Meaning
Legal document that creates a binding obligation for a company to cover the legal costs and liabilities incurred by its directors and officers during their service. Signing an executive indemnification deed provides an individual with a direct contractual claim against the firm, independent of the provisions found in the company’s bylaws. This protection is useful for attracting leadership who might otherwise be wary of the personal risks associated with corporate governance.
Indemnification Scope
Covered events include lawsuits and investigations. The deed specifies the expenses that will be reimbursed.
Policy Interaction
Deed provisions work alongside the company’s directors and officers insurance policy to provide a shield. When the insurance policy reaches its limit or fails to cover a specific claim, the deed requires the company to pay the remaining costs from its own assets. This ensures that the individual is not left to pay for their defense from personal funds.
Defense Fund
Advancement of legal fees is a standard feature that allows the director to hire counsel immediately without waiting for the final outcome of a case. If the director is eventually found to have committed a crime or acted in bad faith, they are usually required to repay the advanced funds. This mechanism balances the need for a defense with the principle of corporate accountability.
