2020 Georgia Code
Title 14 - Corporations, Partnerships, and Associations
Chapter 2 - Business Corporations
Article 8 - Directors and Officers
Part 5 - Indemnification
§ 14-2-852. Mandatory Indemnification

A corporation shall indemnify a director who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he or she was a party because he or she was a director of the corporation against reasonable expenses incurred by the director in connection with the proceeding.

(Code 1981, §14-2-852, enacted by Ga. L. 1988, p. 1070, § 1; Ga. L. 1996, p. 1203, § 5.)

- For review of 1996 corporation, partnership, and association legislation, see 13 Ga. St. U. L. Rev. 70.

Source: Model Act, § 8.52. This replaces provisions found in former § 14-2-156(c).

Section 14-2-851 determines whether indemnification may be made voluntarily by a corporation if it elects to do so. Section 14-2-852 determines whether a corporation must indemnify a director for his expenses; in other words, Section 14-2-852 creates a statutory right of indemnification in favor or the director who meets the requirements of that section.

Enforcement of this right by judicial proceeding is specifically contemplated by Section 14-2-854(1), which also gives the director a statutory right to recover expenses incurred by him in enforcing his statutory right to indemnification under Section 14-2-852.

The basic standard for mandatory indemnification is that the director has been "successful, on the merits or otherwise." in the defense of the proceeding. The word "wholly" was deleted from the Model Act provision, and the phrase "or in defense of any claim, issue, or matter therein," was added, to restore the approach of former law, § 14-2-156(c). This rejects the Model Act approach and endorses the approach of Merritt-Chapman & Scott Corp. v. Wolfson, 321 A.2d 138 (Del. 1974), that a defendant may be entitled to partial mandatory indemnification if he succeeded by plea bargaining or otherwise to obtain the dismissal of some but not all counts of an indictment.

Note to 1996 Amendment Stylistic changes were made to conform this section to the 1994 revisions of the Model Business Corporation Act. See 49 Bus. Law. 741 (Feb. 1994) and 49 Bus. Law. 1823 (August, 1994). Readers are referred to the official comments to the Revised Model Business Corporation Act for more extensive discussion of the text of this section. The only substantive change is that the word "successful" is now modified by "wholly." As the Official Comments to the Revised Model Act point out: "The word 'wholly' is added to avoid the argument accepted in Merritt-Chapman & Scott Corp. v. Wolfson, 321 A.2d 138 (Del. 1974), that a defendant may be entitled to partial mandatory indemnification if, by plea bargaining or otherwise, he was able to obtain the dismissal of some but not all counts of an indictment." 49 Bus. Law. at 763.

Cross-References Articles of incorporation, see § 14-2-202 and Article 10, Part 1. Court-ordered indemnification, see § 14-2-854. "Expenses" defined, see § 14-2-850. "Party" defined, see § 14-2-850. "Proceeding" defined, see § 14-2-850. Report to shareholders on indemnification, see § 14-2-1621. Voluntary indemnification, see § 14-2-851.

JUDICIAL DECISIONS

Right to indemnification.

- Church corporation's liability to pastor, who, as a director, was a defendant in a liquidation proceeding, would have priority in the distribution of the corporate assets. Crocker v. Stevens, 210 Ga. App. 231, 435 S.E.2d 690 (1993), cert. denied, 511 U.S. 1053, 114 S. Ct. 1613, 128 L. Ed. 2d 340 (1994).

The pastor, as a director of a church corporation, was entitled to mandatory indemnification of the reasonable expenses incurred in the defense of a liquidation proceeding; however, the indemnification must be proportionate to the extent that the pastor was successful in the claims confronted. Crocker v. Stevens, 210 Ga. App. 231, 435 S.E.2d 690 (1993), cert. denied, 511 U.S. 1053, 114 S. Ct. 1613, 128 L. Ed. 2d 340 (1994).

Trial court properly found that a surgical professional corporation had to indemnify a former director for the litigation expenses the former director incurred in a successful defense of claims asserted in a 2013 lawsuit because by its express terms, O.C.G.A. § 14-2-852 provided no discretion as to indemnification of a director. Ga. Dermatologic Surgery Ctrs., P.C. v. Pharis, 341 Ga. App. 305, 800 S.E.2d 376 (2017).

RESEARCH REFERENCES

Am. Jur. 2d.

- 18B Am. Jur. 2d, Corporations, § 1634.