Managing a company or business in Brazil involves a series of responsibilities that are inherent to the business, whether tax, regulatory, labor or environmental, for example.
Therefore, it is essential that directors, advisors and/or administrators have the necessary protection to be able to act actively in the management of companies without worrying about possible situations of personal loss arising from the exercise of these positions.
In Brazil we identify the Indemnity Agreement as the most appropriate tool for this protection. Its main objective is to guarantee the reimbursement or compensation of losses and costs arising from judicial, administrative or arbitration demands resulting from acts carried out by company managers in the process of their practice. Clauses involving damage to reputation may also be inserted.
It provides for the company to fully bear such losses and resulting costs, as a way of preventing the executives’ individual assets from being affected by demands that are related to the regular acts of their management.
As a rule, the Indemnity Contract must provide:
1. The company’s interest in protecting its executives against financial risks arising from the exercise of their functions; and
2. The company’s interest in protecting the assets of its executives, as long as they act in accordance with certain standards of conduct, duly established in the contract.
However, we shall establish some limits for the compensation provided in the Indemnity Contract, such as: (a) when the executive acts outside the practice of his duties; (b) when acting with bad faith, intent, gross negligence or fraud; or (c) when acting in its own interest or that of third parties and/or to the detriment of the company’s social interest.
This tool is essential for implementing the best corporate governance practices in any type of company, and can be used by different corporate structures, including with greater or lesser scope of assumption of responsibilities.
