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Understanding Indemnity Agreements And Their Uses

Aug 17, 2007
An Indemnity Agreement is a contractual agreement made between two parties. One party signs a legal document proclaiming to be a guarantor for a corporation or a company. The other party sends a representative of the company such as its president to sign the document. They make these agreements when the company in question has no assets to pledge or use as collateral for a loan and another person or company signs an indemnity agreement to be a guarantor for the loan. Insurance companies will indemnify a policyholder for any loss or damage to property or assets, which the policyholder had insured.

The Guarantor And The Indemnified Corporation:
The Indemnity Agreement is signed between the guarantor and the indemnified company. The guarantor, if it is a corporation, must provide sufficient documentation that it has the corporate power, authorization, consent, and approval needed to carry on its usual business while entering into the agreement. The corporate officers authorized to bind the company to this agreement must sign the agreement. They execute, deliver, and perform under the terms of the agreement on behalf of any non-corporate guarantor. Signing the agreement should not constitute a default under any provision of applicable law, regulation of the charter, certification of incorporation, bylaws, agreements, injunctions, judgments, decrees or orders to which it may be subject.

Conditions
The guarantor must agree to certain provisions. If the guarantor is a company or a partnership, the indemnity agreement binds each partner or party who has a beneficial interest in the guarantor. Each party must agree to be bound jointly and severally to the indemnity agreement. The guarantor cannot terminate the agreement as long as the indemnified company provides a replacement bond assuming all outstanding liabilities in amounts no less than that provided by the guarantor. The guarantor must give at least 90 days notice in order to terminate the agreement.

In the indemnity agreement, both the parties have certain rights and certain duties to carry out. The indemnified company must protect the guarantor against default and act in good faith to the trust the guarantor has shown in them, not causing any damage to the reputation of the guarantor. The guarantor needs proof from the indemnified company that its board of directors has good business acumen and can carry out the bargain effectively. Some companies indemnify their directors or officers to ensure good conduct and good management while the company itself is indemnified. The directors or officers may refuse to hold their position in the company until they are adequately protected. The company protects its directors or officers and pays any expense incurred through a lawsuit against its officers if the officers prove they were acting in the best interest of the company and are not guilty of any fraud. If they are guilty of causing harm to the company, the company may nullify its indemnity agreement with these employees.

Additional Help
There are several software packages that offer various kinds of indemnity documents and advice in filing these documents. There are reputable companies, which document and protect all the documents of corporations.
About the Author
David Gass is President of Business Credit Services, Inc. His company publishes afree weekly e-newsletter on Small Business Consulting at their web site http://www.smallbusinessconsulting.com
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