|
Business Judgement Rule
The Business Judgement Rule is applied to determine if directors have
acted properly, and satisfied the three basic duties. Not all decisions
of directors will result in benefit to the corporation. As a result,
directors will be personally liable for loss to the corporation only
if the elements of the BJR defense are not satisfied.
In order to use the BJR as a defense, directors must act in good
faith and with reasonable belief that their conduct
legally and legitimately assists in achieving the corporation’s
purposes. They must also exercise their honest business judgment
after due consideration of
what they reasonably believe to be the relevant factors.
Following are the five commonly recognized elements of the Business
Judgement Rule (BJR).
1. Business decision. The BJR protects directors against
claims for wrongful acts, but not against claims for failure to act.
Inaction by directors is protected by the BJR only if it is a result
of a conscious decision to refrain from acting.
2. Disinterestedness. The BJR protects directors who
do not have a material, personal interest in the decision. A disinterested
directors neither appears on both sides of the transaction nor expects
to derive any personal financial benefit from it, as opposed to a benefit
which is advantageous to the corporation or all the stockholders generally.
3. Due care. The BJR protects directors if they have
informed themselves and considered all relevant information about the
subject matter to the extent they reasonably believe to be appropriate
prior to making a decision.
4. Good faith. The BJR protects directors if they rationally
believed the decision was in the best interests of the company. The
protection will not apply if the directors acted solely or primarily
to preserve their positions or otherwise to benefit themselves.
5. No abuse of discretion. The BJR protects directors
against honest errors of judgment, but does not provide protection
for decisions that cannot be supported by some rational basis.
|
