Indemnity Agreement for Directors: What You Need to Know
As a director of a company, you may be held personally liable for the actions and decisions you make on behalf of the company. This can include legal disputes, breaches of contract, and other liabilities. To protect yourself, your company may require you to sign an indemnity agreement.
An indemnity agreement is a legal contract that protects a director from financial loss or liability. The agreement typically states that the company will cover any legal fees, damages, or settlements that arise from the director`s actions, as long as those actions were made in good faith and within the scope of their duties.
The purpose of an indemnity agreement is to encourage directors to make decisions in the best interest of the company without fearing personal liability. It also helps companies attract and retain qualified directors by providing them with protection.
However, it is important to note that an indemnity agreement does not provide unlimited protection to the director. The agreement typically excludes cases of fraud, willful misconduct, or gross negligence. Additionally, some jurisdictions may not allow companies to indemnify directors for certain types of liability, such as criminal acts or violations of securities laws.
When signing an indemnity agreement, it is important to carefully review the terms and conditions. Make sure you understand what types of liabilities are covered and excluded, and under what circumstances the company will cover legal fees and expenses.
It is also important to keep in mind that an indemnity agreement does not replace the need for directors and officers (D&O) liability insurance. D&O insurance provides an added layer of protection for directors and officers in case they are sued for wrongful acts. In fact, many companies require their directors and officers to have D&O insurance as a condition of their indemnity agreement.
In summary, an indemnity agreement can provide valuable protection to directors by limiting personal liability for actions taken in good faith and within the scope of their duties. However, it is important to carefully review the terms and conditions, and to also have D&O insurance in place to provide additional protection. As always, it is best to consult with a legal professional to ensure that your rights and interests are protected.
