BUSINESS ORGANIZATIONS CODE
CHAPTER 8. INDEMNIFICATION AND INSURANCE
SUBCHAPTER A. GENERAL PROVISIONS
§ 8.001. DEFINITIONS. In this chapter:
(1) "Delegate" means a person who is serving or who has
served as a representative of an enterprise at the request of that
enterprise at another enterprise. 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 serving as a
partner, director, officer, venturer, proprietor, trustee,
employee, or agent of an enterprise or serving a similar function
for an enterprise.
(10) "Respondent" means a person named as a respondent
or defendant in a proceeding.
Acts 2003, 78th Leg., ch. 182, § 1, eff. Jan. 1, 2006.
§ 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 enforceable provisions 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, § 1, eff. Jan. 1, 2006.
§ 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, § 1, eff. Jan. 1, 2006.
§ 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, § 1, eff. Jan. 1, 2006.
SUBCHAPTER B. MANDATORY AND COURT-ORDERED INDEMNIFICATION
§ 8.051. MANDATORY INDEMNIFICATION. (a) An enterprise
shall indemnify a governing person or former governing person
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 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 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, § 1, eff. Jan. 1, 2006.
§ 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, § 1, eff. Jan. 1, 2006.
SUBCHAPTER C. PERMISSIVE INDEMNIFICATION AND ADVANCEMENT OF
EXPENSES
§ 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, § 1, eff. Jan. 1, 2006.
§ 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, § 1, eff. Jan. 1, 2006.
§ 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 a quorum composed of the
governing persons who at the time of the vote are disinterested and
independent;
(2) if a quorum described by Subdivision (1) cannot be
obtained, a majority vote of a committee of the governing authority
of the enterprise designated to act in the matter by a majority vote
of the governing persons and composed solely of one or more
governing persons who at the time of the vote are disinterested and
independent;
(3) special legal counsel selected by the governing
authority of the enterprise, or selected by a committee of the board
of directors, by vote in accordance with Subdivision (1) or (2) or,
if a quorum described by Subdivision (1) cannot be obtained and a
committee described by Subdivision (2) cannot be established, by a
majority vote of the governing persons of the enterprise;
(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).
Acts 2003, 78th Leg., ch. 182, § 1, eff. Jan. 1, 2006.
§ 8.104. ADVANCEMENT OF EXPENSES. (a) An enterprise
may pay or reimburse reasonable expenses incurred by a governing
person, former 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.
Acts 2003, 78th Leg., ch. 182, § 1, eff. Jan. 1, 2006.
§ 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 Sections 8.003 and
8.004 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, agent, or delegate, 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 and advance expenses to an
officer to the same extent that indemnification or advancement of
expenses 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.
Acts 2003, 78th Leg., ch. 182, § 1, eff. Jan. 1, 2006.
§ 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, § 1, eff. Jan. 1, 2006.
SUBCHAPTER D. LIABILITY INSURANCE; REPORTING REQUIREMENTS
§ 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, § 1, eff. Jan. 1, 2006.
§ 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 the notice or waiver of notice of the next meeting of the
owners or members of the enterprise and before 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, § 1, eff. Jan. 1, 2006.
