CHAPTER 8. INDEMNIFICATION AND INSURANCE
BUSINESS ORGANIZATIONS CODE
TITLE 1. GENERAL PROVISIONS
CHAPTER 8. INDEMNIFICATION AND INSURANCE
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 8.001. DEFINITIONS. In this chapter:
(1) "Delegate" means a person who, while serving as a governing
person of an enterprise, is or was serving as a representative of
the enterprise at the request of that enterprise at another
enterprise or another organization or to an employee benefit
plan. A person is a delegate to an employee benefit plan if the
performance of the person's official duties to the enterprise
also imposes duties on or otherwise involves service by the
person to the plan or participants in or beneficiaries of the
plan.
(2) "Enterprise" means a domestic entity or an organization
subject to this chapter, including a predecessor domestic entity
or organization.
(3) "Expenses" includes:
(A) court costs, a judgment, a penalty, a settlement, a fine,
and an excise or similar tax, including an excise tax assessed
against the person with respect to an employee benefit plan; and
(B) reasonable attorney's fees.
(4) "Former governing person" means a person who was a governing
person of an enterprise.
(5) "Judgment" includes an arbitration award.
(6) "Official capacity" means:
(A) with respect to a governing person, the office of the
governing person in the enterprise or the exercise of authority
by or on behalf of the governing person under this code or the
governing documents of the enterprise; and
(B) with respect to a person other than a governing person, the
elective or appointive office, if any, in the enterprise held by
the person or the relationship undertaken by the person on behalf
of the enterprise.
(7) "Predecessor enterprise" means a sole proprietorship or
organization that is a predecessor to an enterprise in:
(A) a merger, conversion, consolidation, or other transaction in
which the liabilities of the predecessor enterprise are
transferred or allocated to the enterprise by operation of law;
or
(B) any other transaction in which the enterprise assumes the
liabilities of the predecessor enterprise and the liabilities
that are the subject matter of this chapter are not specifically
excluded.
(8) "Proceeding" means:
(A) a threatened, pending, or completed action or other
proceeding, whether civil, criminal, administrative, arbitrative,
or investigative;
(B) an appeal of an action or proceeding described by Paragraph
(A); and
(C) an inquiry or investigation that could lead to an action or
proceeding described by Paragraph (A).
(9) "Representative" means a person who is:
(A) serving as a partner, director, officer, venturer,
proprietor, trustee, employee, administrator, or agent of an
enterprise or other organization or of an employee benefit plan;
or
(B) serving a similar function for an enterprise or other
organization or for an employee benefit plan.
(10) "Respondent" means a person named as a respondent or
defendant in a proceeding.
Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.
Amended by:
Acts 2005, 79th Leg., Ch.
64, Sec. 20, eff. January 1, 2006.
Sec. 8.002. APPLICATION OF CHAPTER. (a) Except as provided by
Subsection (b), this chapter does not apply to a:
(1) general partnership; or
(2) limited liability company.
(b) The governing documents of a general partnership or limited
liability company may adopt provisions of this chapter or may
contain other provisions, which will be enforceable, relating to:
(1) indemnification;
(2) advancement of expenses; or
(3) insurance or another arrangement to indemnify or hold
harmless a governing person.
Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.
Amended by:
Acts 2007, 80th Leg., R.S., Ch.
688, Sec. 40, eff. September 1, 2007.
Sec. 8.003. LIMITATIONS IN GOVERNING DOCUMENTS. (a) The
certificate of formation of an enterprise may restrict the
circumstances under which the enterprise must or may indemnify or
may advance expenses to a person under this chapter.
(b) The written partnership agreement of a limited partnership
may restrict the circumstances in the same manner as the
certificate of formation under Subsection (a).
Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.
Sec. 8.004. LIMITATIONS IN CHAPTER. Except as provided in
Section 8.151, a provision for an enterprise to indemnify or
advance expenses to a governing person is valid only to the
extent it is consistent with this chapter.
Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.
SUBCHAPTER B. MANDATORY AND COURT-ORDERED INDEMNIFICATION
Sec. 8.051. MANDATORY INDEMNIFICATION. (a) An enterprise shall
indemnify a governing person, former governing person, or
delegate against reasonable expenses actually incurred by the
person in connection with a proceeding in which the person is a
respondent because the person is or was a governing person or
delegate if the person is wholly successful, on the merits or
otherwise, in the defense of the proceeding.
(b) A court that determines, in a suit for indemnification, that
a governing person, former governing person, or delegate is
entitled to indemnification under this section shall order
indemnification and award to the person the expenses incurred in
securing the indemnification.
Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.
Amended by:
Acts 2005, 79th Leg., Ch.
64, Sec. 21, eff. January 1, 2006.
Sec. 8.052. COURT-ORDERED INDEMNIFICATION. (a) On application
of a governing person, former governing person, or delegate and
after notice is provided as required by the court, a court may
order an enterprise to indemnify the person to the extent the
court determines that the person is fairly and reasonably
entitled to indemnification in view of all the relevant
circumstances.
(b) This section applies without regard to whether the governing
person, former governing person, or delegate applying to the
court satisfies the requirements of Section 8.101 or has been
found liable:
(1) to the enterprise; or
(2) because the person improperly received a personal benefit,
without regard to whether the benefit resulted from an action
taken in the person's official capacity.
(c) The indemnification ordered by the court under this section
is limited to reasonable expenses if the governing person, former
governing person, or delegate is found liable:
(1) to the enterprise; or
(2) because the person improperly received a personal benefit,
without regard to whether the benefit resulted from an action
taken in the person's official capacity.
Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.
SUBCHAPTER C. PERMISSIVE INDEMNIFICATION AND ADVANCEMENT OF
EXPENSES
Sec. 8.101. PERMISSIVE INDEMNIFICATION. (a) An enterprise may
indemnify a governing person, former governing person, or
delegate who was, is, or is threatened to be made a respondent in
a proceeding to the extent permitted by Section 8.102 if it is
determined in accordance with Section 8.103 that:
(1) the person:
(A) acted in good faith;
(B) reasonably believed:
(i) in the case of conduct in the person's official capacity,
that the person's conduct was in the enterprise's best interests;
and
(ii) in any other case, that the person's conduct was not
opposed to the enterprise's best interests; and
(C) in the case of a criminal proceeding, did not have a
reasonable cause to believe the person's conduct was unlawful;
(2) with respect to expenses, the amount of expenses other than
a judgment is reasonable; and
(3) indemnification should be paid.
(b) Action taken or omitted by a governing person or delegate
with respect to an employee benefit plan in the performance of
the person's duties for a purpose reasonably believed by the
person to be in the interest of the participants and
beneficiaries of the plan is for a purpose that is not opposed to
the best interests of the enterprise.
(c) Action taken or omitted by a delegate to another enterprise
for a purpose reasonably believed by the delegate to be in the
interest of the other enterprise or its owners or members is for
a purpose that is not opposed to the best interests of the
enterprise.
(d) A person does not fail to meet the standard under Subsection
(a)(1) solely because of the termination of a proceeding by:
(1) judgment;
(2) order;
(3) settlement;
(4) conviction; or
(5) a plea of nolo contendere or its equivalent.
Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.
Sec. 8.102. GENERAL SCOPE OF PERMISSIVE INDEMNIFICATION. (a)
Subject to Subsection (b), an enterprise may indemnify a
governing person, former governing person, or delegate against:
(1) a judgment; and
(2) expenses, other than a judgment, that are reasonable and
actually incurred by the person in connection with a proceeding.
(b) Indemnification under this subchapter of a person who is
found liable to the enterprise or is found liable because the
person improperly received a personal benefit:
(1) is limited to reasonable expenses actually incurred by the
person in connection with the proceeding;
(2) does not include a judgment, a penalty, a fine, and an
excise or similar tax, including an excise tax assessed against
the person with respect to an employee benefit plan; and
(3) may not be made in relation to a proceeding in which the
person has been found liable for:
(A) wilful or intentional misconduct in the performance of the
person's duty to the enterprise;
(B) breach of the person's duty of loyalty owed to the
enterprise; or
(C) an act or omission not committed in good faith that
constitutes a breach of a duty owed by the person to the
enterprise.
(c) A governing person, former governing person, or delegate is
considered to have been found liable in relation to a claim,
issue, or matter only if the liability is established by an
order, including a judgment or decree of a court, and all appeals
of the order are exhausted or foreclosed by law.
Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.
Sec. 8.103. MANNER FOR DETERMINING PERMISSIVE INDEMNIFICATION.
(a) Except as provided by Subsections (b) and (c), the
determinations required under Section 8.101(a) must be made by:
(1) a majority vote of the governing persons who at the time of
the vote are disinterested and independent, regardless of whether
the governing persons who are disinterested and independent
constitute a quorum;
(2) a majority vote of a committee of the governing authority of
the enterprise if the committee:
(A) is designated by a majority vote of the governing persons
who at the time of the vote are disinterested and independent,
regardless of whether the governing persons who are disinterested
and independent constitute a quorum; and
(B) is composed solely of one or more governing persons who are
disinterested and independent;
(3) special legal counsel selected by the governing authority of
the enterprise, or selected by a committee of the governing
authority, by vote in accordance with Subdivision (1) or (2);
(4) the owners or members of the enterprise in a vote that
excludes the ownership or membership interests held by each
governing person who is not disinterested and independent; or
(5) a unanimous vote of the owners or members of the enterprise.
(b) If special legal counsel determines under Subsection (a)(3)
that a person meets the standard under Section 8.101(a)(1), the
special legal counsel shall determine whether the amount of
expenses other than a judgment is reasonable under Section
8.101(a)(2) but may not determine whether indemnification should
be paid under Section 8.101(a)(3). The determination whether
indemnification should be paid must be made in a manner specified
by Subsection (a)(1), (2), (4), or (5).
(c) A provision contained in the governing documents of the
enterprise, a resolution of the owners, members, or governing
authority, or an agreement that requires the indemnification of a
person who meets the standard under Section 8.101(a)(1)
constitutes a determination under Section 8.101(a)(3) that
indemnification should be paid even though the provision may not
have been adopted or authorized in the same manner as the
determinations required under Section 8.101(a). The
determinations required under Sections 8.101(a)(1) and (2) must
be made in a manner provided by Subsection (a).
(d) With respect to a limited partnership, a vote of a
majority-in-interest of the limited partners in a vote that
excludes the interest held by each general partner who is not
disinterested and independent constitutes a determination under
Subsection (a)(4).
Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.
Amended by:
Acts 2005, 79th Leg., Ch.
64, Sec. 22, eff. January 1, 2006.
Acts 2007, 80th Leg., R.S., Ch.
688, Sec. 41, eff. September 1, 2007.
Sec. 8.104. ADVANCEMENT OF EXPENSES TO PRESENT GOVERNING PERSONS
OR DELEGATES. (a) An enterprise may pay or reimburse reasonable
expenses incurred by a present governing person or delegate who
was, is, or is threatened to be made a respondent in a proceeding
in advance of the final disposition of the proceeding without
making the determinations required under Section 8.101(a) after
the enterprise receives:
(1) a written affirmation by the person of the person's good
faith belief that the person has met the standard of conduct
necessary for indemnification under this chapter; and
(2) a written undertaking by or on behalf of the person to repay
the amount paid or reimbursed if the final determination is that
the person has not met that standard or that indemnification is
prohibited by Section 8.102.
(b) A provision in the governing documents of the enterprise, a
resolution of the owners, members, or governing authority, or an
agreement that requires the payment or reimbursement permitted
under this section authorizes that payment or reimbursement after
the enterprise receives an affirmation and undertaking described
by Subsection (a).
(c) The written undertaking required by Subsection (a)(2) must
be an unlimited general obligation of the person but need not be
secured and may be accepted by the enterprise without regard to
the person's ability to make repayment.
(d) With respect to a limited partnership, a vote of a
majority-in-interest of the limited partners in a vote that
excludes the interest held by each general partner who is not
disinterested and independent constitutes an authorization under
Subsection (b).
Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.
Amended by:
Acts 2005, 79th Leg., Ch.
64, Sec. 23, eff. January 1, 2006.
Acts 2005, 79th Leg., Ch.
64, Sec. 24, eff. January 1, 2006.
Acts 2007, 80th Leg., R.S., Ch.
688, Sec. 42, eff. September 1, 2007.
Sec. 8.105. INDEMNIFICATION OF AND ADVANCEMENT OF EXPENSES TO
PERSONS OTHER THAN GOVERNING PERSONS. (a) Notwithstanding any
other provision of this chapter but subject to Section 8.003 and
to the extent consistent with other law, an enterprise may
indemnify and advance expenses to a person who is not a governing
person, including an officer, employee, or agent, as provided by:
(1) the enterprise's governing documents;
(2) general or specific action of the enterprise's governing
authority;
(3) resolution of the enterprise's owners or members;
(4) contract; or
(5) common law.
(b) An enterprise shall indemnify an officer to the same extent
that indemnification is required under this chapter for a
governing person.
(c) A person described by Subsection (a) may seek
indemnification or advancement of expenses from an enterprise to
the same extent that a governing person may seek indemnification
or advancement of expenses under this chapter.
(d) Notwithstanding any authorization or determination specified
in this chapter, an enterprise may pay or reimburse, in advance
of the final disposition of a proceeding and on terms the
enterprise considers appropriate, reasonable expenses incurred by
a former managerial official or delegate, or a present or former
employee or agent, of the enterprise who was, is, or is
threatened to be made a respondent in the proceeding.
(e) A determination of indemnification for a person who is not a
governing person of an enterprise, including an officer,
employee, or agent, is not required to be made in accordance with
Section 8.103.
Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.
Amended by:
Acts 2005, 79th Leg., Ch.
64, Sec. 25, eff. January 1, 2006.
Acts 2007, 80th Leg., R.S., Ch.
688, Sec. 43, eff. September 1, 2007.
Sec. 8.106. PERMISSIVE INDEMNIFICATION OF AND REIMBURSEMENT OF
EXPENSES TO WITNESSES. Notwithstanding any other provision of
this chapter, an enterprise may pay or reimburse reasonable
expenses incurred by a governing person, officer, employee,
agent, delegate, or other person in connection with that person's
appearance as a witness or other participation in a proceeding at
a time when the person is not a respondent in the proceeding.
Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.
SUBCHAPTER D. LIABILITY INSURANCE; REPORTING REQUIREMENTS
Sec. 8.151. INSURANCE AND OTHER ARRANGEMENTS. (a)
Notwithstanding any other provision of this chapter, an
enterprise may purchase or procure or establish and maintain
insurance or another arrangement to indemnify or hold harmless an
existing or former governing person, delegate, officer, employee,
or agent against any liability:
(1) asserted against and incurred by the person in that
capacity; or
(2) arising out of the person's status in that capacity.
(b) The insurance or other arrangement established under
Subsection (a) may insure or indemnify against the liability
described by Subsection (a) without regard to whether the
enterprise otherwise would have had the power to indemnify the
person against that liability under this chapter.
(c) Insurance or another arrangement that involves
self-insurance or an agreement to indemnify made with the
enterprise or a person that is not regularly engaged in the
business of providing insurance coverage may provide for payment
of a liability with respect to which the enterprise does not
otherwise have the power to provide indemnification only if the
insurance or arrangement is approved by the owners or members of
the enterprise.
(d) For the benefit of persons to be indemnified by the
enterprise, an enterprise may, in addition to purchasing or
procuring or establishing and maintaining insurance or another
arrangement:
(1) create a trust fund;
(2) establish any form of self-insurance, including a contract
to indemnify;
(3) secure the enterprise's indemnity obligation by grant of a
security interest or other lien on the assets of the enterprise;
or
(4) establish a letter of credit, guaranty, or surety
arrangement.
(e) Insurance or another arrangement established under this
section may be purchased or procured or established and
maintained:
(1) within the enterprise; or
(2) with any insurer or other person considered appropriate by
the governing authority, regardless of whether all or part of the
stock, securities, or other ownership interest in the insurer or
other person is owned in whole or in part by the enterprise.
(f) The governing authority's decision as to the terms of the
insurance or other arrangement and the selection of the insurer
or other person participating in an arrangement is conclusive.
The insurance or arrangement is not voidable and does not subject
the governing persons approving the insurance or arrangement to
liability, on any ground, regardless of whether the governing
persons participating in approving the insurance or other
arrangement are beneficiaries of the insurance or arrangement.
This subsection does not apply in case of actual fraud.
Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.
Sec. 8.152. REPORTS OF INDEMNIFICATION AND ADVANCES. (a) An
enterprise shall report in writing to the owners or members of
the enterprise an indemnification of or advance of expenses to a
governing person.
(b) Subject to Subsection (c), the report must be made with or
before:
(1) the notice or waiver of notice of the next meeting of the
owners or members of the enterprise; or
(2) the next submission to the owners or members of a consent to
action without a meeting.
(c) The report must be made not later than the first anniversary
of the date of the indemnification or advance.
Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.
Amended by:
Acts 2007, 80th Leg., R.S., Ch.
688, Sec. 44, eff. September 1, 2007.