Page 68 - Washington Nonprofit Handbook 2018 Edition

In a criminal proceeding, indemnification is allowed only if the director or
officer had no reasonable cause to believe the conduct was illegal. A corporation
may not indemnify a director or officer if the director or officer is found to be liable
to the corporation or if the director or officer received an improper personal
benefit.

A nonprofit corporation may pay for or reimburse the reasonable expenses
incurred by a director or officer who is a party to a proceeding in advance of the
final settlement of the proceeding if the director or officer states in writing that he
or she acted in good faith and reasonably believed that his or her conduct was in
the corporation’s best interests and the director or officer states in writing that he
or she will repay the advance if it ultimately is determined that the standard of
conduct described above was not met.

The corporation must authorize an advance of expenses by a provision in its
articles of incorporation or bylaws or by resolution adopted by the board of

directors.

If a corporation indemnifies or pays the expenses of a director’s or officer’s
defense against liability, the corporation must provide a written report to its
members (if any) before the next members’ meeting (note: this provision only
applies if a corporation has “members”).

c. Statutory Protections

A corporation’s articles of incorporation or bylaws may contain certain
provisions that eliminate or limit the personal liability of a director to the

corporation. Such provisions, however, may not eliminate or limit the liability of a
director for acts or omissions that involve:

y Intentional misconduct by a director;

y A knowing violation of law by a director; or

y Any transaction from which the director will personally receive a
benefit in money, property or services to which the director is not
legally entitled.

Limiting a director’s personal liability is discretionary on the part of the
corporation, and may be incorporated into an organization’s articles. There is no
similar provision for officers.

WASHINGTON NONPROFIT HANDBOOK -57- 2018