The Practice Of Law Is A

Relationship Business

  1. Home
  2.  » 
  3. Commercial Litigation
  4.  » Can directors get indemnification for shareholder suits against them?

Can directors get indemnification for shareholder suits against them?

| Apr 19, 2021 | Commercial Litigation

There are many reasons why shareholders might want to file a lawsuit against one or more of the directors of their company. If you are a director, the shareholders might have named you in a suit in order to challenge a decision you made on behalf of the company. You might be wondering whether you can request that the company indemnify you for the legal costs of defending this lawsuit like you could if it were an outside party bringing the suit.

The good news is that, unless the court finds you liable for grossly negligent or purposefully illegal conduct, you will be able to request indemnification from your company, even if the shareholders themselves are the ones bringing the suit.

The good faith requirement

It doesn’t make much of a difference whether your company is incorporated in Delaware, as many companies are, or in Florida. When it comes to director indemnification, Florida law and Delaware law are very similar.

In both states, a company has the right to indemnify its director for the defense of a lawsuit – regardless of who initiated the lawsuit – as long as the director was acting in good faith when they committed the act that the lawsuit is based on.

What this means is that, as long as your attorney can show that you had a good reason for your actions, you had the company’s best interest in mind and you didn’t knowingly act illegally, you can request indemnification. The company can reimburse you for your legal fees, and for any costs you may have to pay associated with a judgment.

This is good news for directors who might be nervous about shareholder suits. As long as you are upholding your fiduciary duty and putting the interests of the company first, you don’t have to worry about legal fees for a possible shareholder suit coming out of your own pocket.