What is Business judgment rule?
In short
The business judgment rule protects corporate directors and officers from personal liability for decisions that turn out badly, as long as they acted in good faith, were reasonably informed and had no conflict of interest.
Key takeaways
- It doesn't protect fraud, self-dealing or gross negligence.
- Directors may rely in good faith on reports from officers, accountants and other experts.
- Directors owe fiduciary duties of care and loyalty to the corporation.
Where it's tested
REG: Business Law: Agency & Business Structures — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
Shareholders sue the directors over an acquisition that lost money. The directors were informed, acted in good faith, and had no conflict of interest. Which doctrine protects them?