Definition: is a legal standard that guarantees the immunity of the directors, managers, and other key personnel of a company from lawsuits regarding corporate transactions provided it has been proven that they were conducted in good faith. The foundation beneath this rule is built on the assumption that the firm’s management always conducts operations that are in the best interest of the company itself. However, if the directors were proven to have violated the principle of good faith, the rule doesn’t apply, and they become vulnerable to lawsuits.
In a Sentence:
Recently, a lawsuit has been brought to court alleging that the Raven Cloth’s director has violated his responsibilities in front of the company, and now it will be decided whether the business judgment rule should be applied to this case.
Thanks to the incorporation of the business judgment rule, directors are well protected from lawsuits when they are making decisions in favor of their company.
Mr. Winston proved that his actions fall under the business judgment rule and that he had no interest in the operation in question.
Synonyms and related words: personal liability, good faith, directors and officers liability insurance, duty of care, duty of loyalty