If a legal action is brought by or in the right of Bonchon, what is the condition under which indemnification for negligence or misconduct will NOT be provided?
Bonchon Franchise · 2025 FDDAnswer from 2025 FDD Document
- (2) against expenses (including attorneys' fees), judgments and amounts paid in settlement actually and reasonably incurred by him in connection with the defense or settlement thereof if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have adjudged to be liable to the Corporation for negligence or misconduct in the performance of his duty to the Corporation unless and only to the extent that a court of record of the county in which the registered office of the Corporation is located or the court in which such action, suit, or proceeding was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity.
Source: Item 23 — RECEIPTS (FDD pages 92–536)
What This Means (2025 FDD)
According to Bonchon's 2025 Franchise Disclosure Document, in the event of a legal action brought by or on behalf of the corporation, indemnification for expenses, judgments, and settlements will not be provided if the individual is judged liable to Bonchon for negligence or misconduct in their duty to the corporation. However, the document specifies an exception: even if liability for negligence or misconduct is established, a court of record in the county where Bonchon's registered office is located, or the court where the action was brought, can determine that the person is still entitled to indemnity based on the circumstances of the case. This determination is made upon application to the court, considering all relevant factors.
This means that while Bonchon franchisees, directors, officers, or employees may be indemnified against legal expenses and judgments in actions brought on behalf of Bonchon, this protection is not absolute. If a court finds them liable for negligence or misconduct, indemnification is generally denied unless a separate court determines that indemnity is still warranted despite the finding of liability.
This clause highlights the importance of acting in good faith and in the best interest of Bonchon. Franchisees should be aware that negligence or misconduct could result in personal liability and loss of indemnification. The possibility of a court review offers a degree of protection, but it is not guaranteed, and the franchisee would bear the burden of convincing the court that indemnification is justified despite the initial finding of liability.