Angel investors want their start-ups to succeed and what better way to ensure success than by influencing start-ups to invest in a D&O Liability Insurance policy for their directors?
Start-ups are gaining popularity in India with more and more millennials getting the desired funding for their business ideas. Angel investors, venture capitalists, investment companies, etc. fund potential business models, and a start-up is born. In their nascent stage, start-ups need good capital, talented labor, and full-fledged marketing to blossom into a profitable businesses. Amidst the financial crunch which start-ups usually face in their development stages, what would happen if the directors or key officers of the enterprise face legal notice for possible errors?
Benefits of D&O policy for start-ups
Directors and officers form the top level of management of start-ups. They are responsible for making the start-up a success by taking up different types of executive roles. They design the framework within which the start-up should operate and take the product and service-related decisions. It must decide on the best marketing techniques and review the performance of the organization within that framework. During the course of their everyday duties, they might make mistakes, unintentionally or due to negligence, in discharging their duties. These mistakes might later result in a lawsuit against them.
In case of a lawsuit or financial liability that directors and officers face due to any errors in discharging their fiduciary duties, there could be considered personal and company financial expenses. The director’s personal wealth will deplete if he has to compensate an aggrieved third party for any type of mistake committed. Since to err is human, the directors’ and officers’ personal wealth must be protected in case they face any liabilities due to the nature of their duties. This is where a directors’ & officers’ liability insurance policy comes into the picture. The policy covers the cost of possible lawsuits as well as any compensation payable by the directors and officers to an aggrieved third party. The third party can be employees of the organization, stakeholders, customers, creditors, or even the government.
Why does a start-up need a directors liability insurance policy?
As mentioned above, start-ups are in a delicate financial position in their incubation stages. In this stage, any financial setback, either suffered by the company or its directors and officers would be a disaster. A directors and officers liability policy help in protecting any financial liability suffered by the top executives of the start-up. Here are some reasons why angel investors should promote a directors and officers liability insurance policy in the start-ups that they fund –
To protect the directors and officers of the start-up from financial stress
A start-up has to comply with various laws and regulations in its operations. If the directors and officers of the enterprise commit any mistake, they might face severe repercussions from vendors, stakeholders, legal authorities, or employees. In case any notice is served to the directors and officers, they are exposed to a financial threat. They have to pay for the litigation costs incurred in a lawsuit or to compensate any third party for the financial loss suffered. This financial threat leads to financial stress and directors and officers might not be able to handle it. A D&O policy would help them face the financial implication of their actions without any stress. The policy would provide coverage against them.
To attract talent
The success of a start-up also depends on the talent and efficiency of its employees, directors, and officers included. If the directors and officers are experienced and qualified, they can take the start-up to new heights with their strategic intelligence. However, to attract such talented employees, start-ups need to offer not only good pay but value-added benefits too. When the start-up invests in a D&O liability insurance policy, potential employees can be assured of financial support in case of any liability that they suffer in the course of their duties. They can, therefore, be attracted to join the enterprise. Thus, with a D & O policy in place, start-ups can recruit qualified directors and officers for business success.
To mitigate the financial strain
If the start-up agrees to meet the costs of the liabilities faced by its directors and officers, D & O liability insurance provides a financial cushion to the company to meet any financial repercussions of its directors’ actions. Since start-ups don’t have deep pockets, they need coverage to mitigate the financial strain.
Additional Read: Why should a start-up consider Directors and Officers(D&O) Insurance?
Why Angel Investors should influence their funded start-ups to buy a D&O Liability Insurance Policy?
Angel investors have a financial stake in the success of the start-up that they fund. Thus, they should influence their start-ups to invest in a directors’ and officers’ liability insurance policy. This will provide complete financial protection. The policy would safeguard the financial liability faced by directors and officers of the start-up. This protection would motivate them to discharge their duties without fear.
How SecureNow can help
Thus, buying the best D&O liability insurance policy is necessary for a company. However, with so many general insurance companies offering a D&O insurance policy, it could be a difficult task to choose the right one. Let us help you make the right choice.
SecureNow can help you in getting the best D&O liability insurance policy for your employees. Visit www.securenow.in or call us at 96966 83999 and share your coverage needs. SecureNow will compile the list of insurance companies with the best plans. Compare the companies and plans and find the best one that matches your needs.
