One of the major benefits of a company is that it exists as a legal entity in its own right, and so ordinarily, its liabilities will not extend to its directors or employees.
In certain circumstances, however, this standard rule will not apply and a director can become personally liable for company debts.
Under the laws of England & Wales, companies can indemnify their directors against certain types of financial loss arising from an allegation made against them while acting in their capacity as a director. Ideally, an indemnity of this kind should be outlined within the company’s constitutional documents.
It is strongly advisable that the company has a directors’ and officers’ liability insurance policy (“D&O insurance”) in place. D&O insurance is designed to protect directors and officers of a company from losses resulting from claims made against them in relation to the discharge of their duties.
A company is allowed to purchase insurance for its directors against any liability attaching to them in connection with any negligence, default, breach of duty or breach of trust by them.
If you would like us to draft an indemnity upon the incorporation of a company, or incorporate an indemnity into existing Articles of Association, please contact us at firstname.lastname@example.org.