While most corporations are savvy enough to obtain liability insurance to protect their top executives from having to personally pay damages awarded after lawsuits have been filed against the companies they serve, it’s still important to look for other ways to fully protect these individuals.                    

One thing many corporations do is pass a resolution providing full (or substantial) indemnification for all corporate officers and executives, including the board of directors. This type of resolution must be properly drafted so that it’s in keeping with the governing state’s law regarding the amount of indemnification that’s allowed.                                                                

In many cases, this type of resolution will name the state in which the company was incorporated – such as Georgia – and then note that the corporation is granting all of its officers and executives the full statutory amount of indemnification that’s allowed. However, comprehensive liability insurance should still be purchased by the corporation. In fact, most states actually require a guaranteed amount of indemnification for corporate officers, directors, and formal agents of large companies.

Just Exactly What is Indemnification?

It’s a form of legal protection that makes sure that the indemnified party doesn’t have to use personal funds to cover: attorneys’ fees, court costs, settlement amounts, fines, awards, judgments or other amounts in connection with work done for a corporation.

Stated differently, to indemnify someone is to “compensate that party for loss or damage that has already occurred, or to guarantee through a contractual agreement to repay another party for loss or damage that occurs in the future.”

Conditions Affecting Corporate Officer/Executive Liability

Be sure to ask your Peachtree City business attorney to research if Georgia (or the state under which your company was incorporated) allows additional indemnification when an individual named in a lawsuit clearly acted in good faith, free from any type of criminal intent or knowledge of wrongdoing. In some states, the financial backing provided to a party sued may be partially or wholly dependent upon whether or not that person prevailed in the lawsuit. However, this is not always a controlling principle.

Make sure your corporation has included paragraphs in in its bylaws or articles of incorporation that clearly address how it will address the need for indemnification under various circumstances.

To obtain help with handling all of your Georgia business planning needs, please contact Shane Smith Law today.  You can schedule your free initial consultation with a knowledgeable Peachtree City estate planning attorney by calling: (770) 487-8999.


Shane Smith
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