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Business Judgment Rule

Definition - What does Business Judgment Rule mean?

The business judgment rule states that employees in a position of authority within a company or corporation must make decisions on behalf of the company that are in the best interests of the company, and in consideration of the stockholders of the company after informed consent is given. It means that board members have a fiduciary duty to act in the best interests of and with due care to the stockholders.

Justipedia explains Business Judgment Rule

Board members could be held liable for breaching this law if they make decisions that are against the greater good of the stockholder, or of the company, due to not being informed enough on the topic or making a decision that was not optimal in light of the options.

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