Glossary · Business Law
Business Judgment Rule
business-judgment-rule-ebdeb08aa3a40fa6-2026-07-28
- Type
- Glossary
- Jurisdiction
- National
- Date
- 2026-07-28
- Topic
- Business Law
A presumption that corporate directors acted on an informed basis, in good faith, and in the honest belief their decision served the company's best interests. Courts applying the rule will not second-guess a board's business decisions, even bad ones, unless the challenger shows fraud, conflict of interest, or gross inattention. It protects reasonable risk-taking and keeps judges out of the boardroom.
Definition
A presumption that corporate directors acted on an informed basis, in good faith, and in the honest belief their decision served the company's best interests. Courts applying the rule will not second-guess a board's business decisions, even bad ones, unless the challenger shows fraud, conflict of interest, or gross inattention. It protects reasonable risk-taking and keeps judges out of the boardroom.
Business Judgment Rule. A presumption that corporate directors acted on an informed basis, in good faith, and in the honest belief their decision served the company's best interests. Courts applying the rule will not second-guess a board's business decisions, even bad ones, unless the challenger shows fraud, conflict of interest, or gross inattention. It protects reasonable risk-taking and keeps judges out of the boardroom. Example: The failed acquisition was protected by the business judgment rule because the board studied it for months with independent advisors.