Maryland Non-Stock Corporation Law
The corporate law underneath your association. Most Maryland condominium councils and homeowners associations are incorporated as nonstock corporations, and when they are, this is what sets the board's duty of care, its quorum, how a director is removed, what happens when a director has a stake in a contract, and when the association must pay a director's legal bills.
Maryland's Code puts nonstock corporations in Title 5, Subtitle 2 of the Corporations and Associations Article — nine sections — and then, in the first of them, sends you somewhere else. Section 5-201: “The provisions of the Maryland General Corporation Law apply to nonstock corporations unless” — item (1) — “[t]he context of the provisions clearly requires otherwise”, or “[s]pecific provisions of this subtitle or other subtitles governing specific classes of corporations provide otherwise”.
So the nine sections answer almost nothing on their own. What actually governs a board sits in Title 2, Subtitle 4, “Directors and Officers”. Both are reproduced here in full, Subtitle 2 first and Subtitle 4 after it, because you cannot read either one usefully without the other.
When this reaches your association — and when it does not
Condominiums. Real Property § 11-109(d) is explicit: the council of unit owners “may be either incorporated as a nonstock corporation or unincorporated and it is subject to those provisions of Title 5, Subtitle 2 of the Corporations and Associations Article which are not inconsistent with this title.” Note what that sentence does — it points an unincorporated council at this subtitle too, subject to the Condominium Act winning any conflict.
Homeowners associations. There is no equivalent sentence in the HOA Act. Real Property § 11B-101(i)(1) defines a homeowners association as “a person having the authority to enforce the provisions of a declaration” — no corporate form required. So this page governs your HOA if your HOA is in fact incorporated as a nonstock corporation, and not otherwise — § 11B-101(i)(2) expressly contemplates an unincorporated one. The answer is in your association's charter, filed with the State Department of Assessments and Taxation.
Cooperatives. Section 5-6B-15 does the same job from the other direction: “To the extent not inconsistent with this subtitle, the provisions of this article applicable to stock and nonstock corporations shall apply to all cooperative housing corporations.”
In each case the specific statute wins where the two collide. That is not just common sense — § 1-102(d)(1) of this Article says it: where a provision of the Code relating to a specific class of corporations conflicts with a general provision of the Article, “the specific provision governs.”
Read “stockholder” as “member”
Title 2 is written for corporations that issue stock. It says stockholders, shares and votes per share throughout. Section 5-201 is what carries it across to an association that has members and no stock — except where “[t]he context of the provisions clearly requires otherwise”. Where a Title 2 section turns on something a nonstock corporation simply does not have — § 2-404(c), “[e]ach share of stock may be voted for as many individuals as there are directors to be elected and for whose election the share is entitled to be voted” — that is the context clearly requiring otherwise. Where it turns on who elects and removes directors, it carries across.
What the charter and bylaws are allowed to do
Section 5-202(b) is the most practically useful section in the subtitle, because it is the authority for most of what your bylaws say. Notwithstanding any other provision of the Article, the charter or bylaws of a nonstock corporation may:
- divide the directors or members into classes;
- prescribe the tenure and conditions of service of directors — but no class may be elected for a period shorter than the interval between annual meetings, unless directors must be members and the membership qualifications have the effect of shortening their tenure;
- make an individual a director by virtue of holding a specified office or position, inside the corporation or outside it, for as long as they hold it;
- prescribe the rights, privileges and qualifications of members;
- prescribe the manner of giving notice of a members' meeting;
- set the quorum for a members' meeting, as a number or a proportion, present in person or by proxy;
- provide that any action may be taken or authorised by any number or proportion of the votes of all members or all directors entitled to vote;
- deny or limit proxy voting by members;
- allow members to vote by mail or by electronic transmission on a stated proposal, or for the election of directors or of any officers elected by members;
- regulate the management of the business and affairs of the corporation; and
- regulate the exercise or allocation of voting power between or among the directors and members.
That last pair is worth sitting with. Between them, § 5-202(b)(7) and (b)(11) let the governing documents move real decision-making power away from the membership and onto the board. If you are trying to work out why your association's board can do something without a vote of the owners, the answer is usually here — and the fix is usually an amendment to the bylaws rather than an argument about the statute.
Section 5-202(a) is the formality: a nonstock corporation formed after 1 June 1951 must have a charter saying it has no authority to issue capital stock.
When the association has no members
Section 5-204 covers a situation that is more common than it sounds. If neither the charter nor the bylaws provide for members, or the corporation in fact has none, then for the purposes of any law or rule about members the directors are the members — and when meeting as directors they may exercise the rights and powers of members. A community whose declaration creates a board but whose charter never created a membership is run, in law, by the people already sitting on the board.
Two related sections keep a shrinking corporation alive. Section 5-205: a nonstock corporation is not required to dissolve merely because a death or resignation drops the number of members below what the charter or bylaws require, and as long as one member remains, that member may fill the vacancies and continue the corporate existence.
The failed-quorum meeting — and the one your association probably uses
Section 5-206 is the general nonstock answer to an empty room. If too few members turn up at a properly called meeting to approve the proposed action, a second meeting may be called for the same purpose, but only if the notice of the first meeting said this procedure might be invoked and a majority of those present vote to call it. Fifteen days' notice of the time, place and purpose must then be given by advertisement in a newspaper published in the county where the principal office is, and that notice must contain the quorum and voting provisions. At the second meeting, whoever shows up is the quorum, and a majority of them may approve the action — or anything else that could have been done at the first.
If you live in a condominium or an HOA, this is probably not your rule. The Condominium Act and the HOA Act each have their own version — Real Property § 11-109(c)(8) and § 11B-111(6) — and being specific, they govern. They are friendlier: the first notice must give the date, time and place of the additional meeting as well as warn that the procedure may be used; the second meeting must be at least 15 days later; and the separate notice, due at least 10 days beforehand, may be delivered, mailed or sent electronically to each owner, advertised in a newspaper, or, if the association has a website, posted on its homepage — not the newspaper alone. Both also add a limit § 5-206 does not have: the procedure “may not be construed to affect the percentage of votes required to amend the declaration or bylaws or to take any other action required to be taken by a specified percentage of votes.” A reduced-quorum meeting cannot be used to slip through a covenant amendment.
What the board owes you
Section 2-405.1 is the standard of care, and it is short. A director shall act in good faith, in a manner the director reasonably believes to be in the best interests of the corporation, and with the care that an ordinarily prudent person in a like position would use under similar circumstances.
Three things around it matter as much as the standard itself:
- Reliance is protected. Under § 2-405.1(d) a director may rely on information, opinions, reports or statements — including financial data — prepared by an officer or employee the director reasonably believes reliable and competent, by a lawyer or CPA on a matter within their professional competence, or by a board committee the director does not serve on, on a matter within that committee's designated authority which the director reasonably believes it merits confidence on. But a director is not acting in good faith if they know something that would make the reliance unwarranted.
- The act is presumed proper. Section 2-405.1(g): an act of a director “is presumed to be in accordance with subsection (c) of this section.” A member challenging a board decision starts behind.
- This is the whole of it. Section 2-405.1(i) makes the section “the sole source of duties of a director to the corporation or the stockholders of the corporation,” and applies it to any act of a director, including acts as a committee member.
Comply with the standard and § 2-405.1(e) hands the director the immunity in § 5-417 of the Courts and Judicial Proceedings Article: a present or former director who acted in accordance with § 2-405.1 “has no liability in any action based on an act of the director.” And under § 2-405.2, the charter may expand or limit director and officer liability as described in § 5-418 of that Article — which sets floors a charter may not go below. Two of them matter here: liability for an improper benefit or profit actually received, and liability where a final adjudication finds the act or failure to act was the result of active and deliberate dishonesty and was material to the cause of action.
Removing a director — and the classified-board trap
Section 2-406(a) is the headline, and it applies unless the charter provides otherwise: the members may remove any director, with or without cause, by the affirmative vote of a majority of all the votes entitled to be cast generally for the election of directors. Note “all the votes entitled to be cast” — not a majority of those voting, and not a majority of a quorum.
Then read subsection (b), because it is where recall campaigns die. Unless the charter provides otherwise:
- a director elected separately by a class or series may not be removed without cause except by a majority of all the votes of that class or series;
- with cumulative voting, if fewer than all directors are being removed, a director may not be removed without cause if the votes cast against removal would have been enough to elect them cumulatively; and
- if the directors have been divided into classes, a director may not be removed without cause at all.
Staggered terms are common in association bylaws, and § 5-202(b)(1) expressly permits classes. If your board is classified, the without-cause removal in subsection (a) is off the table unless your charter restores it.
Section 2-407 handles what follows. A vacancy created by a removal is filled by the members. A vacancy from any other cause is filled by a majority of the remaining directors, whether or not they are a quorum, and a vacancy from an increase in the board's size by a majority of the entire board — those two, unless the charter or bylaws say otherwise. A director the board appoints serves only until the next annual meeting and until a successor is elected and qualifies; a director the members elect to replace a removed director serves out that director's balance of term. Section 2-405 covers the other direction: if an election does not happen when it should, the sitting directors hold over until successors are elected and qualify.
Resignations get their own rule in § 2-406(c): a written or electronic resignation may be made effective at a later time or on an event, may be made irrevocable once the event occurs, and is irrevocable if it is conditioned on failing to receive a specified vote for re-election.
How the board acts
Section 2-401: all business and affairs of the corporation, “whether or not in the ordinary course,” are managed by or under the direction of the board, and all corporate powers are exercised by or under its authority except what the law, charter or bylaws reserve to the members.
Quorum and vote (§ 2-408). A majority of the entire board is a quorum unless the bylaws provide otherwise, and the action of a majority of those present at a meeting with a quorum is the action of the board. Bylaws may lower the quorum, but not below one-third of the entire board — and if there are only two or three directors, not below two. The board may also act without a meeting on a unanimous consent, given in writing or by electronic transmission by every member entitled to vote on the matter and filed with the minutes.
Meetings (§ 2-409). Unless the bylaws say otherwise, a board meeting may be held anywhere in or out of Maryland, or by remote communication. Notice is as the bylaws provide, and unless the bylaws say otherwise it must be in writing or by electronic transmission and need not state the business or purpose. A director waives notice by delivering a written or electronic waiver that is filed with the records of the meeting, before or after the meeting, or simply by being present. Participation by conference telephone or equivalent, where everyone can hear each other at the same time, counts as presence in person.
Committees (§ 2-411). The board may appoint committees from among its own members and delegate its powers to them — but not the power to amend the bylaws, to recommend an action requiring member approval (other than the election of directors), or to approve certain mergers or share exchanges. And delegating does not discharge a director who is not on the committee: § 2-411(d) says the appointment, the delegation and the committee's action “does not constitute, of itself, compliance” with the § 2-405.1 standard.
If you are the director who disagreed
Section 2-410 is unforgiving and worth memorising. A director present when the board acts is presumed to have assented unless the director announces their dissent at the meeting and one of three things happens: the dissent is entered in the minutes; the director files it in writing with, or transmits it electronically to, the secretary of the meeting before the meeting is adjourned; or the director forwards it to the secretary of the meeting or of the corporation within 24 hours of adjournment, by certified mail with return receipt requested and a United States Postal Service postmark, or by electronic transmission. There is no right to dissent for a director who voted in favour, or who said nothing at the meeting.
Officers
Every Maryland corporation must have a president, a secretary and a treasurer (§ 2-412), plus whatever else the bylaws create. Unless the bylaws provide otherwise the board elects them, each serves one year and until a successor is elected and qualifies, and the board may fill a vacancy in any office (§ 2-413). The board may remove any officer or agent — the statute attaches no cause requirement — without prejudice to that person's contract rights.
One person may hold more than one office if the bylaws permit, with two limits in § 2-415: nobody may serve concurrently as both president and vice president, and a person holding two offices may not act in both capacities to execute, acknowledge or verify an instrument that the law requires two officers to sign. A combined secretary-treasurer cannot sign twice.
When a board member is on both sides of a contract
Section 2-419 is the self-dealing section, and it is the one to reach for when a director's company gets the landscaping contract. A contract between the corporation and one of its directors — or with another entity in which a director is a director or holds a material financial interest — is not void or voidable merely because of the common directorship, the director's presence at the meeting, or the counting of that director's vote, provided subsection (b) is satisfied. That means either:
- the interest is disclosed or known to the board or committee, which then authorises, approves or ratifies the transaction by the affirmative vote of a majority of disinterested directors — even if they are fewer than a quorum; or
- the interest is disclosed or known to the members entitled to vote and they approve it by a majority of the votes cast, excluding those owned by the interested director or entity; or
- the transaction is simply fair and reasonable to the corporation.
Interested directors still count toward the quorum (§ 2-419(c)). But the sting is subsection (d): if the transaction was not approved in one of the two disclosure routes, the person asserting its validity bears the burden of proving it was fair and reasonable to the corporation at the time. Skipping the disclosure does not void the contract — it moves the burden of proof onto the board. The fixing by the board of reasonable compensation for a director is carved out of that burden-shift.
Indemnification, insurance, and the notice you are owed
Section 2-418 is the longest section on this page, and it decides who pays when a director gets sued. The shape of it:
- Permitted (b). The corporation may indemnify a director sued by reason of that service, unless it is established that the act or omission was material to the matter and was committed in bad faith or was the result of active and deliberate dishonesty; or that the director actually received an improper personal benefit; or, in a criminal proceeding, that the director had reasonable cause to believe the act was unlawful. In a suit brought by or in the right of the corporation, there is no indemnification for a proceeding in which the director was adjudged liable to the corporation.
- Mandatory (d)(1). Unless the charter limits it, a director who has been successful, on the merits or otherwise, in defending the proceeding or any claim or issue in it shall be indemnified for the reasonable expenses of that success.
- A court can order it (d)(2). On the director's application, a court may order indemnification where the director is fairly and reasonably entitled to it in view of all the circumstances — whether or not the director met the standard of conduct — though in that situation it is limited to expenses.
- Advances (f). Legal bills may be paid as they come in, before the case ends, on two pieces of paper: the director's written affirmation of a good-faith belief that the standard for indemnification has been met, and a written undertaking to repay if it turns out it has not. The undertaking is an unlimited general obligation but need not be secured, and may be accepted without regard to whether the director could actually repay.
- The suing director gets nothing (b)(4). No indemnification and no advance for a proceeding brought by that director against the corporation — except a proceeding to enforce indemnification itself, or where the charter, bylaws, a board resolution or a board-approved agreement expressly provides otherwise.
- Officers and staff (j). Unless the charter limits it, an officer gets the same mandatory indemnification a director does, and the corporation may indemnify and advance to officers, employees and agents as far as it may for directors — and further still for a non-director, if the governing documents or the board so provide.
- Insurance (k). The corporation may buy and maintain D&O insurance whether or not it would have the power to indemnify against that liability, and may set up a trust fund, letter of credit or surety bond instead.
The subsection to remember is (l). Any indemnification of, or advance to, a director arising out of a proceeding by or in the right of the corporation — a derivative action, the kind of case an owner brings on the association's behalf — shall be reported in writing to the members with the notice of the next members' meeting or before it. That is a disclosure obligation that does not depend on a records request.
Merger, dissolution and what happens to the assets
Section 5-207 keeps like with like: a nonstock corporation may consolidate or merge only with another nonstock corporation, and a Maryland nonstock corporation may convert only into a foreign corporation with no authority to issue stock. A foreign no-stock corporation may convert into a Maryland nonstock corporation, and may not convert into one that can issue stock. The mechanics are in Title 3 of the Article.
Section 5-208 governs dissolution and charter forfeiture. Every liability must be paid, discharged or adequately provided for; assets held subject to legally valid requirements that they be returned or conveyed on dissolution go where those requirements say; assets restricted to charitable, religious, educational or similar purposes are transferred under a plan of distribution, adopted the same way the dissolution itself is, to one or more corporations or associations of similar or analogous character; other assets are distributed as the charter or bylaws direct; and anything remaining may go to whoever the plan of distribution specifies. In dissolution or on forfeiture, the directors have the powers and duties of directors of a stock corporation.
Section 5-209 gives a circuit court a cy-pres power over the property of a charitable or religious corporation that is dissolving or can no longer practicably operate — property not needed to pay debts and not subject to, or claimed under, a donor's right of return. The court is to direct a transfer to a corporation or association of similar or analogous character where it can, and subsection (d) says the point outright: the court may exercise cy-pres “to fulfill, despite a change in circumstances, the general intention of the donor of the property for the use of the gift.”
Two smaller sections, and one that is missing
Section 5-203 lets the organisation meeting of the first board be called by a majority of the incorporators or by not less than one-third of the directors named in the charter, notwithstanding Title 2. Section 2-416 lets a corporation lend to, guarantee an obligation of, or otherwise assist an officer or employee — including one who is also a director — where the board judges it may reasonably be expected to benefit the corporation, or where it is an advance against indemnification under § 2-418(f).
And § 2-417 is not there. The General Assembly's compilation runs 2-416, then 2-418. The gap is in the official text, not in this page.
This is the layer underneath, not the layer on top. Where the Condominium Act, the HOA Act or the Cooperative Housing Corporation Act says something about your association, that governs — § 1-102(d)(1) of this Article gives the specific provision priority over the general one. This body of law fills the very large space those three acts leave alone: what a director owes, how the board reaches a decision, who fills a vacancy, what happens when a director is on both sides of a contract, and who pays the lawyer.
Where the two layers cover the same ground, check both. The failed-quorum meeting is the clearest example: § 5-206 and Real Property § 11-109(c)(8) and § 11B-111(6) all address it, and the Real Property versions — which control for condominium and HOA member meetings — give more notice routes and expressly refuse to let a reduced quorum change a vote threshold set for amending the declaration or bylaws.
Director immunity has a second, HOA-specific track. Section 2-405.1(e) routes a compliant director to § 5-417 of the Courts and Judicial Proceedings Article. But Real Property § 14-118 and Courts § 5-422 build a separate shield for the officers and directors of a “governing body” — an HOA, a council of unit owners or a cooperative housing corporation: an injured person may recover only against the governing body, and the director or officer is not personally liable if they acted within the scope of their duties, in good faith, and not in a reckless, wanton or grossly negligent manner. Courts § 5-406, the Maryland Associations, Organizations, and Agents Act, adds a third route that turns on the association carrying insurance at stated limits. These are collected on the related-and-miscellaneous page.
Where to look for your association's corporate facts. The charter, the articles of incorporation and any amendments are filed with the State Department of Assessments and Taxation; the bylaws are not, and come from the association. Whether Title 5, Subtitle 2 applies to your HOA at all is answered by that filing.
The rest of the picture. The Condominium Act, the Homeowners Association Act and the Cooperative Housing Corporation Act are each reproduced in full on this site.
Contents · 30 sections ▾
- § 5-201Application of Maryland General Corporation Law
- § 5-202Provisions in charter or bylaws
- § 5-203Calling of organization meeting
- § 5-204Directors as members
- § 5-205When membership reduced by death or resignation
- § 5-206Insufficient number of members present at meeting
- § 5-207Consolidation, merger, transfer of assets, or conversion
- § 5-208Dissolution or forfeiture of charter
- § 5-209Disposition of property of charitable or religious corporations by court
- § 2-401Function of directors
- § 2-402Number of directors
- § 2-403Qualifications of directors and nominees for director
- § 2-404Election and tenure of directors
- § 2-405Directors holding over
- § 2-405.1Standard of care required of directors
- § 2-405.2Corporate limitations on director liability
- § 2-405.3When director of investment company deemed independent and disinterested
- § 2-406Removal or resignation of director
- § 2-407Vacancy on board
- § 2-408Action by directors
- § 2-409Meetings of directors
- § 2-410Dissent of director to action of board
- § 2-411Executive and other committees
- § 2-412Required and permitted officers
- § 2-413Election, tenure, and removal of officers
- § 2-414Powers and duties of officers and agents
- § 2-415Holding more than one office
- § 2-416Financial assistance to officers and employees
- § 2-418Indemnification of directors, officers, employees, and agents
- § 2-419Interested director transactions
No sections match that filter.
Nonstock Corporations
§ 5-201 Application of Maryland General Corporation Law
The provisions of the Maryland General Corporation Law apply to nonstock corporations unless:
(1) The context of the provisions clearly requires otherwise; or
(2) Specific provisions of this subtitle or other subtitles governing specific classes of corporations provide otherwise.
§ 5-202 Provisions in charter or bylaws
(a) The charter of each nonstock corporation formed after June 1, 1951, shall provide that the corporation has no authority to issue capital stock.
(b) Notwithstanding any other provision of this article, the charter or bylaws of a nonstock corporation may:
(1) Divide the directors or members of the corporation into classes;
(2) Prescribe the tenure and conditions of service of its directors, but no class of directors may be elected to serve for a period shorter than the interval between annual meetings unless:
(i) All or a class of directors must be members; and
(ii) Qualifications for membership have the effect of shortening their tenure of service;
(3) Provide that an individual may serve as a director by reason of serving in a specified office or position within or outside the corporation and prescribe that the individual shall serve as a director during the individual’s service in the specified office or position;
(4) Prescribe the rights, privileges, and qualifications of its members;
(5) Prescribe the manner of giving notice of any meeting of its members;
(6) Provide for the number or proportion of voting members whose presence in person or by proxy constitutes a quorum at any meeting of its members;
(7) Provide that any action may be taken or authorized by any number or proportion of the votes of all its members or all its directors entitled to vote;
(8) Deny or limit the right of its members to vote by proxy;
(9) Provide for the right of members to vote by mail or by electronic transmission on a stated proposal or for the election of directors or any officers who are elected by members;
(10) Regulate the management of the business and affairs of the corporation; and
(11) Regulate the exercise or allocation of voting power between or among the directors and members.
§ 5-203 Calling of organization meeting
Notwithstanding the provisions of Title 2 of this article, the organization meeting of the board of directors named in the charter of a nonstock corporation may be called by either:
(1) A majority of the incorporators; or
(2) Not less than one third of the directors named in the charter.
§ 5-204 Directors as members
(a) For purposes of any law or rule relating to members of a nonstock corporation, the directors of a nonstock corporation, under either of the circumstances described in subsection (b) of this section:
(1) Also constitute the members of the corporation; and
(2) When meeting as directors, may exercise the rights and powers of members.
(b) This section applies if:
(1) Neither the charter nor the bylaws of the corporation provide for members; or
(2) The nonstock corporation in fact has no members.
§ 5-205 When membership reduced by death or resignation
(a) A nonstock corporation is not required to dissolve merely because the death or resignation of a member reduces the actual number of members to less than required by its charter or bylaws.
(b) As long as there is a remaining member, he may fill vacancies and continue the corporate existence.
§ 5-206 Insufficient number of members present at meeting
(a) If the number of members present at a properly called meeting of the members of a nonstock corporation is insufficient to approve a proposed action, another meeting of the members may be called for the same purpose if:
(1) The notice of the meeting stated that the procedure authorized by this section might be invoked; and
(2) By majority vote, the members present in person or by proxy call for the additional meeting.
(b) Fifteen days’ notice of the time, place, and purpose of the additional meeting shall be given by advertisement in a newspaper published in the county where the principal office of the corporation is located. The notice shall contain the quorum and voting provisions of subsection (c) of this section.
(c) At the additional meeting, the members present in person or by proxy constitute a quorum. A majority of the members present in person or by proxy may approve or authorize the proposed action at the additional meeting and may take any other action which could have been taken at the original meeting if a sufficient number of members had been present.
§ 5-207 Consolidation, merger, transfer of assets, or conversion
(a) (1) A nonstock corporation may consolidate or merge only with another nonstock corporation.
(2) A Maryland nonstock corporation may convert only into a foreign corporation that does not have the authority to issue stock.
(3) A foreign corporation that does not have the authority to issue stock:
(i) May convert into a Maryland nonstock corporation; and
(ii) May not convert into a Maryland corporation that has the authority to issue stock.
(b) A consolidation, merger, transfer of assets, or conversion of a nonstock corporation shall be effected as provided in Title 3 of this article.
(c) Notwithstanding § 3-105(e) of this article, a proposed consolidation, merger, transfer of assets, or conversion of a nonstock corporation organized to hold title to property for a labor organization, and for related purposes, shall be approved by the same affirmative vote of the members of the corporation that the constitution or bylaws of the labor organization requires for the same action.
§ 5-208 Dissolution or forfeiture of charter
(a) Except as otherwise provided in this section, the dissolution or forfeiture of the charter of a nonstock corporation shall be effected as provided in Title 3 of this article. In dissolution or on forfeiture of the charter of the corporation, the directors have the powers and duties of directors of a stock corporation under this article.
(b) If a Maryland nonstock corporation dissolves or its charter is forfeited:
(1) Every liability and obligation of the corporation shall be paid and discharged or adequate provision for payment and discharge shall be made;
(2) Assets held by the corporation subject to legally valid requirements for their return, transfer, or conveyance on dissolution or forfeiture shall be disposed of in accordance with these requirements;
(3) Assets held by the corporation subject to limitations permitting their use only for charitable, religious, eleemosynary, benevolent, educational, or similar purposes, but not held subject to legally valid requirements for their return, transfer, or conveyance by reason of dissolution or forfeiture, shall be transferred or conveyed under a plan of distribution, adopted in the manner and by the vote required for authorization of dissolution of the corporation, to one or more Maryland or foreign corporations or associations having a similar or analogous character or purpose, or associated or connected with the corporation;
(4) Other assets shall be distributed as provided in the charter or the bylaws to the extent that the charter or bylaws determine the distributive rights of members or any class or classes of members, or provide for distribution to others; and
(5) Any remaining assets may be distributed to any person, society, organization, or Maryland or foreign corporation specified in a plan of distribution, adopted in the manner and by the vote required for authorization of dissolution of the corporation.
(c) Unless the decree of a court of competent jurisdiction provides otherwise, the provisions of § 3-412 of this article relating to distributions in dissolution of stock corporations or §§ 3-517 and 3-518 of this article relating to distributions on forfeiture of the charters of stock corporations, as the case may be, apply to the distribution of assets to any member or other person entitled or otherwise designated to receive a distribution in liquidation of a nonstock corporation. For purposes of this section, the term “stockholders” in §§ 3-412, 3-517, and 3-518 of this article includes every person so entitled or designated to receive a distribution in liquidation.
§ 5-209 Disposition of property of charitable or religious corporations by court
(a) If a charitable or religious corporation is or is about to be dissolved, or for any reason it is impracticable or inexpedient to continue the corporation’s activities, a circuit court may order the disposition of corporate property that:
(1) Is not needed to pay the corporation’s debts; and
(2) (i) Is not subject to valid requirements for its return to the donor or the donor’s successor in interest by reason of the cessation of corporate activities; or
(ii) Is not claimed by the donor or the donor’s successor in interest after receiving the notice provided for in subsection (b) of this section.
(b) Notice of the substance and purpose of the complaint or petition shall be given to the donor of the property or the donor’s successor in interest by personal service or by publication in the manner the court directs.
(c) To the extent possible, the court shall direct or provide for the transfer of the corporation’s property to another corporation or association having a similar or analogous character or purpose, or associated or connected with the corporation.
(d) The intent of this section is that the circuit court may exercise the judicial power of cy-pres to fulfill, despite a change in circumstances, the general intention of the donor of the property for the use of the gift.
Directors and Officers
§ 2-401 Function of directors
(a) All business and affairs of a corporation, whether or not in the ordinary course, shall be managed by or under the direction of a board of directors.
(b) All powers of the corporation may be exercised by or under authority of the board of directors except as conferred on or reserved to the stockholders by law or by the charter or bylaws of the corporation.
§ 2-402 Number of directors
(a) Each corporation shall have at least one director.
(b) Subject to the provisions of subsection (a) of this section and except for a corporation that has elected to be subject to § 3-804(b) of this article, a Maryland corporation shall have the number of directors provided in its charter until changed by the bylaws.
(c) Subject to the provisions of subsection (a) of this section and except for a corporation that has elected to be subject to § 3-804(b) of this article, the bylaws may:
(1) Alter the number of directors set by the charter; and
(2) Authorize a majority of the entire board of directors to alter within specified limits the number of directors set by the charter or the bylaws, but the action may not affect the tenure of office of any director.
§ 2-403 Qualifications of directors and nominees for director
(a) Each director and each nominee for director of a corporation shall have the qualifications required by the charter or bylaws of the corporation.
(b) Unless required by its charter or bylaws, a director need not be a stockholder in the corporation.
§ 2-404 Election and tenure of directors
(a) Until successors are elected and qualify, the board of directors consists of the individuals named as directors in the charter.
(b) (1) Except as provided in paragraph (2) of this subsection, at each annual meeting of stockholders, the stockholders shall elect directors to hold office until the earlier of:
(i) The next annual meeting of stockholders and until their successors are elected and qualify;
(ii) The time provided in the terms of any class or series of stock pursuant to which such directors are elected; or
(iii) The time a director ceases to have the qualifications that were required by the charter or bylaws of the corporation at the time the director was elected, if the charter or bylaws at the time the director was elected required the director’s term to end on a failure to have those qualifications.
(2) Except for a corporation that has elected to be subject to § 3-803 of this article, if the directors are divided into classes, the term of office may be provided in the bylaws, except that:
(i) The term of office of a director may not be longer than 5 years or, except in the case of an initial or substitute director, shorter than the period between annual meetings; and
(ii) The term of office of at least one class shall expire each year.
(c) Each share of stock may be voted for as many individuals as there are directors to be elected and for whose election the share is entitled to be voted.
(d) Unless the charter or bylaws of a corporation provide otherwise, a plurality of all the votes cast at a meeting at which a quorum is present is sufficient to elect a director.
§ 2-405 Directors holding over
(a) (1) Except as provided in paragraph (2) of this subsection, in case of failure to elect directors at the designated time, the directors holding over shall continue to serve as directors of the corporation until their successors are elected and qualify.
(2) If the number of directors to be elected at the designated time, together with the number of directors who otherwise would hold over, exceeds the number of directors who were to be elected, then the directors who will hold over and continue to serve as directors of the corporation until their successors are elected and qualify shall be determined:
(i) By a majority vote of the directors elected at the designated time and, if the board is classified, any directors whose terms did not expire at the designated time, whether or not sufficient to constitute a quorum; or
(ii) As otherwise provided in the charter or bylaws of the corporation.
(b) A director not elected annually in accordance with § 2-501(b) of this title shall be deemed to be continuing in office and shall not be deemed to be holding over under subsection (a) of this section until after the time at which an annual meeting is required to be held under § 2-501(b) of this title or the charter or bylaws of the corporation.
§ 2-405.1 Standard of care required of directors
(a) In this section, “act” includes, as the context requires:
(1) An act, an omission, a failure to act, or a determination made not to act; or
(2) To act, omit to act, fail to act, or make a determination not to act.
(b) This section applies to acts of an individual who:
(1) Is or was a director of a corporation; and
(2) Is acting or was acting in the individual’s official capacity as a director of a corporation.
(c) A director of a corporation shall act:
(1) In good faith;
(2) In a manner the director reasonably believes to be in the best interests of the corporation; and
(3) With the care that an ordinarily prudent person in a like position would use under similar circumstances.
(d) (1) A director is entitled to rely on any information, opinion, report, or statement, including any financial statement or other financial data, prepared or presented by:
(i) An officer or employee of the corporation whom the director reasonably believes to be reliable and competent in the matters presented;
(ii) A lawyer, certified public accountant, or other person, as to a matter which the director reasonably believes to be within the person’s professional or expert competence; or
(iii) A committee of the board on which the director does not serve, as to a matter within its designated authority, if the director reasonably believes the committee to merit confidence.
(2) A director is not acting in good faith if the director has any knowledge concerning the matter in question which would cause the reliance to be unwarranted.
(e) A director who acts in accordance with the standard of conduct provided in this section shall have the immunity from liability described under § 5-417 of the Courts Article.
(f) The standard of conduct provided in this section does not require a director of a corporation to:
(1) Act to accept, recommend, or respond on behalf of the corporation to a proposal by an acquiring person as defined in § 3-801 of this article;
(2) Act to authorize the corporation to redeem any rights under, modify, or render inapplicable, a stockholder rights plan;
(3) Act to elect on behalf of the corporation to be subject to or refrain from electing on behalf of the corporation to be subject to any or all of the provisions of Title 3, Subtitle 8 of this article;
(4) Act to make a determination under the provisions of Title 3, Subtitle 6 or Subtitle 7 of this article; or
(5) Act solely because of:
(i) The effect the act may have on an acquisition or potential acquisition of control of the corporation; or
(ii) The amount or type of consideration that may be offered or paid to stockholders of the corporation in an acquisition or a potential acquisition of control of the corporation.
(g) An act of a director of a corporation is presumed to be in accordance with subsection (c) of this section.
(h) An act of a director of a corporation relating to or affecting an acquisition or a potential acquisition of control of the corporation or any other transaction or potential transaction involving the corporation may not be subject to a higher duty or greater scrutiny than is applied to any other act of a director.
(i) This section:
(1) Is the sole source of duties of a director to the corporation or the stockholders of the corporation, whether or not a decision has been made to enter into an acquisition or a potential acquisition of control of the corporation or enter into any other transaction involving the corporation; and
(2) Applies to any act of a director, including an act as a member of a committee of the board of directors.
§ 2-405.2 Corporate limitations on director liability
The charter of the corporation may include any provision expanding or limiting the liability of its directors and officers to the corporation or its stockholders as described under § 5-418 of the Courts and Judicial Proceedings Article.
§ 2-405.3 When director of investment company deemed independent and disinterested
(a) This section applies to a corporation that is an investment company, as defined by the Investment Company Act of 1940.
(b) A director of a corporation who with respect to the corporation is not an interested person, as defined by the Investment Company Act of 1940, shall be deemed to be independent and disinterested when making any determination or taking any action as a director.
§ 2-406 Removal or resignation of director
(a) The stockholders of a corporation may remove any director, with or without cause, by the affirmative vote of a majority of all the votes entitled to be cast generally for the election of directors, except:
(1) As provided in subsection (b) of this section;
(2) As otherwise provided in the charter of the corporation; or
(3) For a corporation that has elected to be subject to § 3-804(a) of this article.
(b) Unless the charter of the corporation provides otherwise:
(1) If the stockholders of any class or series are entitled separately to elect one or more directors, a director elected by stockholders of that class or series may not be removed without cause except by the affirmative vote of a majority of all the votes of that class or series;
(2) If a corporation has cumulative voting for the election of directors and fewer than all directors are to be removed, a director may not be removed without cause if the votes cast against the director’s removal would be sufficient to elect the director if then cumulatively voted at an election of the entire board of directors, or, if there is more than one class of directors, at an election of the class of directors of which the director is a member; and
(3) If the directors have been divided into classes, a director may not be removed without cause.
(c) A resignation of a director given in writing or by electronic transmission may provide that:
(1) The resignation will be effective at a later time or on the occurrence of an event;
(2) The resignation is irrevocable on the occurrence of the event; and
(3) If the resignation will be effective on the failure of the director to receive a specified vote for reelection, the resignation is irrevocable.
§ 2-407 Vacancy on board
(a) (1) Except as provided in paragraph (2) of this subsection and except for a corporation that has elected to become subject to § 3-804(c) of this article, the stockholders may elect a successor to fill a vacancy on the board of directors which results from the removal of a director.
(2) If the stockholders of any class or series are entitled separately to elect one or more directors, the stockholders of that class or series may elect a successor to fill a vacancy on the board of directors which results from the removal of a director elected by that class or series.
(b) (1) Except as provided in paragraph (2) of this subsection or unless the charter or the bylaws of the corporation provide otherwise:
(i) A majority of the remaining directors, whether or not sufficient to constitute a quorum, may fill a vacancy on the board of directors which results from any cause except an increase in the number of directors; and
(ii) A majority of the entire board of directors may fill a vacancy which results from an increase in the number of directors.
(2) If the stockholders of any class or series are entitled separately to elect one or more directors, a majority of the remaining directors elected by that class or series or the sole remaining director elected by that class or series may fill any vacancy among the number of directors elected by that class or series.
(c) (1) Unless the corporation has elected to be subject to § 3-804(c)(3) of this article, a director elected by the board of directors to fill a vacancy serves until the next annual meeting of stockholders and until his successor is elected and qualifies.
(2) A director elected by the stockholders to fill a vacancy which results from the removal of a director serves for the balance of the term of the removed director.
§ 2-408 Action by directors
(a) Unless the charter or bylaws of the corporation require a greater proportion or this article requires a different proportion, the action of a majority of the directors present at a meeting at which a quorum is present is the action of the board of directors.
(b) (1) Unless the bylaws of the corporation provide otherwise, a majority of the entire board of directors constitutes a quorum for the transaction of business.
(2) The bylaws may provide that less than a majority, but not less than one-third of the entire board of directors, may constitute a quorum unless:
(i) There are only two or three directors, in which case not less than two may constitute a quorum; or
(ii) There is only one director, in which case that one will constitute a quorum.
(c) Any action required or permitted to be taken at a meeting of the board of directors or of a committee of the board may be taken without a meeting if a unanimous consent which sets forth the action is:
(1) Given in writing or by electronic transmission by each member of the board or committee entitled to vote on the matter; and
(2) Filed in paper or electronic form with the minutes of proceedings of the board or committee.
(d) (1) An individual, whether or not then a director, may assent to an action by a consent that will be effective at a future time that is no later than 60 days after the consent is delivered to the corporation or its agent.
(2) The effective time of a consent under this subsection may include a time determined on the happening of an event that occurs no later than 60 days after the consent is delivered to the corporation or its agent.
(3) A consent under this subsection shall be deemed to have been given at the effective time if the individual:
(i) Is a director at the effective time; and
(ii) Did not revoke the consent before the effective time.
(4) Unless otherwise provided in the consent, a consent under this subsection is revocable before the effective time.
(e) (1) The charter may provide that one or more directors or a class of directors shall have more or less than one vote per director on any matter.
(2) If the charter provides that one or more directors shall have more or less than one vote per director on any matter, every reference in this article to a majority or other proportion of directors shall refer to a majority or other proportion of votes entitled to be cast by the directors.
§ 2-409 Meetings of directors
(a) Unless the bylaws of the corporation provide otherwise, a regular or special meeting of the board of directors may be held at any place in or out of the State or by means of remote communication.
(b) (1) Notice of each meeting of the board of directors shall be given as provided in the bylaws.
(2) Unless the bylaws provide otherwise, the notice:
(i) Shall be in writing or delivered by electronic transmission; and
(ii) Need not state the business to be transacted at or the purpose of any regular or special meeting of the board of directors.
(c) Whenever this article or the charter or bylaws of a corporation require notice of the time, place, or purpose of a meeting of the board of directors or a committee of the board, a person who is entitled to the notice waives notice if the person:
(1) Before or after the meeting delivers a written waiver or a waiver by electronic transmission which is filed with the records of the meeting; or
(2) Is present at the meeting.
(d) (1) Unless restricted by the charter or bylaws of the corporation, members of the board of directors or a committee of the board may participate in a meeting by means of a conference telephone or other communications equipment if all persons participating in the meeting can hear each other at the same time.
(2) Participation in a meeting by these means constitutes presence in person at the meeting.
§ 2-410 Dissent of director to action of board
(a) A director of a corporation who is present at a meeting of its board of directors at which action on any corporate matter is taken is presumed to have assented to the action unless:
(1) The director announces the director’s dissent at the meeting; and
(2) (i) The dissent is entered in the minutes of the meeting;
(ii) The director files the dissent to the action in writing with or by electronic transmission to the secretary of the meeting before the meeting is adjourned; or
(iii) The director forwards the dissent within 24 hours after the meeting is adjourned to the secretary of the meeting or the secretary of the corporation by:
1. Certified mail, return receipt requested, bearing a postmark from the United States Postal Service; or
2. Electronic transmission.
(b) The right to dissent does not apply to a director who:
(1) Voted in favor of the action; or
(2) Failed to make the director’s dissent known at the meeting.
§ 2-411 Executive and other committees
(a) The board of directors of a corporation may:
(1) Appoint from among its members an executive committee and other committees composed of one or more directors; and
(2) Delegate to these committees any of the powers of the board of directors, except the power to:
(i) Authorize the issuance of stock other than as provided in subsection (b) of this section;
(ii) Recommend to the stockholders any action which requires stockholder approval, other than the election of directors;
(iii) Amend the bylaws; or
(iv) Approve any merger or share exchange which does not require stockholder approval.
(b) If the board of directors has given general authorization for the issuance of stock providing for or establishing a method or procedure for determining the maximum number or the maximum aggregate offering price of shares to be issued, a committee of the board, in accordance with that general authorization or any stock option or other plan or program adopted by the board, may authorize or fix the terms of stock subject to classification or reclassification and the terms on which any stock may be issued, including all terms and conditions required or permitted to be established or authorized by the board of directors under §§ 2-203 and 2-208 of this title.
(c) The bylaws may authorize the members of a committee present at any meeting, whether or not they constitute a quorum, to appoint a director to act in the place of an absent member.
(d) The appointment of any committee, the delegation of authority to it, or action by it under that authority does not constitute, of itself, compliance by any director, not a member of the committee, with the standard provided in § 2-405.1 of this subtitle for the performance of duties of directors.
(e) Notwithstanding subsection (a) of this section or § 2-408(e) of this subtitle, the charter or bylaws of a corporation, or any agreement to which the corporation is a party and which has been approved by the board of directors, may provide for:
(1) The establishment of one or more standing committees or for the creation of one or more committees upon the occurrence of certain events; and
(2) The composition of the membership, and the qualifications and the voting and other rights of members of any such committee, subject to the continued service of members of the committee as directors.
§ 2-412 Required and permitted officers
(a) Each Maryland corporation shall have the following officers:
(1) A president;
(2) A secretary; and
(3) A treasurer.
(b) In addition to the required officers, a Maryland corporation may have any other officer provided for in the bylaws.
§ 2-413 Election, tenure, and removal of officers
(a) Unless the bylaws provide otherwise, the board of directors shall elect the officers.
(b) Unless the bylaws provide otherwise, an officer serves for one year and until his successor is elected and qualifies.
(c) (1) The board of directors may remove any officer or agent of the corporation.
(2) The removal of an officer or agent does not prejudice any of his contract rights.
(d) Unless the bylaws provide otherwise, the board of directors may fill a vacancy which occurs in any office.
§ 2-414 Powers and duties of officers and agents
(a) As between himself and the corporation, an officer or agent of the corporation has the authority and shall perform the duties in the management of the assets and affairs of the corporation as:
(1) Provided in the bylaws; and
(2) Determined from time to time by resolution of the board of directors not inconsistent with the bylaws.
(b) The rights of any third party are not affected or impaired by any bylaw or resolution referred to in subsection (a) of this section unless the third party has knowledge of the bylaw or resolution.
§ 2-415 Holding more than one office
(a) If permitted by the bylaws, a person may hold more than one office in a corporation but may not serve concurrently as both president and vice president of the same corporation.
(b) A person who holds more than one office in a corporation may not act in more than one capacity to execute, acknowledge, or verify an instrument required by law to be executed, acknowledged, or verified by more than one officer.
§ 2-416 Financial assistance to officers and employees
(a) A corporation may lend money to, guarantee an obligation of, or otherwise assist an officer or other employee of the corporation or of its direct or indirect subsidiary, including an officer or employee who is a director of the corporation or the subsidiary, if the loan, guarantee, or assistance:
(1) In the judgment of the directors, reasonably may be expected to benefit the corporation; or
(2) Is an advance made against indemnification in accordance with § 2-418(f) of this subtitle.
(b) The loan, guarantee, or other assistance may be:
(1) With or without interest;
(2) Unsecured; or
(3) Secured in any manner that the board of directors approves, including a pledge of the stock of the corporation.
§ 2-418 Indemnification of directors, officers, employees, and agents
(a) (1) In this section the following words have the meanings indicated.
(2) “Corporation” includes any domestic or foreign predecessor entity of a corporation in a merger, consolidation, or other transaction in which the predecessor’s existence ceased upon consummation of the transaction.
(3) “Director” means any person who is or was a director of a corporation and any person who, while a director of a corporation, is or was serving at the request of the corporation as a director, officer, partner, trustee, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust, limited liability company, other enterprise, or employee benefit plan.
(4) “Expenses” include attorney’s fees.
(5) (i) “Official capacity” means:
1. When used with respect to a director, the office of director in the corporation; and
2. When used with respect to a person other than a director as contemplated in subsection (j) of this section, the elective or appointive office in the corporation held by the officer, or the employment or agency relationship undertaken by the employee or agent in behalf of the corporation.
(ii) “Official capacity” does not include service for any other foreign or domestic corporation or any partnership, joint venture, trust, other enterprise, or employee benefit plan.
(6) “Party” includes a person who was, is, or is threatened to be made a named defendant or respondent in a proceeding.
(7) “Proceeding” means any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, or investigative.
(b) (1) A corporation may indemnify any director made a party to any proceeding by reason of service in that capacity unless it is established that:
(i) The act or omission of the director was material to the matter giving rise to the proceeding; and
1. Was committed in bad faith; or
2. Was the result of active and deliberate dishonesty; or
(ii) The director actually received an improper personal benefit in money, property, or services; or
(iii) In the case of any criminal proceeding, the director had reasonable cause to believe that the act or omission was unlawful.
(2) (i) Indemnification may be against judgments, penalties, fines, settlements, and reasonable expenses actually incurred by the director in connection with the proceeding.
(ii) However, if the proceeding was one by or in the right of the corporation, indemnification may not be made in respect of any proceeding in which the director shall have been adjudged to be liable to the corporation.
(3) (i) The termination of any proceeding by judgment, order, or settlement does not create a presumption that the director did not meet the requisite standard of conduct set forth in this subsection.
(ii) The termination of any proceeding by conviction, or a plea of nolo contendere or its equivalent, or an entry of an order of probation prior to judgment, creates a rebuttable presumption that the director did not meet that standard of conduct.
(4) A corporation may not indemnify a director or advance expenses under this section for a proceeding brought by that director against the corporation, except:
(i) For a proceeding brought to enforce indemnification under this section; or
(ii) If the charter or bylaws of the corporation, a resolution of the board of directors of the corporation, or an agreement approved by the board of directors of the corporation to which the corporation is a party expressly provide otherwise.
(c) A director may not be indemnified under subsection (b) of this section in respect of any proceeding charging improper personal benefit to the director, whether or not involving action in the director’s official capacity, in which the director was adjudged to be liable on the basis that personal benefit was improperly received.
(d) Unless limited by the charter:
(1) A director who has been successful, on the merits or otherwise, in the defense of any proceeding referred to in subsection (b) of this section, or in the defense of any claim, issue, or matter in the proceeding, shall be indemnified against reasonable expenses incurred by the director in connection with the proceeding, claim, issue, or matter in which the director has been successful.
(2) A court of appropriate jurisdiction, upon application of a director and such notice as the court shall require, may order indemnification in the following circumstances:
(i) If it determines a director is entitled to reimbursement under paragraph (1) of this subsection, the court shall order indemnification, in which case the director shall be entitled to recover the expenses of securing such reimbursement; or
(ii) If it determines that the director is fairly and reasonably entitled to indemnification in view of all the relevant circumstances, whether or not the director has met the standards of conduct set forth in subsection (b) of this section or has been adjudged liable under the circumstances described in subsection (c) of this section, the court may order such indemnification as the court shall deem proper. However, indemnification with respect to any proceeding by or in the right of the corporation or in which liability shall have been adjudged in the circumstances described in subsection (c) of this section shall be limited to expenses.
(3) A court of appropriate jurisdiction may be the same court in which the proceeding involving the director’s liability took place.
(e) (1) Indemnification under subsection (b) of this section may not be made by the corporation unless authorized for a specific proceeding after a determination has been made that indemnification of the director is permissible in the circumstances because the director has met the standard of conduct set forth in subsection (b) of this section.
(2) Such determination shall be made:
(i) By the board of directors by a majority vote of a quorum consisting of directors not, at the time, parties to the proceeding, or by a majority vote of a committee of the board consisting solely of one or more directors not, at the time, parties to such proceeding and who were duly designated to act in the matter by a majority vote of the directors who are not parties to the proceeding;
(ii) By special legal counsel selected by the board of directors or a committee of the board by vote as set forth in item (i) of this paragraph, or, if the requisite quorum of the full board cannot be obtained therefor and the committee cannot be established, by a majority vote of the full board in which directors who are parties may participate; or
(iii) By the stockholders.
(3) Authorization of indemnification and determination as to reasonableness of expenses shall be made in the same manner as the determination that indemnification is permissible. However, if the determination that indemnification is permissible is made by special legal counsel, authorization of indemnification and determination as to reasonableness of expenses shall be made in the manner specified in paragraph (2)(ii) of this subsection for selection of such counsel.
(4) Shares held by directors who are parties to the proceeding may not be voted on the subject matter under this subsection.
(f) (1) Reasonable expenses incurred by a director who is a party to a proceeding may be paid or reimbursed by the corporation in advance of the final disposition of the proceeding upon receipt by the corporation of:
(i) A written affirmation by the director of the director’s good faith belief that the standard of conduct necessary for indemnification by the corporation as authorized in this section has been met; and
(ii) A written undertaking by or on behalf of the director to repay the amount if it shall ultimately be determined that the standard of conduct has not been met.
(2) The undertaking required by paragraph (1)(ii) of this subsection shall be an unlimited general obligation of the director but need not be secured and may be accepted without reference to financial ability to make the repayment.
(3) Payments under this subsection shall be made as provided by the charter, bylaws, or contract or as specified in subsection (e)(2) of this section.
(g) The indemnification and advancement of expenses provided or authorized by this section may not be deemed exclusive of any other rights, by indemnification or otherwise, to which a director may be entitled under the charter, the bylaws, a resolution of stockholders or directors, an agreement or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office.
(h) This section does not limit the corporation’s power to pay or reimburse expenses incurred by a director in connection with an appearance as a witness in a proceeding at a time when the director has not been made a named defendant or respondent in the proceeding.
(i) For purposes of this section:
(1) The corporation shall be deemed to have requested a director to serve an employee benefit plan where the performance of the director’s duties to the corporation also imposes duties on, or otherwise involves services by, the director to the plan or participants or beneficiaries of the plan;
(2) Excise taxes assessed on a director with respect to an employee benefit plan pursuant to applicable law shall be deemed fines; and
(3) Action taken or omitted by the director with respect to an employee benefit plan in the performance of the director’s duties for a purpose reasonably believed by the director to be in the interest of the participants and beneficiaries of the plan shall be deemed to be for a purpose which is not opposed to the best interests of the corporation.
(j) Unless limited by the charter:
(1) An officer of the corporation shall be indemnified as and to the extent provided in subsection (d) of this section for a director and shall be entitled, to the same extent as a director, to seek indemnification pursuant to the provisions of subsection (d) of this section;
(2) A corporation may indemnify and advance expenses to an officer, employee, or agent of the corporation to the same extent that it may indemnify directors under this section; and
(3) A corporation, in addition, may indemnify and advance expenses to an officer, employee, or agent who is not a director to such further extent, consistent with law, as may be provided by its charter, bylaws, general or specific action of its board of directors, or contract.
(k) (1) A corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee, or agent of the corporation, or who, while a director, officer, employee, or agent of the corporation, is or was serving at the request of the corporation as a director, officer, partner, trustee, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust, limited liability company, other enterprise, or employee benefit plan against any liability asserted against and incurred by such person in any such capacity or arising out of such person’s position, whether or not the corporation would have the power to indemnify against liability under the provisions of this section.
(2) A corporation may provide similar protection, including a trust fund, letter of credit, or surety bond, not inconsistent with this section.
(3) The insurance or similar protection may be provided by a subsidiary or an affiliate of the corporation.
(l) Any indemnification of, or advance of expenses to, a director in accordance with this section, if arising out of a proceeding by or in the right of the corporation, shall be reported in writing to the stockholders with the notice of the next stockholders’ meeting or prior to the meeting.
§ 2-419 Interested director transactions
(a) If subsection (b) of this section is complied with, a contract or other transaction between a corporation and any of its directors or between a corporation and any other corporation, firm, or other entity in which any of its directors is a director or has a material financial interest is not void or voidable solely because of any one or more of the following:
(1) The common directorship or interest;
(2) The presence of the director at the meeting of the board or a committee of the board which authorizes, approves, or ratifies the contract or transaction; or
(3) The counting of the vote of the director for the authorization, approval, or ratification of the contract or transaction.
(b) Subsection (a) of this section applies if:
(1) The fact of the common directorship or interest is disclosed or known to:
(i) The board of directors or the committee, and the board or committee authorizes, approves, or ratifies the contract or transaction by the affirmative vote of a majority of disinterested directors, even if the disinterested directors constitute less than a quorum; or
(ii) The stockholders entitled to vote, and the contract or transaction is authorized, approved, or ratified by a majority of the votes cast by the stockholders entitled to vote other than the votes of shares owned of record or beneficially by the interested director or corporation, firm, or other entity; or
(2) The contract or transaction is fair and reasonable to the corporation.
(c) Common or interested directors or the stock owned by them or by an interested corporation, firm, or other entity may be counted in determining the presence of a quorum at a meeting of the board of directors or a committee of the board or at a meeting of the stockholders, as the case may be, at which the contract or transaction is authorized, approved, or ratified.
(d) (1) If a contract or transaction is not authorized, approved, or ratified in one of the ways provided for in subsection (b)(1) of this section, the person asserting the validity of the contract or transaction bears the burden of proving that the contract or transaction was fair and reasonable to the corporation at the time it was authorized, approved, or ratified.
(2) This subsection does not apply to the fixing by the board of directors of reasonable compensation for a director, whether as a director or in any other capacity.
(e) Any procedures authorized by § 2-418 of this subtitle shall be deemed to satisfy subsection (b)(1) of this section. Any charter, bylaw, contract, or transaction requiring or permitting indemnification, including advances of expenses, in accordance with § 2-418 of this subtitle is fair and reasonable to the corporation.
Source. Reproduced from the official text of the Annotated Code of Maryland, Maryland's nonstock corporation and director and officer provisions (Md. Code, Corporations and Associations §§ 5-201 – 5-209 and §§ 2-401 – 2-419), as published by the General Assembly of Maryland. Section headings are from the Michie’s Annotated Code table of contents; the General Assembly’s own compilation prints none. General information, not legal advice; the statutes are amended every session, so confirm the current text against the official source.