Business Judgment Rule For Directors

The business judgment rule has been described in delaware case law as follows.

Business judgment rule for directors. What is the business judgment rule. A fiduciary to a business owes a high duty of care to the business as discussed in our articles on fiduciary duties corporate opportunity doctrine and limited liability entities. Are clothed with the presumption which the law accords to them of being motivated in their conduct by a bona fide regard for the interests of the corporation whose affairs.

The business judgment rule is inapplicable when the director furthers his or her self interest. Self interested directors and breach of fiduciary duties. It is rooted in the principle that the directors of a corporation.

Besides directors also owe duties of care skill and diligence to the company. The business judgment rule is a case law derived doctrine in corporations law that courts defer to the business judgment of corporate executives. The business judgment rule prescribes the requirements that directors must comply with in arriving at a decision.

The rule is a presumption that in. Therefore the business judgment rule only protects directors when they are carrying out their duties as directors e g making decisions and analyzing issues as directors. Business judgment rule generally the business judgment rule is a judicial doctrine arising from courts respect for corporate self governance as well as their dislike for second guessing the business decisions of corporate directors and officers.

Once these requirements are met the court will not inquire into the merits or correctness of the decision and deference is accorded to the decision. Self dealing and putting one s own self interest above that of the company can lead to personal liability and gross negligence can lead to legal action for breach of the duty of due care.