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Insure Your Board

Every business should consider directors and officers insurance to protect itself from lawsuits from customers, vendors, employees, or, in family-owned companies, other family members. The insurance generally covers legal fees if a board is sued, as well as costs incurred if a judgment is decided in favor of the plaintiff. The cost depends on factors including the size of the board and the company's net worth. For example, a 30-employee company might get $2 million in coverage with a $25,000 deductible for about $12,000 a year.

You might be able to avoid forking over the money if state law allows you to agree to indemnify directors in case of a lawsuit. But that's risky. "If the corporation is in bankruptcy, you won't have any assets with which to provide indemnification, anyway," says Robert Anderson, a partner with the law firm of Hale Lane Peek Dennison & Howard in Las Vegas. Insurance premiums may be a small price to pay for the advice you'll get from a solid board.

The Aging of Abercrombie & Fitch
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