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From the largest public companies to early-stage ventures, corporations seek to attract and retain qualified, experienced individuals to serve on its Board of Directors.
Directors are often selected based on their past business experience and proven acumen; their financial, accounting or regulatory expertise; their network of professional contacts; and the solidity of their long-standing relationship with a company’s founders or senior management.
Serving on a corporate Board of Directors is not easy, however, and there are questions a person who is asked to serve as a Director should consider before committing to the position.
Be sure to do thorough due diligence on the company before you commit to a position on the Board of Directors.
Carefully review the company’s indemnification provisions in its charter and bylaws. Indemnification means that, assuming you, acting as a director, have not breached some standard of conduct set forth in the charter and/or bylaws that would make indemnification unavailable, the company will bear your legal costs (including attorneys’ fees), settlements and judgments and, in some cases, fines and penalties as a result of litigation.
The scope of, and qualifications on, indemnification can vary widely from company to company, so you should seek legal counsel to review these provisions. In addition, directors generally seek a stand-alone indemnification agreement to supplement the provisions of the charter and bylaws, and ensure indemnification is provided to the fullest extent possible and is enforceable under the company’s governing documents as well as a contractual right.
You should also inquire as to whether the company has obtained, and will maintain, D&O (directors and officers) insurance, which covers certain costs of litigation for directors’ subject to the provisions and amount of the policy.
If you are asked to serve or are seeking to serve on a company’s Board of Directors, we strongly recommend you consult legal counsel in order to fully understand your rights and obligations associated with the position as well as garner a more extensive list of issues to consider.
*Disclaimer*: Harvard Business Services, Inc. is neither a law firm nor an accounting firm and, even in cases where the author is an attorney, or a tax professional, nothing in this article constitutes legal or tax advice. This article provides general commentary on, and analysis of, the subject addressed. We strongly advise that you consult an attorney or tax professional to receive legal or tax guidance tailored to your specific circumstances. Any action taken or not taken based on this article is at your own risk. If an article cites or provides a link to third-party sources or websites, Harvard Business Services, Inc. is not responsible for and makes no representations regarding such source’s content or accuracy. Opinions expressed in this article do not necessarily reflect those of Harvard Business Services, Inc.