Directors' Indemnities . . . 

are pledges of a company's credit to protect the members of its board of directors against liabilities they might incur when acting on behalf of the company. Most states permit corporations to provide these indemnities for their directors. Usually, the indemnities apply only when the directors are acting in good faith. Most states exclude from protection actions taken by directors that are willfully fraudulent or grossly negligent.

Venture capitalists usually require these indemnities to be included in a company's bylaws before they invest in a company or join its board of directors. Some also require written indemnification agreements between the company and their director nominees. A common bylaw indemnity provision reads like this:

Indemnification of Officers and Directors. The corporation shall indemnify any current or former director, officer, employee or agent of the corporation, or any persons who are or were serving at its request as a director, officer, employee, trustee or similar functionary of another foreign or domestic corporation, trust, partnership, joint venture, employee benefit plan or other enterprise, against any and all liabilities and expenses actually and necessarily incurred by such person in connection with or resulting from (a) any threatened, pending or complete action, suit or proceeding, whether civil, criminal, administrative, arbitrative or investigative, (b) an appeal in such an action, suit or proceeding, or (c) an inquiry or investigation that could lead to such an action, suit or proceeding, all to the full extent permitted by law. Such indemnification shall not be deemed exclusive of any other rights to which such person may be entitled, under any bylaw, agreement, insurance policy or vote of shareholders, or otherwise.

See: Board of Directors, Board Committees, Bylaws.