The “business judgment rule” is a legal doctrine that shields directors and mangers from liability for rational decisions made for the benefit of a corporation. Even in a situation where a director or manager has caused harm to a corporation, there may be no violation of this rule where the decision was made in the honest exercise of business judgment. Where a minor shareholder feels a director or manager is acting in an oppressive manner, the rule can still protect the manager/director for decisions that do not harm the corporation overall. This rule comes into play when shareholders attempt to claim that a director/manager has breached a fiduciary duty–and in those situations, it is important to remember that a director owes a fiduciary duty to the corporation itself.
This rule has been referenced time and time again in cases, but SB29 finally adds the rule to the Texas Business Organizations Code providing more guidance to attorneys and entities in what the “business judgment rule” expects or requires. Importantly, there is also now a rebuttable presumption that the directors of entities act in good faith and for the interest of the entity. To the extent there are still implications for fiduciary duties, the text of SB29 also asked that directors of certain entities have the ability to completely eliminate fiduciary duties owed via a properly drafted company agreement and governing documents.
What does this mean? For those running corporations of these kinds, contact an attorney familiar with both business law and fiduciary duties to ensure you know exactly what you should and should not do (and why). The attorneys of Yale, Weaver & Phillips are here to help – contact us today.
