Angel Investors need to protect against litigation.
Business Angels (also known as Angel Investors) should be aware that, no matter how much assessment of a risk is carried out before an investment is made, things can still go wrong.
As many early stage start-ups look to Angel Investors for funds, these individuals need to ensure they are properly protecting themselves from any pitfalls they may encounter in the future.
Even if not appointed as a director, an investor may be seen as a shadow director and have to face the potential of being held personally liable if things go wrong.
Fighting litigation can incur significant defence costs, through Lark investors can obtain a comprehensive Angel Protect Insurance policy, crafted to provide them with peace of mind by meeting their personal liabilities.
As an associate member of the UK Business Angels Association, the Lark team are experts at helping Angel Investors to protect their assets from litigation.
Our FAQ area will answers some commonly asked questions while our example Policy Wording can provide insight into what cover is provided.
As a Business Angel, you will be seen as a director of a company and have unlimited personal liability. Even if you are not an appointed director, your position as an angel investor may be construed as a director or shadow director. Angel Protect provides you with insurance for defence costs for claims brought against you.
The following are just some scenarios where you could find yourself with a heightened exposure to litigation:
As companies grow they are challenged by considerable regulatory demands
Companies will have growth and/or exit strategies, which can include, capital raising/funding, sale, or acquisition, all of which require a company to make significant representations
Unfortunately, when a company becomes insolvent, not only can this bring exposure to litigation, there is also a lack of funds to meet its potential legal costs
If a claim did arise from any of these scenarios, while damages were being considered, defence costs would be incurred.
Angel Protect provides Business Angels with an indemnity for financial loss resulting from their liability to pay damages that the court has ordered them to pay, or that they have agreed to pay (with QBE’s consent), up to the limit of indemnity as stated in the Angel Protect Policy Schedule - provided that liability arises solely from a claim first made during the period of insurance.
The policy also provides cover specifically in relation to investments in specified investee companies that qualify under the HM Revenue & Customs Enterprise Investment Scheme (EIS), HM Revenue & Customs Seed Enterprise Investment Scheme (SEIS) or the Venture Capital Trust (VCT) Scheme.
Angel Protect does not cover investments in companies that do not qualify under the HM Revenue & Customs Enterprise and Investment Scheme (EIS), HM Revenue & Customs Seed Enterprise Investment Scheme (SEIS) or the Venture Capital Trust (VCT) Scheme.
Also not covered are investments in any Financial Institution, dishonest or fraudulent acts, illegal personal profiteering and bodily injury or property damage.
The policy also does not cover a Business Angel if they are not a Sophisticated or High Net Worth individual, or if they are bankrupt or have been disqualified as a director.
However, Angel Protect insurance will advance defence costs until final adjudication of a claim.
Any individual or entity can bring a claim against an Angel Investor, including:
Fellow Investors or Shareholders - deriving from disagreements
Insolvency Practitioners – notably such claims also often lead to disqualification as a director
Litigation can be brought by one claimant or by a group of claimants known as a Class Action.
You simply need to complete and return to us a short Application Form.
One of our experienced team will contact you to further discuss the cover and premium payment options.
This premium is calculated on the number of qualifying investments you have, and the limit of cover you require.
The cover provided is a shared limit for all investments, for all claims during the 12 month policy period and includes costs and expenses.
The Angel Protect policy includes all the investments that you declare on the Application Form.
Any further investments made during the 12 month policy period will be automatically covered, and will need to be declared on the Renewal Form.