Business Judgment Rule

The business judgment rule serves to shield an officer or director from civil liability when sued for a breach of a fiduciary duty, with the highest fiduciary duty owed to shareholders. Under corporation law, the business judgment rule is the classic defense used by directors and officers of corporations when they are sued, usually by shareholders. While the business judgment rule presumes that an officer or director has behaved reasonably, that presumption can be overcome by evidence of a negligent or disloyal act. The courts of Delaware, where more than 60% of Fortune 500 companies are incorporated, have largely defined and applied the rule through case law, not through statutory law.