court in which that action, suit or proceeding was brought permits indemnification in accordance with subsection 3; and [1993, c. 718, Pt. A, §1 (NEW).]
B. A written affirmation by the manager, member, employee or agent that the person has met the standard of conduct necessary for indemnification by a limited liability company as authorized in this section. [1993, c. 718, Pt. A, §1 (NEW).]
The undertaking required by paragraph A must be an unlimited general obligation of the person seeking the advance but need not be secured and may be accepted without reference to financial ability to make the repayment.
[ 1993, c. 718, Pt. A, §1 (NEW) .]
6. Indemnification and advances not exclusive. The indemnification and entitlement to advances of expenses provided by this section is not exclusive of other rights to which those indemnified may be entitled under an operating agreement, other agreement, vote of members or otherwise, both as to action in that person's official capacity and as to action in another capacity while holding such an office, and continues for a person who has ceased to be a manager, member, employee, agent, trustee, partner or fiduciary and inures to the benefit of the heirs, executors and administrators of that person. A right to indemnification required by the articles of organization or an operating agreement may be enforced by a separate action against a limited liability company if an order for indemnification has not been entered by a court in an action, suit or proceeding for which indemnification is sought.
[ 1993, c. 718, Pt. A, §1 (NEW) .]
7. Insurance. A limited liability company may purchase and maintain insurance on behalf of a person who is or was a manager, member, employee or agent of that limited liability company, or is or was serving at the request of that limited liability company as a director, officer, trustee, partner, fiduciary, employee or agent of a corporation, partnership, joint venture, trust, pension or other employee benefit plan or other enterprise against any liability asserted against that person and incurred by that person in such a capacity, or arising out of that person's status as such, whether or not that limited liability company would have the power to indemnify that person against such a liability under this section.
[ 1993, c. 718, Pt. A, §1 (NEW) .]
8. Application to mergers and consolidations. For purposes of this section, references to a "limited liability company" include, in addition to a surviving limited liability company or new limited liability company, a participating limited liability company in a consolidation or merger.
[ 1993, c. 718, Pt. A, §1 (NEW) .]
SECTION HISTORY
1993, c. 718, §A1 (NEW). 2009, c. 629, Pt. A, §1 (RP). 2009, c. 629, Pt. A, §3 (AFF).