The cost of a legal defense can be simply astronomical if there are no safeguards put in place, and there are many individuals within a company that stand to be financially impacted by a lawsuit. It is best for companies to work under the assumption that they will eventually face a suit filed by a client, an employee, or a stockholder. There are preventative measures that can be taken, but it is also necessary to carry directors and officers insurance, or d & o insurance, in the event that a suit is filed against the company for any number of allegations, including:
- Misappropriation of funds
- Financial mismanagement
Directors and Officers Can Be Held Personally Responsible for Company Actions
One of the major drawbacks of being in the position of a director or an officer is the potential for litigation. This is because directors and officers can be held personally responsible for the actions of the company, meaning their finances and personal assets can be in danger due to a lawsuit. This is not a risk that many directors and officers are willing to take, and a business should not place them in this position. Having d & o insurance relieves this risk, nullifying any concerns from directors and officers relating to being sued for the performance of their duties with the company.