When forming a business as a corporation, you will have to select corporate directors and officers. You may even be one of these directors or officers. Officers and directors can face personal exposure when the corporation inevitably becomes involved in some sort of dispute. That is why it is extremely important that officers and directors require separate indemnification agreements between themselves and the corporation.
What Exactly is Indemnification?
Indemnification in this situation involves the corporation indemnifying the directors and officers. To indemnify is to guarantee financial reimbursement to an individual in case of a specified loss. Under California law, a corporation has the ability to indemnify its agents, directors, and officers. However, any indemnification of officers or directors for the defense of any proceeding must be done in a way that is consistent with that law in order to be valid. The law allows indemnification against expenses, judgments, fines, settlements and other amounts reasonably incurred in connection with the proceeding if the director or officer acted in good faith and reasonably thought he or she was acting in the best interests of the corporation and, in criminal matters, had no reason to believe the conduct was unlawful.