Business Judgment Rule

Term Main definition
Business Judgment Rule

A judicial principle that the courts should defer to and will not second-guess most judgments made by the boards of directors of corporations, the managers of LLCs, or the general partners of partnerships.

A legal presumption that actions taken or refrained from by a corporation's board of directors are done in good faith, after having been considered and decided on an informed basis, and reflecting a reasonable business judgment concerning whether such action is in the best interests of the corporation and its stockholders. The decisions made by the board of directors will not be second-guessed by a reviewing court. This rule is grounded in state corporation law and judicial interpretations, and thus may vary from state to state in details of its substance or application and exclusions.