Founders often think lawsuits happen to “the company.” In reality, directors and officers can be named personally in claims alleging mismanagement, breach of duty, non-compliance, or unfair workplace actions. That’s why a clean governance setup and a correctly structured Directors & Officers (D&O) Insurance policy matter: especially once you have investors, ESOPs, senior hires, or regulatory touchpoints.
Use this checklist to pressure-test whether your governance and D&O coverage are genuinely founder-friendly, not just “policy purchased.”
1) Board and roles: Get the basics clean
Before insurance, fix structure. Many founder disputes become messy because roles and decision authority were never documented properly.
- Clearly record who is a Director vs Officer vs Key Managerial Personnel (KMP) (as applicable to your entity and filings)
- Define who can approve what: hiring, spending limits, vendor onboarding, fundraising steps
- Ensure appointment/resignation documentation is orderly and reflected in internal records and statutory filings where required
- Confirm committee structures (if any) and “who owns compliance” across finance, HR, legal, infosec
This matters because D&O claims often examine whether leadership acted within defined authority and governance processes.
2) D&O basics: Confirm Side A, Side B, Side C match your stage
A common reason D&O disappoints is that the buyer didn’t map “who is protected under which bucket.” In D&O, coverage is usually structured into “Sides”:
- Side A: Protects individual directors/officers when the company cannot indemnify them (or is legally not allowed to)
- Side B: Reimburses the company when it indemnifies directors/officers
- Side C: Covers the company itself for certain entity-level claims (Entity coverage varies significantly in India, private company D&O often includes broader entity protection beyond securities claims, depending on wording.
What to do:
- Confirm which insured persons are included (founders, independent directors, CFO, HR head, etc.)
- Check if past, present, and future directors/officers are covered, and how “insured person” is defined
- If you’re adding independent directors or forming committees, revisit adequacy, boards change risk, fast
Treat the Side structure as your policy’s “architecture,” not as a brochure term.
3) Claims you want covered: List the real ways founders get pulled in
When you buy D&O, don’t just buy because “investors asked.” Buy against realistic allegations. Common claim triggers startups should discuss include:
- Mismanagement allegations (e.g., decisions causing stakeholder losses)
- Breach of duty (fiduciary duty-type allegations, governance lapses)
- Regulatory non-compliance allegations (not an admission of guilt, just the cost of responding can be heavy)
- Employment practices claims (wrongful termination, harassment, discrimination-type allegations; coverage depends on wording and extensions)
Important: coverage varies significantly by policy wording, exclusions, and endorsements. Ask for clarity in writing on what is included/excluded.
Statutory fines and penalties may not be insurable under Indian law, even if defence costs are covered.
4) Limits and deductibles: Match investor scrutiny and decision risk
D&O is not a “minimum purchase” product. The limit and deductible (also called retention) decide whether the policy is practical when you need it.
Checklist:
- Choose limits that reflect your cap table complexity, fundraising stage, and board composition
- Check if Side A has a separate limit or shared limits across Sides A/B/C (structure can affect how quickly limits exhaust)
- Understand your deductible by claim type (entity claims may have different retentions than individual claims)
- Map worst-case legal cost scenarios: even before damages, defence costs can be substantial
If a policy is cheap because retentions are high or coverage is narrow, it may not help during a real dispute.
5) Paper trail discipline: Your boring paperwork is your best defence
D&O can pay for defence (subject to terms), but your documentation often determines whether the dispute becomes avoidable, defensible, or chaotic.
Build these habits:
- Maintain board minutes and resolutions (especially around fundraising, hiring/firing senior staff, related-party issues)
- Record conflict-of-interest disclosures and abstentions
- Keep approval trails for major expenses, vendor selection, and key policy decisions
- Store documentation centrally with access controls
A disciplined paper trail reduces “he said/she said” disputes and makes governance investor-ready.
Final checklist you can copy-paste internally
- Board roles and authority documented
- D&O Side A/B/C understood and mapped to your structure
- Coverage triggers discussed: governance, regulatory, employment practices
- Limits and deductibles aligned with your risk and investor expectations
- Minutes, disclosures, and approvals maintained consistently
If you want, share your startup stage (pre-seed/seed/Series A), board structure, and whether you have independent directors, and I’ll tailor a “minimum viable D&O” checklist for that stage.
