What is the definition of the business judgment rule? Discuss its purposes
The business judgment rule is a common law concept that a director or officer who makes a business judgment in good faith fulfills his duty to the company if (1) he is not financially interested in the subject of his business judgment; (2) he is informed with respect to the subject matter involved and to the extent appropriate under the circumstances; and (3) he reasonably believes his judgment is in the best interests of the company. To be protected by the business judgment rule, managers must act in good faith.
The "business judgment rule" is designed to accomplish three primary goals:
1 . To allow directors to do their job without constantly being concerned about personal liability.
2 . To keep judges out of corporate decision making.
3 . To encourage people to become corporate directors by limiting their potential liability.
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