Blog - April 17, 2023
Why Do Investors Need Directors And Officers Liability?
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Directors’ and Officers’ (D&O) Liability can protect your business leaders – but what else is it good for? And why do some investors prefer you to have it in place?

Read on to have your questions answered.


What is Directors’ and Officers’ Liability and why do you need it?

As we’ve mentioned before, D&O Liability is an all-important policy to protect business leaders from financial losses if they’re sued for wrongful decisions or actions while leading the company.

D&O Liability is important for growing businesses, irrespective of any investment. As the company scales, it generally takes on more risks from bigger contracts, larger clients, with more stakeholders to juggle, and potential exposure to investors.

And when the risks increase, so does the potential for legal action against the business owners – the directors and officers. If a legal case is brought against a director or officer, the costs of defending against the action can be substantial.

Ultimately, D&O Liability provides financial security, which is particularly important with claims against individual directors, who aren’t generally afforded any protection by the venture being a limited company.

Plus, with the right legal support from specialist solicitors, it could reduce the time required from the directors to deal with the situation. So leaders can focus on running the business, which reduces personal stress and benefits the organisation.


Why do investors demand Directors’ and Officers’ Liability to be in place?

Investors might require businesses they financially support to have D&O Liability for a number of reasons:

1. Protection for their investment

The investor can protect their investment from any legal action taken against the company’s leaders. When set up correctly, the cover could protect actions from the investors themselves against the leaders of the business.

2. Reduced Risk

A policy could lower the overall risk of the investment by offering protection in case of wrongful decisions or actions by the company’s leaders. This can make the company more attractive to investors, which can improve the chances of funding.

3. Peace of mind

Coverage can help investors to feel confident that the business’s leaders are taking steps to protect the company and its assets. It also offers peace of mind that the business is looking after the investors’ assets.

4. Compliance benefit

Having a policy in place is often a requirement for listing on stock exchanges and other regulatory compliance. Plus, purchasing D&O Liability insurance shows you’re a well-run and financially stable company, making it more attractive to potential investors.

5. Recruitment of talented leaders

This type of insurance could help to attract and retain talented directors – with their valuable skills and experience – which is beneficial for a growing business. Sometimes if an individual is asked to join a venture, they may require that company to have D&O Liability already. This is most common when appointing a new Finance Director.

6. Investor board members

It can also benefit individuals. The investors may demand to sit on the venture’s board, reducing the need for the investor to rely on their own policy if something goes wrong. This is particularly important where the investing company has a large portfolio with a range of potential points of failure, meaning their own cover is at greater risk of being eroded.


Do you need Directors’ and Officers’ Liability?

To find out more about Directors’ and Officers’ Liability, contact our team today. You can get in touch on 0161 533 0411 or fill in our online form and we’ll get back to you.


Photo by Benjamin Child on Unsplash

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