Multifamily Investing Operating Agreements and Clauses Right to Indemnification

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You might have some legal clause in an operating agreement that reads approximately like this:

In multifamily investing, the operating agreement outlines the roles and rights of general partners (GPs) and limited partners (LPs), including the "right to indemnification." Indemnification is a legal principle protecting an individual or entity from financial loss or liability resulting from lawsuits, claims, or damages incurred due to their actions or inactions in connection with the investment.

The right to indemnification provides risk mitigation, shielding individual partners from personal financial losses that may arise from legal actions related to the investment. It also offers clearer allocation of responsibility by outlining each partner's role and liability, helping to avoid potential disputes. Furthermore, indemnification provisions can make the partnership more appealing to potential investors and skilled managers.

A typical right to indemnification agreement might read something like this:

Right to Indemnification. The Company shall indemnify each Manager against any and all liability and reasonable expense that may be incurred by it or him in connection with or resulting from (a) any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, arbitrative, or investigative (collectively, a “Proceeding”), (b) an appeal in such a Proceeding, or (c) any inquiry or investigation that could lead to such a Proceeding, all to the full extent permitted by applicable law. Upon a determination by the Managers to do so, the Company may indemnify persons who are or were a Manager, employee, or agent of the Company, or persons who are not or were not employees or agents of the Company but who are or were serving at the request of the Company as a director, manager, officer, trustee, employee, agent, or similar functionary of another foreign or domestic corporation, limited liability company, trust, partnership, joint venture, sole proprietorship, employee benefit plan, or other enterprise (collectively, along with any managers, officers, employees, and agents of the Company, such persons are referred to herein as “Corporate Functionaries”) against any and all liability and reasonable expense that may be incurred by them in connection with or resulting from (a) any Proceeding, (b) an appeal in such a Proceeding, or (c) any inquiry or investigation that could lead to such a Proceeding, all to the full extent permitted by applicable law. The Company will pay or reimburse to the Manager, and upon a determination by the Managers to do so, the Company may pay or reimburse, in advance of the final disposition of the Proceeding, to any person who is or was a Manager, employee, or agent of the Company all reasonable expenses incurred by such person who was, is or is threatened to be made a named defendant or respondent in a Proceeding to the full extent permitted by applicable law. The rights of indemnification provided for in this Article VII shall be in addition to all rights to which any Corporate Functionary may be entitled under any agreement or vote of the Managers or as a matter of law or otherwise.

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If you would like to learn more about multifamily investing, you should join the Benjamin Z Miller Investor Networking Group.

If that sounds interesting contact my office by going to www.benjaminzmiller.com and fill out the contact form.
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I hope that helps and good luck with your investing!


Benjamin Z Miller
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