Guides
D&O insurance for private companies and startups
Private companies face D&O claims from investors, co-owners, creditors and regulators. How private policies differ from public ones and what startups need.
A privately held company needs D&O insurance when it has outside investors, lenders, co-owners or a board whose members could be sued personally. Private-company policies are usually broader than public ones: they commonly cover the company itself for any wrongful-act claim, not just securities claims, and they are priced on financial strength and ownership structure rather than stock-price exposure. Investor agreements often require the coverage, but the exposure exists without one.
Why private companies get sued
It is easy to assume securities class actions are a public-company problem and move on. They largely are. Cornerstone Research and Stanford counted 207 securities class actions in 2025, and those suits turn on publicly traded stock. A private board's claims come from different directions:
- Investors and minority owners. An investor who says the offering materials overstated traction; a minority holder who says directors undervalued shares in a buy-out, diluted them in a down round or paid insiders too much. These often arrive as direct claims or as derivative suits on the company's behalf.
- Co-founders and co-owners. Disputes over control, compensation, removal and valuation, sometimes pleaded as oppression or breach of fiduciary duty.
- Creditors and bankruptcy trustees. When a company fails, trustees and creditors' committees look at the decisions made on the way down: repayments to insiders, distributions, borrowing while insolvent. Directors are named personally.
- Regulators. State attorneys general, the SEC when a private raise is alleged to be misleading, the FTC and sector regulators.
- Competitors, customers and vendors. Claims that the company misrepresented something, interfered with a contract, or acquired a business on false pretenses.
- Employees. Wrongful termination, discrimination and wage claims are real exposures, but they are covered by Employment practices liability insurance (EPLI): what it covers, which many private-company programs add as a separate coverage part or buy in a Management liability packages: D&O, EPLI, fiduciary and crime.
The policy is built the same way as any D&O program; see Directors and officers (D&O) insurance explained and D&O Sides A, B and C explained. The difference is in how the parts are tuned.
Private versus public D&O
| Feature | Public company | Private company |
|---|---|---|
| Main claim source | Securities class actions, derivative suits, SEC | Investors, owners, creditors, regulators, competitors |
| Entity coverage (Side C) | Usually limited to securities claims | Commonly covers any wrongful-act claim against the company |
| Underwriting focus | Market cap, stock volatility, disclosure quality | Financial statements, funding stage, ownership, litigation history |
| Form | Negotiated, separate Side A towers common | Often a shorter package form, sometimes with EPL and fiduciary |
| Offering-related claims | Core exposure | Usually excluded for public offerings; investor claims about private raises may be covered or restricted |
Read the offering language closely. Many private forms exclude claims arising from a public offering of securities, which matters for a company preparing to go public, and some restrict claims about private placements. Ask your broker how the form treats fundraising claims before you close a round.
The legal backdrop: exculpation and indemnification
Corporate law gives directors and officers some protection, but not enough to make insurance unnecessary.
- Under 8 Del. C. § 102(b)(7), a Delaware certificate of incorporation can eliminate or limit a director's or officer's personal liability to the corporation or stockholders for monetary damages for breach of fiduciary duty. It cannot do so for breaches of the duty of loyalty, acts not in good faith, intentional misconduct or knowing violation of law, improper personal benefit, or, for officers, claims by or in the right of the corporation. It limits damages; it does not stop the suit or pay the lawyers.
- Under § 145, a company may indemnify directors and officers in third-party suits, but in actions by or on behalf of the corporation, indemnification is limited to expenses, and it is barred where the person is adjudged liable to the corporation unless a court decides otherwise. Section 145(g) lets the company buy insurance whether or not it could indemnify the loss. See Delaware.
- A company that is short of cash cannot indemnify anyone. That is what Side A is for.
Other states have their own statutes; talk to corporate counsel about where you are incorporated. Remember too that some personal exposures sit outside D&O altogether. Under New York Business Corporation Law § 630, the ten largest shareholders of a corporation whose shares are not publicly traded can be jointly and severally liable for certain unpaid wages, after notice. Federally, the IRS's Trust Fund Recovery Penalty can make responsible persons personally liable for unpaid withheld payroll taxes. Many D&O forms exclude taxes and wages from covered loss, so ask whether yours does and whether any sublimit is offered. See New York.
Startups and venture-backed companies
Early-stage companies often need D&O sooner than they expect. Venture financing documents commonly include a covenant that the company will carry D&O insurance in an amount the board, including investor-appointed directors, approves. Investors who sit on the board want the coverage, and many portfolio funds also carry their own policies that sit excess of the company's. Points to check:
- Who is an insured. Investor-designated directors, board observers and advisory-board members may need to be named expressly.
- Other insurance. Make clear that the company's policy is primary for investor directors, with the fund's policy excess.
- Insured versus insured. Disputes between founders, or between the company and a former executive, are the most common startup conflicts and the most likely to hit this exclusion. Carve-backs for derivative claims, claims by former directors, and shareholder claims without insider collusion matter. See The insured vs insured exclusion in D&O policies.
- Subsidiaries and acquisitions. Automatic coverage for newly formed subsidiaries and a threshold for acquired companies.
- Change in control. A sale ends coverage for post-closing acts; the buyer typically arranges a run-off. For deal-specific risk transfer, see Representations and warranties insurance in M&A deals and tail coverage and extended reporting periods.
For a technology company's wider insurance needs, see startup insurance: what founders need at each stage and Software and SaaS company insurance.
What the underwriter asks
Applications for private companies tend to request: financial statements (audited if you have them), going-concern or covenant issues, funding history and plans, changes in ownership or control, pending litigation and regulatory contacts, and any known circumstances. Answers become part of the policy, so treat the application as a contract document. What drives price is the company's size and financial health, industry, ownership and investors, claims history and plans for a financing, sale or IPO. We do not quote premiums here because they depend on those factors.
A hypothetical
Say a founder-owned logistics company has three directors and a 15% minority shareholder who is not on the board. The board approves a sale of a subsidiary to a company owned by one director's relative. The minority holder sues the directors, alleging the price was too low.
- Policy: private-company D&O with entity coverage, a $25,000 retention, a $3 million limit and a carve-back to the insured-versus-insured exclusion for shareholder derivative claims brought without insider assistance.
- Defense: the directors hire counsel; the company advances costs. Say defense spending reaches $400,000, and the insurer reimburses above the retention.
- Settlement: a negotiated payment of $500,000 is funded by the insurer. A personal-profit exclusion generally needs a final adjudication before it applies, so it would matter mainly if the case were tried and lost.
The company also faces a wage claim from a driver and a payroll tax notice. The first belongs on EPL and the second is probably outside D&O. These figures are illustrative, not typical.
Buying checklist
- Entity coverage: confirm it covers all wrongful acts, or just securities claims.
- Fundraising and M&A: ask how offering-related, financing and acquisition claims are treated.
- Definition of insured persons and claim: include investor directors, observers, derivative demands and investigations.
- Limits and Side A: consider a separate Side A layer if the board will include outside or investor directors.
- Packaged lines: if EPL, fiduciary and crime are included, understand whether limits are shared.
- Extended reporting and change in control: know your options before a sale.
Key takeaways
- Private companies face D&O claims from investors, co-owners, creditors, regulators and competitors, not securities class actions in the main.
- Private-company forms usually offer broader entity coverage than public forms, but exclusions around offerings, contracts, employment and taxes can surprise buyers.
- Delaware-style exculpation limits damages but does not stop suits or defense costs, and indemnification has legal limits that Side A fills.
- Startups should check investor-director coverage, other-insurance wording and the insured-versus-insured carve-backs.
- Financial statements, funding plans and known circumstances on the application drive both price and enforceability.