Indemnification reimburses a director or officer for losses incurred by reason of their service. Advancement pays legal fees as they are incurred, before any determination of entitlement. They are distinct rights, and the difference is about cash flow at the worst possible time.

Mandatory indemnification is generally required by statute where the individual succeeds on the merits or otherwise in defending the proceeding.

Permissive indemnification covers those who acted in good faith and in a manner reasonably believed to be in or not opposed to the company’s best interests, subject to limits for claims by or in the right of the company.

Advancement is contractual. Statutes permit it; charters and bylaws must grant it. It is typically conditioned on an undertaking to repay if indemnification is ultimately unavailable, and the undertaking usually need not be secured.

Summary proceedings. Because advancement is a matter of contract interpretation, disputes are often resolved quickly and in the officer’s favor — including for officers the company is itself suing, which surprises boards.

Drafting choices. Whether advancement is mandatory or discretionary; whether it survives for former officers; whether it covers affirmative claims and counterclaims; and whether the company controls counsel.

D&O insurance interacts with all of it, and the notice provisions in the policy have their own short deadlines.