LLC Reimbursement, Indemnification, Advancement, and Insurance Requirements in North Dakota

At a glance

Requirements one by one

Proceeding indemnity and who qualifies

N.D.C.C. § 10-32.1-40(1)(c) defines a proceeding to include threatened, pending or completed civil, criminal, administrative, arbitration and investigative matters, including company actions. Official capacity under § 10-32.1-40(1)(b)(1) includes the member of a member-managed, manager of a manager-managed, or governor of a board-managed LLC; § 10-32.1-40(1)(b)(2) also addresses other roles. Section 10-32.1-40(2)(a) requires indemnity for the covered person's present or former official-capacity proceeding, subject to § 10-32.1-40(4). Conditions in § 10-32.1-40(2)(a)(1)–(3) include no duplicate indemnity, good faith, no improper benefit and compliance with applicable duties; § 10-32.1-40(2)(a)(4)–(5) add criminal-law and company-interest tests.

Interim expenses and approval

Under § 10-32.1-40(3), a qualifying party is entitled to reasonable expenses in advance of final disposition after a written request, subject to the agreement or articles. § 10-32.1-40(3)(a) requires a written good-faith affirmation and undertaking to repay if ultimately ineligible; § 10-32.1-40(3)(b)–(c) requires a favorable facts determination and makes the repayment promise unlimited and unsecured, accepted without testing financial ability. For a board-managed company, § 10-32.1-40(6)(a)(1)(a) uses a nonparty governor quorum, § 10-32.1-40(6)(a)(1)(b) supplies a nonparty committee fallback, and § 10-32.1-40(6)(a)(1)(c) uses special counsel if those routes fail. Other companies use nonparty member voting under § 10-32.1-40(6)(a)(2). § 10-32.1-40(6)(a)(3) sets the adverse or absent decision trigger, and § 10-32.1-40(6)(a)(3)(b) provides a court application with the claimant carrying the burden.

Agreement and insurance

Section 10-32.1-40(4) lets the articles or agreement bar indemnity and advances or add conditions applied equally within a class, but preserves rights for acts preceding an effective restriction. Section 10-32.1-13(7) separately recognizes the agreement's indemnity override. § 10-32.1-40(7) permits insurance for member, manager or governor capacity or status liability even when the agreement could not remove the underlying company liability or indemnity was not required.

What trips people up

§ 10-32.1-40(5) treats expenses of a witness who is not a party differently from an indemnified defendant. § 10-32.1-40(8) requires a written report to members by the next member meeting when the LLC pays indemnity or advances in a company or derivative proceeding. These provisions do not create a general ordinary-business payment reimbursement formula; the surveyed section is about proceeding-related protection.

Common questions

Can the agreement stop a future expense advance? Section 10-32.1-40(4) permits prospective prohibitions or conditions, but protects rights arising from earlier acts or omissions.

Must the person prove an ability to repay? No. Section 10-32.1-40(3)(c) says the unlimited undertaking is unsecured and accepted without regard to financial ability.

Statutes and sources

• N.D.C.C. § 10-32.1-13(7): “The operating agreement may alter or eliminate the indemnification” otherwise provided by § 10-32.1-40(2). Official current chapter PDF, accessed 2026-09-23.
• N.D.C.C. § 10-32.1-40(1)–(3): “a limited liability company shall indemnify” a qualified official-capacity party and must pay eligible interim expenses on the stated written request, affirmation and undertaking. Official current chapter PDF, accessed 2026-09-23.
• N.D.C.C. § 10-32.1-40(4)–(8): prospective agreement limits, witness costs, determination routes, insurance and written member reporting. Official current chapter PDF, accessed 2026-09-23.