Week 4 Discussion: Business Judgment Rule

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Fiduciary Duties are important, in regards to the Law of Corporations as a means to protect shareholders of the corporation from mistake or outright fraud on the part of Directors and Managers. The Duty of Care and the Duty of Loyalty, are proscriptions on the behavior of Directors and Managers, which insure that shareholders are protected from financial ruin, to the greatest extent possible. (Note: even if Directors and Manager are “honorable” this does not mean that a corporation will prosper. The Fiduciary Duties are not a guard against external factors which may effect a corporation’s profitability.)

There is one caveat to the Fiduciary Duties Rules and that is the Business Judgment Rule. The Business Judgment Rule is a rebuttable presumption that Directors and Managers acted in conformance with their duties. As such the burden is on the effected shareholders to show the Director(s) or Managers(s) acted in a negligent manner. That is all things being equal, the it is presumed that the Directors and Managers acted properly even if the decisions resulted in a loss of profits for shareholders. If the charged Fiduciary acts as if the reasonable business person would have, then the Fiduciary is not personally liable for a breach of the Duty of Care. The policy decisions behind this shift of burden are: (1) to get more people to serve in Fiduciary Positions without fear of personal liability; (2) to encourage Fiduciaries to act reasonably, and in the best interests of the corporations: and (3) to keep the courts out of the management of the corporations, among other reasons.

For this Discussion, state one reason you believe the Business Judgment Rule benefits corporations, and one reason how the Business Judgment Rule harms a corporation.

One Substantive Post = 6 Points; Two Reply Posts = 2 points each (for a total of 4 reply post points)

Total Points available for this Discussion = 10 Points

Remember, simply stating that you agree with another student’s post does not suffice. You must actually comment on the substance of the other student’s post

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