The Importance of Advancement in Corporate Formation and Litigation Strategy
Advancement is a corollary to indemnification, permitting directors, officers and managers to get legal fees advanced for their defense of claims asserted against them in their corporate capacity. While indemnification requires a company to pay legal fees incurred by the director, officer or manager after he or she defeats a claim, advancement allows for payment before a decision is made regarding the claims. Most companies and those serving in managerial capacity do not think about the impact of advancement; however, it is a powerful tool that should be negotiated and discussed at the forefront.
Delaware, where most entities are incorporated, has a strong public policy in favor of advancement rights so as to attract the most capable people into corporate service.1 Indeed, as the Delaware Supreme Court previously has explained, “[a]dvancement provides corporate officials with immediate interim relief from the personal out-of-pocket financial burden of paying the significant on-going expenses inevitably involved with investigations and legal proceedings.”2 Furthermore, Delaware public policy is in favor of allowing advancement even in cases where claims against the director, officer, or manager is for breach of fiduciary duty.3
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