Business Judgment Rule

Running a business involves many difficult decisions – often on a daily basis. Even if a business owner makes the best decisions possible and relies on valued advice, chances are that something could go wrong and the business will suffer due to a decision of a director or owner. In many cases, if a business loses money or opportunities, other directors and stockholders can point fingers in your direction and try to hold you liable for their losses.

Fortunately, both common law and state law recognize that business owners and directors should not be held liable for every mistake that occurs when they make important business decisions. For this reason, a legal principle called the “business judgment rule” exists that protects decision-makers of a company under certain circumstances. If you believe that you may have a case involving a business judgement rule, you need an experienced attorney on your side who can help you defend against claims asserted against you.

When Does The Business Judgment Rule Protect You?

The business judgment rule can protect business owners and directors if they make a poor decision regarding the company, so long as the following are true:

They acted in good faith when they made the decision;
They believed the decision was in the interests of the company;
If they relied on false information, they did not know the information was faulty and another reasonable owner would have likely relied on the same information.

If you can prove the above, you should be immune from personal liability for any losses the business suffered due to your decisions.

When Will the Business Judgment Rule Not Apply?

Not every error in business or harm to the company can be forgiven under the business judgment rule. Instead, like most laws, there are exemptions and situations in which this rule will not provide protection. An executive may not successfully use the business judgment rule as a legal shield if any of the following are adequately proven:

The executive engaged in risky decision-making and made a questionable decision recklessly or without all of the necessary or reliable information;
The executive breached their duty of loyalty to the company and instead acted in a self-serving manner that deprived the company of profit or opportunity;
The executive made the decision in bad faith or engaged in fraudulent behavior to harm the company.

In such situations, the business judgment rule will provide no protections and the executive/owner/director may find themselves personally liable for the losses they caused.

Discuss Your Business Dispute with an Experienced Maryland Business Attorney

If you have been accused of harming the business, the skilled business lawyers at The Casper Firm can stand up for your interests, help prove that you acted in good faith, and protect your rights under the business judgement rule. Relying on this rule is not always simple, though we have the experience and knowledge of business law matters to successfully represent you against allegations of poor wrongdoing. We can also assist with a wide variety of legal issues regarding your business, so please call our Baltimore office at 888-387-3878 for a free consultation today.