Liabilities Associated with Board Membership

Ilya Alkhimov, Svetlana Kotka

May 17, 2021 — 1 min read

Explanation

The position of a board member is a responsible and trusted position and no one should be forced to accept the position. Some individuals may be unwilling to accept the position because of the potential liabilities associated with the position of a director. Depending on the jurisdiction, directors may be subject to personal (and possibly criminal) liability, including, without limitation, for failure to maintain the company's books and records, for failure to comply with applicable tax, antitrust, anti-corruption, health and safety, environmental and other laws, for transactions that are not related to commercial activity, and/or in certain bankruptcy situations. Directors are generally entitled to indemnification by the company and, in the case of GP-appointed directors, by their appointment GP. Directors and Officers Liability Insurance (often referred to as "D&O" insurance) can typically be purchased to cover such risks.

Recommendation

Directors should ensure that the boards on which they serve seek legal or other professional advice on complex board decisions. The GP and the Portfolio Company should also ensure that appropriate liability insurance is in place and appropriate to the specific circumstances.

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