The most important reason for individuals to seek to put a written indemnification agreement in place is that written agreements typically provide more comprehensive protection than corporate bylaws or statutory provisions. Most bylaws, for example, provide for permissive indemnification, whereas most written agreements are written on a mandatory basis. Moreover, the rights enumerated in the agreement are enforceable obligations that cannot be amended or terminated without the individual executive's agreement.
Another reason that directors and officers will seek to put contractual indemnification agreements in place is so that if the individuals are the target of claims after they have left the company, they can assert their rights of indemnification notwithstanding the arrival of new management. The contractual indemnification provides them an extra measure of protection and some level of assurance that their rights will be protected if claims arise after they have left the company.
Indemnification of Corporate Directors is the legal process of protecting directors of a company from any financial losses or legal liabilities that may arise from their roles as directors. This is an important protection for corporate directors, as it allows them to make decisions without fear of suffering financial losses. Indemnification of Corporate Directors can be divided into two types: contractual indemnification and statutory indemnification. Contractual indemnification is an agreement between the board of directors and the company that states the company will indemnify the directors for any losses or liabilities that arise out of their acts as directors. This type of indemnification is usually included in the company's by-laws or in a separate contract between the board and the company. Statutory indemnification is a type of indemnification that is provided by law. In this type of indemnification, the company is statutorily required to indemnify its directors for any losses or liabilities that arise from their acts as directors. Statutory indemnification is usually found in the applicable state’s corporate statutes. It is important to note that indemnification of corporate directors is not absolute protection, and it is not a guarantee that the directors will not be held liable for their actions. In some cases, the indemnification may not be adequate to cover all losses or liabilities. Furthermore, it is important to note that the company may refuse to indemnify a director if it can prove that the director was grossly negligent or engaged in willful misconduct.
