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Corporations • Directors and Officers
CORP#037
Legal Definition
The corporation may indemnify a director or officer held liable to a third party if the director or officer show they acted in good faith in the belief that their conduct was in the corporation's best interest.
Plain English Explanation
There are some circumstances where a corporation has the right to decide whether or not it wants to indemnify one of its directors or officers after they are sued by a third-party and lose. You may be wondering, "Why would there be a limited amount of circumstances? Why can't the corporation indemnify whoever they want whenever they want?" The answer: because indemnification costs money, and if corporations waste money they may get sued by their shareholders.
With that in mind, if a director or officer lose a lawsuit, their corporation is allowed to pay for their legal fees if a majority of the board decides that the director or officer were genuinely acting with the best interests of the corporation in mind. In other words, if a director or officer are doing their best to help the company, and not doing anything illegal or shady, then a corporation can basically go, "Look, we know you lost the lawsuit, but we still appreciate you trying to help the company out, so we're going to go ahead and cover the legal bills since you were being a good soldier for us."
With that in mind, if a director or officer lose a lawsuit, their corporation is allowed to pay for their legal fees if a majority of the board decides that the director or officer were genuinely acting with the best interests of the corporation in mind. In other words, if a director or officer are doing their best to help the company, and not doing anything illegal or shady, then a corporation can basically go, "Look, we know you lost the lawsuit, but we still appreciate you trying to help the company out, so we're going to go ahead and cover the legal bills since you were being a good soldier for us."
Related Concepts
Can a corporation indemnify an officer or director who is held liable to their own corporation?
Can a corporation indemnify an officer or director who successfully defends themselves against a lawsuit from another party?
How can a director defend against a claim that they breached their duty of loyalty?
What are the statutory requirements of board of directors meetings?
What are the statutory requirements of directors?
What duties do directors have to the corporation and shareholders?
What duties do officers have to the corporation and shareholders?
What is the business judgment rule?
What is the duty of care?
What is the duty of loyalty?
What is the duty to disclose?
What is the duty to manage?
When do officers and directors often seek indemnification?
Who decides whether a corporation will indemnify a director or officer?
