How Directors & Officers Can Protect Their Assets


The directors & officers of a business have to manage a lot of essential responsibilities, and they also have formidable risk exposure. Also, they may incur personal losses or liability for a legal claim concerning their role in a business. Here are some wise precautions you can take as an officer or director to protect your assets.

Carry Directors & Officers Insurance

Include D&O coverage in your commercial insurance package to ensure that you will have the resources you need to defend legal claims against you as a corporate officer. Furthermore, this coverage can address common claims scenarios that do not fall under the scope of property & casualty coverage. These can involve actions involving employment practices liability or an alleged breach of fiduciary duty. 

Verify That Governing Documents Require Indemnification

If you are a registered business officer or serve on a board of directors, confirm whether governing documents such as articles of incorporation, by-laws, or an operating agreement stipulates that the corporation must indemnify directors & officers if someone names them in a lawsuit. Without this provision, a corporation will have no affirmative obligation to pay for legal costs or money judgments associated with a claim against you. If this provision is present in your existing documents, it may be possible to amend them. 

Do Not Collateralize or Commingle Personal Assets 

In seeking out funding opportunities for your business, avoid utilizing personal assets as collateral to procure funding. Thus, if you cannot keep up with payments on loans or financing, you could have to relinquish personal assets to creditors with a secured interest in them. 

In considering how directors & officers can protect themselves, bear in mind that you should avoid commingling personal funds with business funds. Additionally, it could result in an account freeze as well as recordkeeping problems.

Restrict Spending and Maintain Healthy Reserves To Keep Your Business Solvent 

When businesses cannot pay creditors, negative remarks on a credit score are not the only repercussion that directors & officers have to worry about. In some jurisdictions, creditors may be able to pursue collection directly from a corporation’s principals. It means that defaulting on business obligations could make your personal assets vulnerable to liquidation, liens, or other encumbrances. 

Budgeting meticulously and carefully monitoring your business’ expenditures can spare you from being on the hook if your company cannot satisfy payment obligations. Also, organized recordkeeping will help you keep your business on track. Use good accounting software, and work with a professional accountant or consultant to ensure your accounting practices are up to par.

Utilize Resources and Guidance From Directors & Officers’ Insurance Providers

It may be advantageous to get guidance from directors & officers’ insurance providers about managing cash, documenting expenditures, and handling. Likewise, their insights can help ensure compliance with exacting industry and regulatory standards and spare you from losing sight of your business’s financial position. 

Working with a knowledgeable insurance provider to get assistance assessing your individual coverage needs and exploring different options is advisable. An agent with extensive experience serving business owners and principals can help you find affordable coverage and effectively reduce your risk exposure.

About The Hilb Group

Deciding what coverage you need and what limits and deductibles make the most sense can be tricky. Founded in 2009, the Hilb Group has been helping clients to make sense of their options and make the smartest choices for their circumstances. Whether you need Warehouse Insurance or any other type of business or personal coverage, we encourage you to contact our friendly, experienced, and capable team today. Call us at (800) 776-3078 for a consultation.