Application of part

(a) A corporation may, by a provision in its articles of incorporation or bylaws or in a resolution adopted or a contract approved by its board of directors or shareholders, obligate itself in advance of the act or omission giving rise to a proceeding to provide indemnification or advance funds to pay for or reimburse expenses consistent with this part. Any such obligatory provision shall be deemed to satisfy the requirements for authorization referred to in subsection (c) of Code Section 14-2-853 or subsection (c) of Code Section 14-2-855. (b) Any provision pursuant to subsection (a) of this Code section shall not obligate the corporation to indemnify or advance expenses to a director of a predecessor of the corporation, pertaining to conduct with respect to the predecessor, unless otherwise specifically provided. Any provision for indemnification or advance for expenses in the articles of incorporation, bylaws, or a resolution of the board of directors or shareholders, partners, or, in the case of limited liability companies, members or managers of a predecessor of the corporation or other entity in a merger or in a contract to which the predecessor is a party, existing at the time the merger takes effect, shall be governed by paragraph (3) of subsection (a) of Code Section 14-2-1106. (c) A corporation may, by a provision in its articles of incorporation, limit any of the rights to indemnification or advance for expenses created by or pursuant to this part. (d) This part shall not limit a corporation’s power to pay or reimburse expenses incurred by a director or an officer in connection with his or her appearance as a witness in a proceeding at a time when he or she is not a party. (e) Except as expressly provided in Code Section 14-2-857, this part shall not limit a corporation’s power to indemnify, advance expenses to, or provide or maintain insurance on behalf of an employee or agent. (f ) Any provision in a corporation’s articles of incorporation or bylaws or in a resolution adopted or contract approved by its board of directors or shareholders that obligates the corporation to provide indemnification to the fullest extent permitted by law shall, unless such provision or another provision in the corporation’s articles of incorporation or bylaws or in a resolution adopted or a contract approved by its board of directors or shareholders expressly provides otherwise, be deemed to obligate the corporation: (1) To advance funds to pay for or reimburse expenses in accordance with Code Section 14-2-853 or subsection (c) of Code Section 14-2-856 to the fullest extent permitted by law; and (2) To indemnify directors to the fullest extent permitted in Code Section 14-2-856, provided that such provision is duly authorized as required in subsection (a) of Code Section 14-2-856, and to indemnify officers to the fullest extent permitted in paragraph (2) of subsection (a) and subsection (b) of Code Section 14-2-857. (Code 1981, § 14-2-859, enacted by Ga. L. 1988, p. 1070, § 1; Ga. L. 1996, p. 1203, § 5; Ga. L. 2006, p. 825, § 5/SB 469; Ga. L. 2016, p. 225, § 1-10/SB 128.) The 2016 amendment, effective July 1, 2016, inserted ‘‘or subsection (c) of Code Section 14-2-856’’ in paragraph (f )(1). COMMENT Source: Model Act, § 8.58. This replaces provisions formerly appearing in § 14-2-156(f ). Subsection (a) provides that a provision treating the indemnification of directors by the corporation in articles of incorporation, bylaws, shareholders’ or directors’ resolution, or contract ‘‘is valid only if and to the extent it is consistent with’’ this part. Formerly § 14-2-156(f ) provided that the statutory provisions were not ‘‘exclusive’’ and made no attempt to limit the nonstatutory creation of rights of indemnification. This kind of language is subject to misconstruction, however, since nonstatutory conceptions of public policy limit the power of a corporation to indemnify or to contract to indemnify directors, officers, employees, or agents. The language of the first sentence of subsection (a), ‘‘to the extent it is consistent with this part,’’ is believed to be a more accurate description of the limited validity of nonstatutory indemnification provisions than the ‘‘nonexclusive’’ provisions of earlier versions of the Model Act. It is important to recognize that ‘‘to the extent it is consistent with’’ is not synonymous with ‘‘exclusive.’’ Situations may well develop from time to time in which indemnification is permissible under Section 14-2-859 but would be precluded if all portions of Part 5 were viewed as exclusive. But indemnification provisions protecting against the consequences of willful misconduct are not consistent with this Part and would not be valid. Furthermore, they would violate well-understood principles of public policy and doubtless would be invalidated on that ground even under statutes purporting to make ‘‘nonexclusive’’ the statutory provisions for indemnification. To the extent the consistency language may preclude indemnification in circumstances where it is reasonable and violates no statutory policy, an escape valve is provided in Section 14-2-855(2), which authorizes a court to grant indemnification if a director ‘‘is fairly and reasonably entitled to indemnification in view of all the relevant circumstances,’’ even though he may not have fully met the standards of conduct set forth in Section 14-2-851. Section 14-2-859 does not preclude provisions in articles of incorporation, bylaws, resolutions, or contracts designed to provide procedural machinery different from that provided by Section 14-2-855 or to make mandatory the permissive provisions of Part 5. For example, a corporation may properly obligate the board of directors to consider and act expeditiously on an application for indemnification or advances, or obligate the board of directors to cooperate in the procedural steps required to obtain a judicial determination under Section 14-2-854. The consistency limitations of Section 14-2-859 of the Code have an impact different from the Model Act, because of the provisions of Section 14-2-856, which permit shareholders to approve indemnification without regard to the limitations of other provisions of Part 5, subject to the exceptions contained in Section