Drafting Effective Operating Agreement Indemnification Clauses: Advice from the Litigators
This article, written by litigators, is intended to inform drafters of the need for clearly delineated rights to indemnification, on one hand, and fee advancement on the other. It surveys New York's interpretation of Limited Liability Company Law §420 and identifies considerations for both indemnification and fee advancement.
February 23, 2024 at 10:00 AM
6 minute read
Contracts
This article, written by litigators, is intended to inform drafters of the need for clearly delineated rights to indemnification, on one hand, and fee advancement on the other.
In the limited liability company (LLC) context, indemnification is an LLC's contractual obligation to reimburse defense expenses. Fee advancement is an LLC's contractual obligation to pay incurred litigation expenses, before the right to indemnification is established.
LLC members do not always understand their fiduciary and/or contractual obligations and generally assume the LLC will indemnify and defend them in connection with any legal dispute. But what happens when this is a dispute between members? Is a defendant member still entitled to indemnification or fee advancement while being accused of fraud or other misconduct?
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