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D&O Insurance

8 Benefits of D&O for Private Company

By February 23, 2022April 13th, 2022No Comments

When you own a registered private company in India, you have the option of buying a D&O Insurance Policy from a reliable broker or service provider. In recent years, several private companies, especially small businesses, are availing of such insurance policies to become more competitive. There are several benefits. But before you know the benefits, it is crucial to know the meaning of a D&O Insurance Policy.

What is a D&O Insurance Policy?

It is an insurance policy that covers the directors and officers of a company against lawsuits from shareholders/employees. The insurance pays the legal costs in such cases. 

There are several policies in the market

As an HR head or CA in charge of recommending a suitable D&O Insurance Policy to your company, you must know that there are many such policies available in the market. You need to take your time to explore them and go through the service features before finalizing the decision.

Read the policy document and know the basic terms

It is essential to thoroughly read the policy document of the insurance. Moreover, you should be aware of the basic terms used from the perspective of the applicability of the insurance.

Benefit 1: Support for IPO considerations

In a situation when you are thinking of transforming your private company into a public entity, you can get mileage from a D&O Insurance Policy. It helps in getting validation from top insurers of public companies. Also, you might not have to submit any specific warranty statement, accounting for the terms and conditions of the policy.

While your business is still in private hands, you can avail of the policy from a trusted broker in the market. It provides you the additional confidence for IPO considerations, within the well-defined regulatory framework of the industry. 

Benefit 2: Countering the lawsuits of shareholders

A shareholder can file a lawsuit against the directors/officers of the company, alleging negligence of duties, misappropriation of information, or any other such thing. When the number of shareholders of your company grows, the risk factor of facing a lawsuit increases, too. 

Accordingly, you need to rely on the D&O Insurance Policy to manage the legal expenses, for fighting the lawsuit convincingly. The policy is expertly designed to tactfully fight against such risks. The insurer takes care of the legal costs in a planned manner. The company does not have to worry about it.

Benefit 3: Paving the way for smoother M&A

When you are planning for mergers and acquisitions (M&A), one of the wisest measures you can take is buying a good D&O Insurance Policy from a reputed insurer. You need to purchase it before striking the deal with the stakeholders. 

It may happen that the directors/officers are sued after the closure of the deal. Legal and financial protection of indemnification is needed in such cases. A D&O Insurance Policy perfectly does the job for the company. The directors/officers of the private entity get the safety financial net from the insurer. 

Benefit 4: Shielding against bankruptcy

There can be situations when the company becomes bankrupt. It has to declare bankruptcy. In such cases, D&O Insurance plays a crucial role to protect personal and corporate assets. The backup of the insurance provides the necessary cover for the insolvency of the company. 

The creditors will want to get their dues from the company. The bankrupt private company is unable to meet the demands of the creditors. Here lies the importance of D&O Insurance. It protects the assets of the company and the personal assets of directors/officers against the creditors in the market. 

Benefit 5: Better regulation

When an employee or shareholder or a group of employees/shareholders file a lawsuit against a private company, it has to fight it, hiring an experienced lawyer. The company has to consider certain expenses to carry on the legal battle. Bearing the costs can affect the regulatory perspectives of the company.

But, the features of D&O Insurance provide the necessary back-up for the company, helping it to maintain stability, even in adverse situations. The insurer pays the attorney fighting the lawsuit on behalf of the directors/officers of the company. It definitely leads to much better regulation.

Benefit 6: Protecting against the accusation of corporate manslaughter

One of the employees or a group of employees, after being sacked, can accuse the private company of corporate manslaughter. The concerned person or group can file a lawsuit against the directors/officers of the private company. It marks the beginning of a legal battle.

The company needs to hire an expert attorney to counter the allegation. There are huge expenses involved. The insurer takes into account the legal costs and pays the amount on behalf of the private company. So, the directors/officers do not have to remain concerned about bearing the expenses. 

Benefit 7: Encouraging venture capital investment

A private company with a clear vision does not want to remain stagnant at a place. It wants to grow rapidly in the competitive market, becoming more efficient. It tries to draw investment, especially from venture capitalists. More investment helps the company to grow. 

In most of cases, venture capitalists want the company to have a D&O Insurance Policy. It signifies more stability in the long run. So, it is important to get the policy to attract investment and strengthen the prospects of growth. It is another benefit of the D&O Insurance Policy.

Benefit 8: Attracting resourceful Directors

Another crucial benefit of the insurance is when influential and resourceful professionals notice that a private company has the insurance under its belt they become more attracted to the Board seats. Insurance can play a major role in getting the attention of resourceful potential Directors, which ultimately benefits the company. 

Buy a suitable D&O Insurance Policy

As a senior executive responsible for recommending a D&O Insurance policy to your company, it should be your priority to get in touch with Plan Cover. It is a renowned insurance broker that has expertise in the corporate insurance sector, selling a wide range of policies. 

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