Explaining the Purpose of Directors Insurance

directors-insurance

The typical structure of one business or corporation includes three main groups: shareholders, directors and officers. The shareholders are the owners of the corporation and invest their money or assents into the business. The Board of directors is responsible for managing the business and is elected by the shareholders. The officers hold vital positions in the company such as President, Vice President or Chief Financial Officer and are elected by the Board. The officers have the duty to handle everyday business affairs and operations, while the directors work to protect the interests of the shareholders. The Board of directors has a vital role in the successful operation of the business and are responsible for the key affairs of the entire corporation such as management, organization and expenses. It’s essential that the Board and the owner or owners of the company have a strong and professional relationship that is based on trust and confidence.

To do their job successfully directors should fulfill various duties and responsibilities. The most important duty is the one of diligence which basically means that the director should act reasonably and in the best interest of the company. He should also be loyal to the company’s shareholders and regularly participate on the meetings of the Board. All the activities of the Board whether that be signing contracts, electing new officers, purchasing assess, approving sales must be done following the relevant laws and regulations. Directors can be hold personally liable for any decision or activity that is not in accordance with the law. They may be liable not only for failure to act with the company’s laws, but also for any financial losses, asset damage, wrongful dismissal and other activates and decision that are not in the best interests of the business. In this case criminal and regulatory proceedings can be issued against the directors which can not only cost a lot of money but can also ruin their reputation. This is where directors insurance comes to the scene to provide cover for any legal proceedings made due to neglect, error or wrongful acts.

It’s basically an insurance policy designed to serve as a protective “shield” against all the risks that directors face in today’s modern business world. When directors are not insured they cannot defend themselves in situations when they are fired from the position of director, when civil clams are made by dissatisfied customers which can lead to high legal costs or when criminal proceedings are brought against them which can result in hefty fines and in serious cases imprisonment. Directors insurance can cover the costs for such legals proceeding, compensation claims and provide cover for all the costs that arise due to failed defense. It can also cover all the costs made for investigation, prosecution, court attendance, settlements, damages, etc.

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