Question

What is the "Business Judgement Rule", and why is it important to the operation of corporations? 

Answer 1

Business judgement rule is an assumption that the directors of a company acted on an informed basis and in good faith. It also assumes that the directors honestly believed that their action was in the best interests of the company. This rule provides immunity to the to the directors from loss incurred to the corporation due to actions or transactions that took place within their authority if such actions and transactions were in good faith.

There are somewhat risks involved in every business decision. Even though the directors may be working in the best interest of the company, some of their decisions may go wrong. This rule is important for operation of corporations because in the absence of this rule the directors of a company would be subject to unnecessary cases by the shareholders, or other stakeholders in the corporation.