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]
- Latest New Rules for REITs and New REIT Disclosure Requirements Established by U.S. SEC in April 2024
- U.S. SEC Forms New Crypto Assets and Cyber Unit to Target Crypto Companies for Securities Violations
- New Colorado AI Regulation Act is the First Attempt Among U.S. States to Govern Artificial Intelligence
- U.S. SEC’s New Rules and Requirements for IPOs Amended April 2024
- U.S. SEC’s New Rules and Requirements for Portfolio Companies and Form PF Amended May 2024
- Top Critical Tax Mistakes to Avoid for LLCs
- Recent Updates to Private Equity Regulations
- Top Asset Protection Strategies for 2024
- Buying or Selling your Business? What You Need to Know
- Benefits and Disadvantages of Using Pass-Through Entities for Estate Planning
[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