Business Judgment Rule Definition

Definition Of Business Judgment Rule:

nThe legal doctrine that a corporation's officers and directors cannot be liable for damages to stockholders for a business decision that proves unprofitable or harmful to the corporation so long as the decision was within the officers' or directors' discretionary power and was made on an informed basis, in good faith without any direct conflict of interest, and in the honest and reasonable belief that it was in the corporation's best interest.

Other definition of Business Judgment Rule- A regulation that helps to make sure a corporation’s board of directorsis protected from misleading allegations about the wayit conducts business. Unless it is apparent that the board of directors has blatantly violated some major rule of conduct, the courts will not review or questionits decisions or dealings.The reason for this rule is to acknowledge that the daily operation of a business can be innately risky and controversial.Therefore, theboard of directors should be allowed to make decisions without fear of being prosecuted. The business judgment rule further assumes that it is unfair to expectthosemanaging a company to makeperfect decisions all the time. As long as the courts believe thatthe board of directors acted rationally in a particular situation,no furtheraction willtaken against them.

Definition Of Business Judgment Rule:

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