(a) A director shall perform the duties of a director, including duties as a member of any committee of the board upon which the director may serve, in good faith, in a manner such director believes to be in the best interests of the corporation and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances.
(b) In performing the duties of a director, a director shall be entitled to rely on information, opinions, reports or statements, including financial statements and other financial data, in each case prepared or presented by:
(1) One or more officers or employees of the corporation whom the director believes to be reliable and competent in the matters presented;
(2) Counsel, independent accountants or other persons as to matters which the director believes to be within such person’s professional or expert competence; or
(3) A committee upon which the director does not serve that is composed exclusively of any or any combination of directors, persons described in paragraph (1), or persons described in paragraph (2), as to matters within the committee’s designated authority, which committee the director believes to merit confidence, so long as, in any case, the director acts in good faith, after reasonable inquiry when the need therefor is indicated by the circumstances and without knowledge that would cause such reliance to be unwarranted.
(c) A person who performs the duties of a director in accordance with subdivisions (a) and (b) shall have no liability based upon any alleged failure to discharge the person’s obligations as a director, including, without limiting the generality of the foregoing, any actions or omissions which exceed or defeat a public or charitable purpose to which assets held by a corporation are dedicated.
Related Links
“Business Judgment Rule Does Not Protect the Willfully Ignorant” – Published on HOA Lawyer Blog (08/16)
Corporations Code Section 5047.5. Protection of Volunteer Directors; Liability; Insurance.
(a) The Legislature finds and declares that the services of directors and officers of nonprofit corporations who serve without compensation are critical to the efficient conduct and management of the public service and charitable affairs of the people of California. The willingness of volunteers to offer their services has been deterred by a perception that their personal assets are at risk for these activities. The unavailability and unaffordability of appropriate liability insurance makes it difficult for these corporations to protect the personal assets of their volunteer decisionmakers with adequate insurance. It is the public policy of this state to provide incentive and protection to the individuals who perform these important functions.
(b) Except as provided in this section, no cause of action for monetary damages shall arise against any person serving without compensation as a director or officer of a nonprofit corporation subject to Part 2 (commencing with Section 5110), Part 3 (commencing with Section 7110), or Part 4 (commencing with Section 9110) of this division on account of any negligent act or omission occurring
(1) within the scope of that person’s duties as a director acting as a board member, or within the scope of that person’s duties as an officer acting in an official capacity;
(2) in good faith;
(3) in a manner that the person believes to be in the best interest of the corporation; and
(4) is in the exercise of his or her policymaking judgment.
(c) This section shall not limit the liability of a director or officer for any of the following:
(1) Self-dealing transactions, as described in Sections 5233 and 9243.
(2) Conflicts of interest, as described in Section 7233.
(3) Actions described in Sections 5237, 7236, and 9245.
(4) In the case of a charitable trust, an action or proceeding against a trustee brought by a beneficiary of that trust.
(5) Any action or proceeding brought by the Attorney General.
(6) Intentional, wanton, or reckless acts, gross negligence, or an action based on fraud, oppression, or malice.
(7) Any action brought under Chapter 2 (commencing with Section 16700) of Part 2 of Division 7 of the Business and Professions Code.
(d) This section only applies to nonprofitcorporations organized to provide religious, charitable, literary, educational, scientific, social, or other forms of public service that are exempt from federal income taxation under Section 501(c)(3) or 501(c)(6) of the Internal RevenueCode.
(e) This section applies only if the nonprofit corporation maintains a liability insurance policy with an amount of coverage of at least the following amounts:
(1) If the corporation’s annual budget is less than fifty thousand dollars ($50,000), the minimum required amount is five hundred thousand dollars ($500,000).
(2) If the corporation’s annual budget equals or exceeds fifty thousand dollars ($50,000), the minimum required amount is one million dollars ($1,000,000).
This section applies only if the claim against the director or officer can also be made directly against the corporation and a liability insurance policy is applicable to the claim. If that policy is found to cover the damages caused by the director or officer, no cause of action as provided in this section shall be maintained against the director or officer.
(f) For the purposes of this section, the payment of actual expenses incurred in attending meetings or otherwise in the execution of the duties of a director or officer shall not constitute compensation.
(g) Nothing in this section shall be construed to limit the liability of a nonprofit corporation for any negligent act or omission of a director, officer, employee, agent, or servant occurring within the scope of his or her duties.
(h) This section does not apply to any corporation that unlawfully restricts membership, services, or benefits conferred on the basis of race, religious creed, color, national origin, ancestry, sex, marital status, disability, political affiliation, or age.
(i) This section does not apply to any volunteer director or officer who receives compensation from the corporation in any other capacity, including, but not limited to, as an employee.