An indemnification provision will obligate the company to indemnify (meaning, hold harmless from costs, fees, expenses, etc.) its directors or officers if they are the subject of claims, liabilities, or lawsuits during the course of their duties for the company.
Generally, indemnification provides do not provide indemnification if the officer/director has been a “bad actor” – meaning, actually participating in fraud, theft, deception, etc.).
Nearly all corporations have indemnity provisions, as the directors/officers do not want to be left out in the cold if claims are alleged against them for matters arising out of their work and performance for the company.
If you decide to skip having an indemnification provision in your company’s Articles of Incorporation or By-Laws, then officers and directors who are sued for acts or omissions during the course of their duties on behalf of the company may be personally responsible for the costs, fees, and expenses of defending the lawsuit, and paying any settlement or judgment awarded against them. This may make it very unattractive for officers and directors to come and want to work for your company.
For these and other reasons, most corporations have indemnification provisions protecting their officers and directors.
[title size=2]Related Formation FAQs[/title]
- What is a Trust and Do You Need One?
- Who Makes End of Life Decisions When an Accidental Tragedy Occurs?
- Axis Legal Counsel Hired in Trust Litigation Fraud and Breach of Fiduciary Duty Case involving Multiple Family Members
- California Will Requirements and Top Wills FAQs
- California 2022 Rest Break Laws | Los Angeles 2022 Rest Break Laws
- Could Your LLC Save on Taxes by Converting to an S Corp?
- Employer’s Guide to Responding to an Employee’s Unemployment Claim
- How to Deal with Overly Political Employees
- Can a Business Ban a Customer?
- Is an Officer of a Corporation An Employee?
[title size=2]Other FAQs[/title]
- Formation FAQs
- Stock Issuance FAQs
- Investment & Fundraising FAQs
- Intellectual Property FAQs
- Corporate Governance FAQs
- Employees & Labor FAQs
- Licensing & Permits FAQs
- Tax FAQs