§ 35-14-831 — Standards Of Liability For Directors

35-14-831 . Standards of liability for directors. (1) A director may not be liable to the corporation or its shareholders for any decision to take or not to take action, or any failure to take any action, as a director unless the party asserting liability in a proceeding establishes that:
(a) no defense interposed by the director precludes liability based on:
(i) any provision in the articles of incorporation authorized by 35-14-202 (2)(d) or (2)(f);
(ii) the protection afforded by 35-14-861 for action taken in compliance with 35-14-862 or 35-14-863 ; or
(iii) the protection afforded by 35-14-870 ; and
(b) the challenged conduct consisted or was the result of:
(i) action not in good faith; or
(ii) a decision:
(A) that the director did not reasonably believe to be in the best interests of the corporation; or
(B) as to which the director was not informed to an extent the director reasonably believed appropriate in the circumstances; or
(iii) a lack of objectivity due to the director's familial, financial, or business relationship with, or a lack of independence due to the director's domination or control by, another person having a material interest in the challenged conduct and:
(A) the relationship, domination, or control could reasonably be expected to have affected the director's judgment respecting the challenged conduct in a manner adverse to the corporation; and
(B) after a reasonable expectation of an effect on the director's judgment has been established, the director may not have established that the challenged conduct was reasonably believed by the director to be in the best interests of the corporation; or
(iv) a sustained failure of the director to devote attention to ongoing oversight of the business and affairs of the corporation or a failure to devote timely attention, by making or causing to be made appropriate inquiry, when particular facts and circumstances of significant concern materialize that would alert a reasonably attentive director to the need for an inquiry; or
(v) receipt of a financial benefit to which the director was not entitled or any other breach of the director's duties to deal fairly with the corporation and its shareholders that is actionable under applicable law.
(2) The party seeking to hold the director liable:
(a) for money damages also has the burden of establishing that:
(i) harm to the corporation or its shareholders has been suffered; and
(ii) the harm suffered was proximately caused by the director's challenged conduct; or
(b) for other money payment under a legal remedy, such as compensation for the unauthorized use of corporate assets, also has whatever persuasion burden may be called for to establish that the payment sought is appropriate in the circumstances; or
(c) for other money payment under an equitable remedy, such as profit recovery by or disgorgement to the corporation, also has whatever persuasion burden may be called for to establish that the equitable remedy sought is appropriate in the circumstances.
(3) Nothing in this section:
(a) in any instance where fairness is at issue, such as consideration of the fairness of a transaction to the corporation under 35-14-860 (2)(c), alters the burden of proving the fact or lack of fairness otherwise applicable;
(b) alters the fact or lack of liability of a director under another section of this chapter, such as the provisions governing the consequences of an unlawful distribution under 35-14-832 or a transactional interest under 35-14-861 ;
(c) affects any rights to which the corporation or a shareholder may be entitled under another statute of this state or the United States; or
(d) invalidates or otherwise limits the business judgment rule under the common law.

Legislative History

En. Sec. 112, Ch. 271, L. 2019.