It is essential that Brazilian board members, directors, executives, and administrators have adequate protection to actively manage companies without risking their personal assets being compromised due to the regular exercise of their functions.
This is because decision-making within a business context generates significant responsibilities – whether fiscal, regulatory, labor, or environmental – and it is not always possible to completely eliminate exposure to questioning and disputes.
The most appropriate tool for this protection in Brazil, suggested by the CVM (Brazilian Securities and Exchange Commission) itself, is the indemnity agreement, which aims to guarantee the reimbursement or compensation of losses and costs related to actions taken by managers in the exercise of their duties or powers.
Through the indemnity agreement, the company assumes full responsibility for these costs and losses, thus preventing the personal assets of executives from being affected by lawsuits related to regular management actions. In some cases, it is possible to include the partners themselves as part of the indemnity agreement, either directly as a contracting party or as a guarantor of the company’s obligations, providing greater security to executives, especially for companies that already have materialized liabilities before a particular executive join.
The main objective of this document is to determine: (i) that the company is interested in protecting its executives against financial risks arising from the performance of their duties; and (ii) that this protection of personal assets is conditional upon compliance with the legal duties arising from the executive’s role, in addition to standards of conduct previously defined in the contract.
It is also essential to establish explicit limits for this compensation in Brazilian companies, excluding, for example, situations in which the executive: (i) acts outside the scope of their duties; and (ii) acts in bad faith, with malice, gross negligence, or fraud; or (iii) acts in their own interest or that of third parties, in conflict with or to the detriment of the company’s interest.
The indemnity agreement is, today, one of the central instruments for implementing good corporate governance practices in Brazil, applicable to different types of companies and corporate structures, with greater or lesser degrees of scope in the assumption of responsibilities by the company.
