Directors' Liability and Indemnification: A Comprehensive Guide for Corporate Boards

As a director of a corporation, you have a fiduciary duty to act in the best interests of the company and its shareholders. This duty includes making informed decisions, exercising due care, and acting in good faith. However, even the most diligent directors can find themselves facing legal challenges. That's where directors' and officers' (D&O) liability insurance comes in.

D&O insurance provides protection for directors and officers in the event that they are sued for alleged wrongful acts or omissions. This insurance can cover the costs of defending against a lawsuit, as well as any damages or settlements that may be awarded. In today's litigious environment, D&O insurance is an essential tool for protecting your personal assets and reputation.

Directors Liability and Indemnification: A Global Guide, Third Edition

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In addition to D&O insurance, directors may also be entitled to indemnification from the corporation. Indemnification is a legal right that allows a director to be reimbursed for expenses incurred in defending against a lawsuit, even if the director is ultimately found liable. Indemnification can also cover damages and settlements.

The availability of indemnification is governed by state law and the corporation's bylaws. In most states, directors are entitled to indemnification for expenses incurred in defending against a lawsuit, regardless of the outcome of the lawsuit. However, indemnification for damages and settlements is typically only available if the director is found not liable.

The decision of whether or not to indemnify a director is made by the board of directors. The board must consider the facts of the case, the potential financial impact of indemnification, and the impact on the corporation's reputation.

Directors' liability and indemnification are complex legal issues. It is important to consult with an experienced attorney to discuss your specific situation.

Duty of Care

The duty of care is a legal obligation that requires directors to act with the same level of care that a reasonably prudent person would exercise in similar circumstances. This means that directors must make informed decisions, exercise due diligence, and avoid conflicts of interest.

A director's duty of care includes the following responsibilities:

• Attending board meetings and participating in discussions
• Reviewing and understanding financial statements and other important documents
• Asking questions and seeking professional advice when necessary
• Making decisions in the best interests of the company and its shareholders
• Avoiding conflicts of interest

Directors who breach their duty of care may be held personally liable for damages incurred by the corporation.

Duty of Loyalty

The duty of loyalty is a legal obligation that requires directors to act in the best interests of the corporation and its shareholders. This means that directors must avoid conflicts of interest, put the interests of the corporation before their own personal interests, and not engage in self-dealing.

A director's duty of loyalty includes the following responsibilities:

• Avoiding conflicts of interest
• Putting the interests of the corporation before their own personal interests
• Not engaging in self-dealing
• Disclosing any potential conflicts of interest to the board
• Recusing themselves from any decisions that involve a conflict of interest

Directors who breach their duty of loyalty may be held personally liable for damages incurred by the corporation.

Indemnification

Indemnification is a legal right that allows a director to be reimbursed for expenses incurred in defending against a lawsuit, even if the director is ultimately found liable. Indemnification can also cover damages and settlements.

The availability of indemnification is governed by state law and the corporation's bylaws. In most states, directors are entitled to indemnification for expenses incurred in defending against a lawsuit, regardless of the outcome of the lawsuit. However, indemnification for damages and settlements is typically only available if the director is found not liable.

The decision of whether or not to indemnify a director is made by the board of directors. The board must consider the facts of the case, the potential financial impact of indemnification, and the impact on the corporation's reputation.

Directors' liability and indemnification are complex legal issues. It is important to consult with an experienced attorney to discuss your specific situation.

This article is for informational purposes only and is not intended to provide legal advice.

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Directors Liability and Indemnification: A Global Guide, Third Edition

5 out of 5

Language	:	English
File size	:	1997 KB
Text-to-Speech	:	Enabled
Screen Reader	:	Supported
Enhanced typesetting	:	Enabled
Word Wise	:	Enabled
Print length	:	680 pages

FREE