Business Judgment Rule


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Business Judgment Rule

In American business law, the concept granting members of the board of directors of a corporation the presumption that they intend to work for the company's profitability, provided they act in good faith. That is, courts assume boards of directors think they are doing the right thing even if an act harms the company in retrospect. This protects members from shareholder lawsuits in the event their actions do not go as planned. On the other hand, if a board of directors is found to have squandered the company's resources by, for example, grossly overpaying when buying or receiving far too little when selling assets, it may still be found legally liable.
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As a result, they do a better job rebutting the arguments commonly provided for the business judgment rule.
Lewis, (23) the Supreme Court of Delaware anointed the business judgment rule as the governing standard in ascertaining the propriety of board action.
The law as it is today does not justify the disparity in judicial review: the same transaction that ordinarily deserves the deference of the business judgment rule will be vigilantly scrutinized in a fraudulent transfer action, with courts often resorting to hindsight in the latter.
In dismissing the lawsuit, the Court of Appeals squarely held that the business judgment rule, and not entire fairness, is the appropriate standard where a merger has been conditioned on approval by a disinterested special committee of directors and a majority of the minority shareholders and on other shareholder protections.
Writing for the Court en banc, Chief Justice Strine explained that a fully informed, uncoerced vote of the disinterested stockholders invoke s the business judgment rule standard of review and insulates the transaction from all challenges other than waste.
So even with the latitude provided by the business judgment rule and even in states with constituency statutes, directors run the risk of being liable in a suit for breach of fiduciary duty.
The business judgment rule creates a strong presumption in favor of the board of directors, and the burden is on the party challenging the decision of the board to establish that, in fact, the board violated their duty of care, loyalty, or obedience.
8) With this decision, the court signaled a substantial departure from the existing body of Delaware corporation law and the law of those states, like Missouri, that regard Delaware's corporation law as persuasive in the context of the duties of corporate fiduciaries under both the business judgment rule and entire fairness standard.
the business judgment rule applies and, if so, how the application of
The business judgment rule that courts apply to refrain from inquiring into corporate disputes is an important factor in undermining the statutory remedy available to non-shareholder groups.
officers, however, most notably the business judgment rule, (26) absent
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