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 corporategovernance rules; presumption
Sec. 1. (a) A director shall, based on facts then known to thedirector, discharge the duties as a director, including the director'sduties as a member of a committee:
(1) in good faith;
(2) with the care an ordinarily prudent person in a like positionwould exercise under similar circumstances; and
(3) in a manner the director reasonably believes to be in the bestinterests of the corporation.
(b) In discharging the director's duties a director is entitled to relyon information, opinions, reports, or statements, including financialstatements and other financial data, if prepared or presented by:
(1) one (1) or more officers or employees of the corporationwhom the director reasonably believes to be reliable andcompetent in the matters presented;
(2) legal counsel, public accountants, or other persons as tomatters the director reasonably believes are within the person'sprofessional or expert competence; or
(3) a committee of the board of directors of which the directoris not a member if the director reasonably believes thecommittee merits confidence.
(c) A director is not acting in good faith if the director hasknowledge concerning the matter in question that makes relianceotherwise permitted by subsection (b) unwarranted.
(d) A director may, in considering the best interests of acorporation, consider the effects of any action on shareholders,employees, suppliers, and customers of the corporation, andcommunities in which offices or other facilities of the corporationare located, and any other factors the director considers pertinent.
(e) A director is not liable for any action taken as a director, orany failure to take any action, regardless of the nature of the allegedbreach of duty, including alleged breaches of the duty of care, theduty of loyalty, and the duty of good faith, unless:
(1) the director has breached or failed to perform the duties ofthe director's office in compliance with this section; and
(2) the breach or failure to perform constitutes willfulmisconduct or recklessness.
(f) In enacting this article, the general assembly establishedcorporate governance rules for Indiana corporations, including in thischapter, the standards of conduct applicable to directors of Indianacorporations, and the corporate constituent groups and interests thata director may take into account in exercising the director's businessjudgment. The general assembly intends to reaffirm certain of thesecorporate governance rules to ensure that the directors of Indianacorporations, in exercising their business judgment, are not required
to approve a proposed corporate action if the directors in good faithdetermine, after considering and weighing as they deem appropriatethe effects of such action on the corporation's constituents, that suchaction is not in the best interests of the corporation. In making suchdetermination, directors are not required to consider the effects of aproposed corporate action on any particular corporate constituentgroup or interest as a dominant or controlling factor. Withoutlimiting the generality of the foregoing, directors are not required torender inapplicable any of the provisions of IC 23-1-43, to redeemany rights under or to render inapplicable a shareholder rights planadopted pursuant to IC 23-1-26-5, or to take or decline to take anyother action under this article, solely because of the effect suchaction might have on a proposed acquisition of control of thecorporation or the amounts that might be paid to shareholders undersuch an acquisition. Certain judicial decisions in Delaware and otherjurisdictions, which might otherwise be looked to for guidance ininterpreting Indiana corporate law, including decisions relating topotential change of control transactions that impose a different orhigher degree of scrutiny on actions taken by directors in response toa proposed acquisition of control of the corporation, are inconsistentwith the proper application of the business judgment rule under thisarticle. Therefore, the general assembly intends:
(1) to reaffirm that this section allows directors the fulldiscretion to weigh the factors enumerated in subsection (d) asthey deem appropriate; and
(2) to protect both directors and the validity of corporate actiontaken by them in the good faith exercise of their businessjudgment after reasonable investigation.
(g) In taking or declining to take any action, or in making ordeclining to make any recommendation to the shareholders of thecorporation with respect to any matter, a board of directors may, inits discretion, consider both the short term and long term bestinterests of the corporation, taking into account, and weighing as thedirectors deem appropriate, the effects thereof on the corporation'sshareholders and the other corporate constituent groups and interestslisted or described in subsection (d), as well as any other factorsdeemed pertinent by the directors under subsection (d). If adetermination is made with respect to the foregoing with theapproval of a majority of the disinterested directors of the board ofdirectors, that determination shall conclusively be presumed to bevalid unless it can be demonstrated that the determination was notmade in good faith after reasonable investigation.
(h) For the purposes of subsection (g), a director is disinterestedif:
(1) the director does not have a conflict of interest, within themeaning of section 2 of this chapter, in connection with theaction or recommendation in question;
(2) in connection with matters described in IC 23-1-32 thedirector 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 underIC 23-1-42 or other provisions of this article;
(B) a business combination (as defined in IC 23-1-43-5) orany matter related to a business combination underIC 23-1-43 (including a person becoming an interestedshareholder) or other provisions of this article; or
(C) any transaction that may result in a change of control (asdefined 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 otherwiseaffecting:
(A) a control share acquisition (as defined in IC 23-1-42-2)or any matter related to a control share acquisition underIC 23-1-42 or other provisions of this article;
(B) a business combination (as defined in IC 23-1-43-5) orany matter related to a business combination underIC 23-1-43 (including a person becoming an interestedshareholder) or other provisions of this article; or
(C) any transaction that may result in a change of control (asdefined in IC 23-1-22-4) of the corporation;
the director is not an affiliate or associate of, or was notnominated or designated as a director by, a person proposingany of the transactions described in clause (A), (B), or (C).
(i) A person may be disinterested under this section even thoughthe 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 withthe corporation in which a director of the corporation has a direct orindirect interest. A conflict of interest transaction is not voidable bythe corporation solely because of the director's interest in thetransaction if any one (1) of the following is true:
(1) The material facts of the transaction and the director'sinterest were disclosed or known to the board of directors or acommittee of the board of directors and the board of directorsor committee authorized, approved, or ratified the transaction.
(2) The material facts of the transaction and the director'sinterest were disclosed or known to the shareholders entitled tovote 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 hasan indirect interest in a transaction if:
(1) another entity in which the director has a material financialinterest or in which the director is a general partner is a party tothe transaction; or (2) another entity of which the director is a director, officer, ortrustee is a party to the transaction and the transaction is, or isrequired to be, considered by the board of directors of thecorporation.
(c) For purposes of subsection (a)(1), a conflict of interesttransaction is authorized, approved, or ratified if it receives theaffirmative vote of a majority of the directors on the board ofdirectors (or on the committee) who have no direct or indirectinterest in the transaction, but a transaction may not be authorized,approved, or ratified under this section by a single director. If amajority of the directors who have no direct or indirect interest in thetransaction vote to authorize, approve, or ratify the transaction, aquorum 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 indirectinterest in the transaction does not affect the validity of any actiontaken under subsection (a)(1) if the transaction is otherwiseauthorized, approved, or ratified as provided in that subsection.
(d) For purposes of subsection (a)(2), shares owned by or votedunder the control of a director who has a direct or indirect interest inthe transaction, and shares owned by or voted under the control of anentity described in subsection (b), may be counted in a vote ofshareholders to determine whether to authorize, approve, or ratify aconflict 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 corporationmay not lend money to or guarantee the obligation of a director ofthe corporation unless:
(1) the particular loan or guarantee is approved by a majority ofthe votes represented by the outstanding voting shares of allclasses, voting as a single voting group, except the votes ofshares owned by or voted under the control of the benefiteddirector; or
(2) the corporation's board of directors determines that the loanor guarantee benefits the corporation and either approves thespecific loan or guarantee or a general plan authorizing loansand guarantees.
(b) The fact that a loan or guarantee is made in violation of thissection does not affect the borrower's liability on the loan.
(c) This section does not apply to loans and guarantees authorizedby 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 whovotes for or assents to a distribution made in violation of this article
or the articles of incorporation is personally liable to the corporationfor the amount of the distribution that exceeds what could have beendistributed without violating this article or the articles ofincorporation.
(b) A director held liable for an unlawful distribution undersubsection (a) is entitled to contribution:
(1) from every other director who voted for or assented to thedistribution, subject to section 1(e) of this chapter; and
(2) from each shareholder for the amount the shareholderaccepted.
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, ofa business opportunity may not be the subject of equitable relief, orgive rise to an award of damages or other sanctions against thedirector, in a proceeding by or in the right of the corporation on theground that the opportunity should have first been offered to thecorporation, if one (1) or more of the following applies:
(1) The opportunity and all material facts concerning theopportunity then known to the director were disclosed to orknown by the board of directors or a committee of the board ofdirectors before the director became legally obligated regardingthe opportunity, and the board of directors or committee of theboard of directors disclaimed the corporation's interest in theopportunity.
(2) The opportunity and all material facts concerning thebusiness opportunity then known to the director were disclosedto or known by the shareholders entitled to vote before thedirector became legally obligated regarding the opportunity, andthe shareholders disclaimed the corporation's interest in theopportunity.
(b) For purposes of subsection (a)(1), a business opportunity isdisclaimed if approved in the manner provided in section 2(c) of thischapter as if the business opportunity were a conflict of interesttransaction.
(c) For purposes of subsection (a)(2), a business opportunity isdisclaimed if approved in the manner provided in section 2(d) of thischapter as if the business opportunity were a conflict of interesttransaction.
(d) In any proceeding seeking equitable relief or other remediesagainst a director for the director allegedly improperly takingadvantage of a business opportunity, the fact that the director did notemploy the procedure described in subsection (a) before takingadvantage of the opportunity does not create an inference that theopportunity should have been first presented to the corporation oralter the burden of proof otherwise applicable to establish that thedirector 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.