What is the Business Judgment Rule?

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What is the Business Judgment Rule?

The business judgment rule generally provides that when the directors of a corporation are faced a with a decision that impacts the corporation, they must adhere to certain duties and responsibilities to the corporation by virtue of their positions. Directors must act in good faith and with the care that an ordinary prudent person would exercise in a similar situation. Furthermore, the directors must act in a manner that they reasonably believe is in the best interest of the corporation. See A.R.S. § 10-830 and A.R.S. § 10-842. So long as the directors uphold these standards of behavior in their decision-making, the business judgment rule insulates directors from liability in the normal exercise of their duties.

The duties of directors or officers to act in accordance with the business judgment rule typically applies to decisions involving corporate governance, including the following:

·         Spending and budgeting corporate funds

·         Hiring and firing corporate staff

·         Buying, selling, and using corporate property

·         Electing officers and directors

·         Operating and managing the corporation

In all of these types of decisions, the directors must act in good faith, as a reasonable person would act, and in the best interests of the corporation. If a court finds that directors have acted in accordance with these standards, a court will not substitute its judgment for that of the directors. However, evidence of fraud or bad faith can lead to liability.

Williams Mestaz, L.L.P., will offer you comprehensive representation at all stages of your business dispute, including breach of contract matters. No matter what issues your case involves, we have the experience to get you the results that you are seeking. Contact our office at (602) 256-9400 and set up a time to meet with us today.

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