Notes:

  • Personal Liability Risks: Directors face personal liability for breaches of fiduciary duty, fraud, illegal acts, and in some cases, negligence. In insolvency, duties may extend to creditors.
  • Indemnification:
    • Statutory Rights: Most state laws (e.g., Delaware DGCL §145) allow companies to indemnify directors for legal expenses and judgments incurred in defense of lawsuits, provided they acted in good faith.
    • Advancement: Companies often advance legal fees before the case is resolved, subject to an undertaking to repay if the director is found liable.
  • D&O Insurance: Directors and Officers (D&O) liability insurance is essential. It covers claims for wrongful acts, excluding fraud and intentional misconduct. It protects the company’s assets and attracts qualified directors.
  • Exculpation Provisions: Under Delaware law (and many other states), companies can include provisions in their Certificate of Incorporation to eliminate or limit personal monetary liability for breaches of the Duty of Care (but not Duty of Loyalty, Good Faith, or illegal acts). This is a critical protection for directors.
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