Corporations

Question 1

What is the business judgment rule?

Answer 1

The business judgment rule is a presumption that a director’s decision may not be challenged if the director:

1. Acted in good faith,
2. With the care that a reasonably prudent person would exercise in a like position, and
3. In a manner reasonably believed to be in the best interest of the corporation.

Question 2

Can a transaction be set aside merely because a director had a personal interest in the transaction?

Answer 2

A transaction cannot be set aside merely because a director had a personal interest in the transaction if:

1. The director disclosed the material facts of the transaction to disinterested members of the board or shareholders, who approved the transaction, or
2. The transaction was fair to the corporation.

Question 3

Can a corporation’s articles of incorporation limit the directors’ personal liability for money damages for actions taken?

Answer 3

A corporation’s articles of incorporation may limit or eliminate directors’ personal liability for money damages to the shareholders or corporation for actions taken, except to the extent that the director:

1. Received a benefit to which he was not entitled,
2. Intentionally inflicted harm on the corporation or its shareholders,
3. Approved unlawful distributions, or
4. Intentionally committed a crime.