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> But if the shareholders are being called on for more money, it's because the corporation has run out. And in that scenario, contractual indemnity from the cor

> But if the shareholders are being called on for more money, it's because the corporation has run out. And in that scenario, contractual indemnity from the corporation would be of no use, because it neither (i) provides funds to pay those who are suing, or (ii) protects the shareholders from lawsuits from third parties. The definition of indemnity is protection from lawsuits filed by third parties. This is in fact why you have insurance. Person A sues person B (an investor in C) for something corporation C did. Person B produces the indemnity agreement between himself and C, and the court throws out the suit. And worthless judgments happen all the time. A party's inability to pay does not dissolve that party's agreements to indemnify some other party, or expose them to liability. And, besides, it would likely never get to this point anyway, unless this proposal also involves abolishing corporate bankruptcy.

RHSeeger 7y ago
> The definition of indemnity is protection from lawsuits filed by third parties. This is in fact why you have insurance. Person A sues person B (an investor in C) for something corporation C did. Person B produces the indemnity agreement between himself and C, and the court throws out the suit. This sounds like it's missing something. Why wouldn't company B pay company D, a small LLC with 0 assets, to indemnify it against everything it does, period. There has to be a case where, in your scenario, C can't cover the issue and B is on the hook, rather than the case just being "thrown out".
- baryphonic 7y ago
  Good question. I don't know. This is where it gets into the territory that a lawyer would need to find the precedent and find scenarios where courts did indeed find that an indemnity agreement was invalid for some reason. That goes beyond my knowledge of finance/economics and basic working knowledge of the law. My gut tells me that you are right about your scenario. IANAL, but if I were to hazard a guess, I'd say that the courts would be unimpressed with a corporate entity that has no assets and loads of indemnity agreements. (I'd also point out that a LLC being paid for anything by definition has assets, although it may just convert them all into expenses.) A court might decide that such an agreement is unenforceable. I'm guessing that blatantly bad faith arrangements like that would not stand up in court. But, again, this is a total guess.
- unishark 7y ago
  I think most commonly indemnification agreements are actually regarding B suing C or vice versa. E.g. if I sell you some software to use in your product ot resell, don't come sue me because you got yourself in trouble with it somehow. To protect a third party from liability you would have to operate somehow like insurance, and that has a lot of legal requirements like you need to have sufficient cash in a bond or something to be able to guarantee you can pay claims.
rahimnathwani 7y ago
A is not a party to the contract between B and C. So, if A has a claim against B, cannot impact or nullify that contract. Sure, B can try to get C to pay. Or B can pay up and then try to get the money back from C. But this is between B and C, and does not affect A's ability to collect.
deleted 7y ago
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RHSeeger 7y ago

> The definition of indemnity is protection from lawsuits filed by third parties. This is in fact why you have insurance. Person A sues person B (an investor in C) for something corporation C did. Person B produces the indemnity agreement between himself and C, and the court throws out the suit. This sounds like it's missing something. Why wouldn't company B pay company D, a small LLC with 0 assets, to indemnify it against everything it does, period. There has to be a case where, in your scenario, C can't cover the issue and B is on the hook, rather than the case just being "thrown out".

baryphonic 7y ago
Good question. I don't know. This is where it gets into the territory that a lawyer would need to find the precedent and find scenarios where courts did indeed find that an indemnity agreement was invalid for some reason. That goes beyond my knowledge of finance/economics and basic working knowledge of the law. My gut tells me that you are right about your scenario. IANAL, but if I were to hazard a guess, I'd say that the courts would be unimpressed with a corporate entity that has no assets and loads of indemnity agreements. (I'd also point out that a LLC being paid for anything by definition has assets, although it may just convert them all into expenses.) A court might decide that such an agreement is unenforceable. I'm guessing that blatantly bad faith arrangements like that would not stand up in court. But, again, this is a total guess.
unishark 7y ago
I think most commonly indemnification agreements are actually regarding B suing C or vice versa. E.g. if I sell you some software to use in your product ot resell, don't come sue me because you got yourself in trouble with it somehow. To protect a third party from liability you would have to operate somehow like insurance, and that has a lot of legal requirements like you need to have sufficient cash in a bond or something to be able to guarantee you can pay claims.

rahimnathwani 7y ago

A is not a party to the contract between B and C. So, if A has a claim against B, cannot impact or nullify that contract. Sure, B can try to get C to pay. Or B can pay up and then try to get the money back from C. But this is between B and C, and does not affect A's ability to collect.

deleted 7y ago

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