Director and Officer Indemnification and Advancement of Legal Fees in California (Corporations Code 317)

Last updated: November 2026. Reviewed by Pavel Kolmogorov, California business litigation attorney (State Bar No. 321018).

Corporations Code section 317 is the California statute on indemnifying directors, officers, and other corporate agents sued over company business. The corporation must reimburse defense expenses to the extent the person wins on the merits. In a suit by an outsider, it may indemnify a person who acted in good faith and reasonably believed the conduct served the corporation's best interests. It may advance legal fees against an undertaking to repay. (Corp. Code, § 317, subds. (b), (d), (f).) Kolmogorov Law, P.C. represents directors, officers, and companies in these disputes.

Call (909) 235-6116 or contact us online to discuss a demand for indemnification or advancement.

What Corporations Code 317 covers

The statute protects an "agent," defined broadly. The term includes any person who is or was a director, officer, employee, or other agent of the corporation. A "proceeding" is any threatened, pending, or completed action, including an administrative or investigative one. "Expenses" include attorneys' fees and the cost of establishing a right to mandatory or court-ordered indemnification. (Corp. Code, § 317, subd. (a).)

Whether an individual can be held liable at all is a separate question, covered on our page on officer and director personal liability.

Director indemnification in California: when the company must pay

One subdivision is mandatory. To the extent an agent "has been successful on the merits" in defense of a covered proceeding, or of any claim, issue, or matter in it, the agent "shall be indemnified" against expenses actually and reasonably incurred. (Corp. Code, § 317, subd. (d).)

The Court of Appeal has read that subdivision as written. It does not require a separate showing of good faith. What it requires is a disposition showing that the action would not succeed, and that the person was sued for acts done in a corporate capacity. (Wilshire-Doheny Associates, Ltd. v. Shapiro (2000) 83 Cal.App.4th 1380.) Another decision adds that the merits must have been judicially determined. The court need not find the agent innocent, only not liable. (Groth Bros. Oldsmobile, Inc. v. Gallagher (2002) 97 Cal.App.4th 60.)

A negotiated settlement that decides nothing about the merits is weak footing for a mandatory claim, so the terms of any settlement deserve attention before signing.

When the company may pay, and who decides

Suits by outsiders. The corporation has power to indemnify an agent against expenses, judgments, fines, settlements, and other amounts actually and reasonably incurred. The condition is that the person acted in good faith and in a manner reasonably believed to be in the corporation's best interests. A judgment or settlement does not by itself create a presumption that the person fell short of that standard. (Corp. Code, § 317, subd. (b).)

Suits by or for the corporation. In an action by the corporation, or a derivative action brought in its name, the power is narrower. It reaches only expenses. The standard is good faith and conduct the person believed to be in the best interests of the corporation and its shareholders. The power does not cover amounts paid to settle a pending action without court approval, or the expenses of defending an action settled that way. Where the person was adjudged liable to the corporation, only the court can allow indemnity. (Corp. Code, § 317, subd. (c).)

Outside mandatory indemnity, the statute lists four deciders for each case. The first is a majority of a quorum of directors who are not parties to the proceeding. If that quorum cannot be obtained, independent legal counsel may decide in a written opinion. The shareholders may approve, with the indemnitee's shares not voting. The last is the court in which the proceeding is or was pending, and the agent may apply there whether or not the corporation opposes. (Corp. Code, § 317, subd. (e).) In a closely held company where every director is a defendant, the board route is closed.

Advancement of legal fees during the case

Indemnification looks backward. Advancement pays the bills as they arrive. The statute says expenses "may be advanced" before final disposition, upon receipt of an undertaking by or on behalf of the agent to repay if it is ultimately determined that the agent is not entitled to indemnification. (Corp. Code, § 317, subd. (f).)

Section 317 permits advancement and does not by its terms compel it. A director who claims a right to advancement should look to another source, such as the bylaws or a separate indemnification agreement. The articles may authorize indemnification beyond section 317 by bylaw or agreement, within limits. Such a provision cannot reach acts for which a director may not be excused from liability, such as intentional misconduct or a transaction that yielded an improper personal benefit. (Corp. Code, §§ 204, subd. (a)(10), (11), 317, subd. (g).) For contract-based indemnity, see our page on indemnification clause disputes.

The documents can also cut the other way. No indemnification or advance may be made where it would be inconsistent with the articles, the bylaws, a shareholder resolution, or an agreement that limits indemnification. The limit must have been in effect when the claim accrued, and it does not block mandatory indemnity or a court order. (Corp. Code, § 317, subd. (h).)

LLC managers and members

An LLC "shall reimburse" and indemnify a manager, or a member of a member-managed LLC, for payments made and liabilities incurred in the course of activities on the company's behalf. The condition is compliance with the statutory fiduciary duties. An agent who succeeds on the merits must be indemnified against expenses if the agent acted in good faith and in a manner reasonably believed to be in the best interests of the LLC and its members. (Corp. Code, § 17704.08, subds. (a), (d).) A written operating agreement may alter or eliminate the subdivision (a) indemnity. (Corp. Code, § 17701.10, subds. (d), (g).) The section says nothing about advancing fees, so read the agreement first.

If you are the director or officer who was sued

Make the request in writing as soon as the complaint arrives. Cite the bylaw or agreement, ask for advancement, and offer the undertaking. Give notice under any directors and officers policy; a corporation may insure its agents whether or not it could indemnify them. (Corp. Code, § 317, subd. (i).) Our page on business insurance and the duty to defend explains the tender. Do not settle a derivative claim without court approval if you expect the company to pay.

If you are the company asked to pay

Identify who can decide without a conflict. Read the articles, bylaws, and any indemnification agreement before answering, because they may require what the statute only permits. Where the request comes from someone the company itself accuses of wrongdoing, the good faith standard and the limits on derivative suits matter most. The business judgment rule may bear on whether the person met that standard.

What to bring to the first meeting

Bring the complaint or demand, the articles and bylaws, any indemnification agreement, and every insurance policy that might respond. Add board minutes on the decision that led to the suit, your written request for indemnification, and the company's reply.

Frequently asked questions

I was sued as a director for a decision the board made. Does the company have to pay my legal fees?

It must reimburse them if you win on the merits. Under California Corporations Code section 317, a director who is successful on the merits is entitled to indemnification of expenses actually and reasonably incurred. Before that, the corporation may advance fees against an undertaking to repay, and the bylaws or an indemnification agreement may make that advancement mandatory.

What is Corporations Code section 317?

It is the California statute that governs when a corporation may or must indemnify its agents, including directors and officers, for the cost of lawsuits arising from their service. It covers permissive indemnification, mandatory indemnification after success on the merits, advancement of expenses, limits on indemnity in suits by the corporation, and insurance.

Does a California corporation have to advance legal fees to a director?

Not under the statute alone. California Corporations Code section 317 says expenses may be advanced before final disposition if the corporation receives an undertaking to repay. Whether advancement is required depends on the articles, the bylaws, or an indemnification agreement, so the exact words of those documents matter.

Our company is suing its former CEO, and he demands that we pay for his defense. Do we have to?

Possibly, depending on the documents. In a suit by the corporation, California Corporations Code section 317 allows indemnity only for expenses. He must have acted in good faith and in a manner he believed to be in the best interests of the corporation and its shareholders. If he wins on the merits, indemnification of his reasonable expenses is mandatory. A bylaw or agreement may also require advancement while the case is pending.

Is an LLC manager entitled to indemnification in California?

Yes, by default. Under California Corporations Code section 17704.08, an LLC must reimburse and indemnify a manager for payments and liabilities incurred in the course of activities on the company's behalf, if the manager complied with the statutory fiduciary duties. A written operating agreement may alter or eliminate that indemnity, and the section does not address advancement, so read the agreement first.

Talk to a California corporate dispute attorney

To discuss indemnification or advancement of fees, call (909) 235-6116 or contact us online. Kolmogorov Law, P.C. is a business litigation firm in Irvine, California. Related pages: partnership and shareholder disputes, corporate litigation, and officer and director personal liability.

This page provides general information about California law and is not legal advice. Outcomes depend on the articles, the bylaws, any indemnification agreement, the facts, and the court.