Indemnification
Operating Agreement provision committing the LLC to reimburse members/managers for legal expenses and judgments.
Definition
Indemnification provisions commit the LLC to reimburse members/managers for legal expenses, settlements, and judgments arising from their role. Permitted under 6 Del. C. § 18-108. Cannot indemnify for bad faith or knowing misconduct.
Context
Standard Operating Agreement clause for multi-member LLCs and manager-managed structures.
Example
A manager of a Delaware LLC is sued personally for actions in their managerial role. The Operating Agreement indemnification provision requires the LLC to pay legal defense costs.
Common pitfalls
- Cannot indemnify bad faith or intentional misconduct.
- D&O insurance often paired with indemnification for backup coverage.