79-29-110 - Indemnification.
§ 79-29-110. Indemnification.
(1) Except as provided in subsection (4) of this section, a limited liability company may indemnify and hold harmless any member, manager or other person made a party to a proceeding because he is or was a member, manager or agent of the limited liability company against liability incurred in the proceeding if:
(a) He conducted himself in good faith; and
(b) He reasonably believed:
(i) In the case of conduct in his official capacity with the limited liability company, that his conduct was in its best interests; and
(ii) In all other cases, that his conduct was at least not opposed to its best interests; and
(c) In the case of any criminal proceeding, he had no reasonable cause to believe that his conduct was unlawful.
(2) A member's, manager's or other person's conduct with respect to an employee benefit plan for a purpose he reasonably believed to be in the interests of the participants in and beneficiaries of the plan is conduct that satisfies the requirements of paragraph (1)(b)(ii) of this section.
(3) The termination of a proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent is not, of itself, determinative that the member, manager or person did not meet the standard of conduct described in this section.
(4) A limited liability company may not indemnify a member, manager or other person under this section:
(a) In connection with a proceeding by or in the right of the limited liability company in which the member, manager or other person was adjudged liable to the limited liability company; or
(b) In connection with any other proceeding charging improper personal benefit to him, whether or not involving action in his official capacity, in which he was adjudged liable on the basis that personal benefit was improperly received by him.
(5) Indemnification permitted under this section in connection with a proceeding by or in the right of the limited liability company is limited to reasonable expenses incurred in connection with the proceeding.
(6) Unless otherwise provided in its certificate of formation or limited liability company agreement, a limited liability company shall indemnify a member, manager or other person who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he is or was a member, manager or agent of the limited liability company against reasonable expenses incurred by him in connection with the proceeding.
(7) (a) A limited liability company may pay for or reimburse the reasonable expenses incurred by a member, manager or other person who is a party to a proceeding in advance of final disposition of the proceeding if:
(i) The member, manager or other person furnishes the limited liability company a written affirmation of his good faith belief that he has met the standard of conduct described in subsection (1) of this section;
(ii) The member, manager or other person furnishes the limited liability company a written undertaking, executed personally or on his behalf, to repay the advance if it is ultimately determined that he did not meet the standard of conduct; and
(iii) A determination is made that the facts then known to those making the determination would not preclude indemnification under this section.
(b) The undertaking required by paragraph (7)(a)(ii) of this section must be an unlimited general obligation of the member, manager or other person but need not be secured and may be accepted without reference to financial ability to make repayment.
(c) Determinations and authorizations of payment under this subsection shall be made in the manner specified in subsection (9) of this section.
(8) Unless a limited liability company's certificate of formation or limited liability company agreement provides otherwise, a member, manager or other person who is a party to a proceeding may apply for indemnification to the court conducting the proceeding or to another court of competent jurisdiction. On receipt of an application, the court, after giving any notice the court considers necessary, may order indemnification if it determines:
(a) The member, manager or other person is entitled to mandatory indemnification under subsection (6), in which case the court shall also order the limited liability company to pay the member, manager or other person's reasonable expenses incurred to obtain court-ordered indemnification; or
(b) The member, manager or other person is fairly and reasonably entitled to indemnification in view of all the relevant circumstances whether or not he met the standard of conduct set forth in subsection (1) or was adjudged liable as described in subsection (4), but if he was adjudged so liable his indemnification is limited to reasonable expenses incurred.
(9) (a) A limited liability company may not indemnify a member, manager or other person under subsection (1) unless authorized in the specific case after a determination has been made that indemnification of the member, manager or other person is permissible in the circumstance because he has met the standard of conduct set forth in subsection (1).
(b) Unless otherwise provided in the certificate of formation or limited liability company agreement, the determination shall be made:
(i) If management of the limited liability company is vested in a manager or managers, by majority vote of a quorum of the managers consisting of persons not at the time parties to the proceeding;
(ii) If management of the limited liability company is not vested in a manager or managers, by majority vote of a quorum of members consisting of persons not at the time parties to the proceeding;
(iii) If a quorum cannot be obtained under paragraph (9)(b)(i) or (ii), by majority vote of a committee consisting of two (2) or more managers not at the time parties to the proceeding duly designated by the managers (in which designation managers who are parties may participate), or, if management is not vested in a manager or managers, by majority vote of a committee consisting of two (2) or more members not at the time parties to the proceeding duly designated by the members (in which designation members who are parties may participate); or
(iv) By special legal counsel:
(A) Selected by the manager or managers, or members if management is not vested in a manager or managers, or a committee selected in the manner prescribed in paragraph (9)(b)(iii); or
(B) If a quorum cannot be obtained under paragraph (9)(b)(i) or (ii) and a committee cannot be designated under paragraph (9)(b)(iii), selected by a majority vote of all members (in which selection, members who are parties may participate).
(c) Authorization of indemnification and evaluation as to reasonableness of expenses shall be made in the same manner as the determination that indemnification is permissible, except that if the determination is made by special legal counsel, authorization of indemnification and evaluation as to reasonableness of expenses shall be made by those entitled under paragraph (9)(b)(iv) to select counsel.
(10) A limited liability company may purchase and maintain insurance on behalf of a person who is or was a member, manager or agent of the limited liability company, or who, while a member, manager or agent of the limited liability company is or was serving at the request of the limited liability company as a manager, director, officer, partner, trustee, employee or agent of another foreign or domestic limited liability company, corporation, nonprofit corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against liability asserted against or incurred by him in that capacity or arising from his status as a manager, director, officer, employee or agent, whether or not the limited liability company would have power to indemnify him against the same liability under subsection (1) or (2) of this section.
(11) (a) Unless the certificate of formation or limited liability company agreement provides otherwise, any authorization of indemnification in the certificate of formation or limited liability company agreement shall not be deemed to prevent the limited liability company from providing the indemnity permitted or mandated by this section.
(b) Any limited liability company shall have the power to make any further indemnity, including advance of expenses, to and enter contracts of indemnity with any manager, member or other person that may be authorized by the certificate of formation or limited liability company agreement or any resolution adopted, before or after the event, by the members, except an indemnity against his gross negligence or willful misconduct. Unless the certificate of formation or limited liability company agreement or resolution provides otherwise, any determination as to any further indemnity shall be made in accordance with paragraph (9)(b)(ii) or (iii). Each such indemnity may continue as to a person who has ceased to have the capacity referred to above and may inure to the benefit of the heirs, executors and administrators of such person.
(c) This section does not limit a limited liability company's power to pay or reimburse expenses incurred by a member, manager or other person in connection with his appearance as a witness in a proceeding at a time when he has not been made a named defendant or respondent to the proceeding.
Sources: Laws, 1994, ch. 402, § 10, eff from and after July 1, 1994.