§ 1.7.4 INTRODUCTION.

• Jurisdiction: Arizona

§ 1.7.4 Introduction. Prior to 1941, corporate directors and officers were not entitled to statutory indemnification.⁷ There was much inconsistency among courts regarding this issue.⁸ The need to protect corporate directors and officers from personal liability in order to induce qualified individuals to accept those positions prompted the enactment of indemnification statutes.⁹ These predecessors of modern indemnification statutes provided indemnification only for corporate directors and officers and provided no indemnification for employees.¹⁰ The omission was due to the belief that employees were already protected by common law indemnification and reimbursement rights under agency law.¹¹ By not including employees in the statutes, however, legislators unwittingly created uncertainty about a corporation's duty or power to indemnify them.¹² By 1967, however, many states had amended their statutes to provide indemnification for employees as well.¹³

Arizona adopted statutes based on the MBCA in 1975, which at that time provided for the indemnification of corporate directors, officers, employees and agents.¹⁴ Those statutes, however, were amended and re-enacted as Article 5 of the current Arizona Corporations Act, A.R.S. §§ 10-850 to 10-858, in 1996.¹⁵ The re-enacted statutes have eliminated employees and agents of a...