Standards of Conduct

Title 1, Division 2, Part 2, Chapter 2 deals with directors and management for nonprofit public benefit corporations. Article 3 deals with standards of conduct.

Section 5230 provides any duties and liabilities set forth in this article must apply without regard to whether a director is compensated by the corporation.

Section 5231 requires a director to 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 that 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.

Section 5232 specifies that Section 5231 governs the duties of directors as to any acts or omissions in connection with the election, selection, or nomination of directors.

Section 5255 defines the term “self-dealing transaction.” 

Section 5234 provides that no contract or other transaction between a corporation and any domestic or foreign corporation, firm or association of which one or more of its directors are directors is either void or voidable because the director or directors are present at the meeting of the board or a committee thereof which authorizes, approves or ratifies the contract or transaction, if two conditions occur.

Section 5235 allows the board to fix the compensation of a director, as director or officer, and no obligation, otherwise valid, to pay such compensation will be voidable merely because the persons receiving the compensation participated in the decision to pay it, unless it was not just and reasonable as to the corporation at the time it was authorized, ratified or approved.

Section 5236 prohibits a corporation from making any loan of money or property to or guarantee the obligation of any director or officer, unless approved by the Attorney General.

Section 5237 states that directors of a corporation who approve any of the specified corporate actions are jointly and severally liable to the corporation for three specified actions taken.

Section 5238 defines the term “agent.” A corporation has power to indemnify any person who was or is a party or is threatened to be made a party to any proceeding by reason of the fact that the person is or was an agent of the corporation, against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with the proceeding if the person acted in good faith and in a manner the person reasonably believed to be in the best interests of the corporation and, in the case of a criminal proceeding.

Section 5239 explains that there is no personal liability to a third party for monetary damages on the part of a volunteer director or volunteer executive officer of a nonprofit corporation subject to this part, caused by the director’s or officer’s negligent act or omission in the performance of that person’s duties as a director or officer, if all of the four specified conditions are met. The terms “volunteer” and “executive officer” are defined.