shareholder dispute lawyer

The Role of the Business Judgment Rule in Shareholder Disputes

What is the Business Judgment Rule?

Corporate directors owe fiduciary duties to the corporation. The Business Judgment Rule (BJR) is the legal presumption that corporate directors using their business judgment have acted, or are acting, within their fiduciary duties unless there is evidence of fraud, bad faith, or gross disregard of their responsibilities. The concept is based on the principle that directors of a corporation are motivated in their conduct by a bona fide regard for the interests of the corporation. In other words, the BJR assumes that directors are trying to do the right thing for the corporation. 

State Laws Concerning the Business Judgement Rule

Most states have some version of the BJR for evaluating director decisions. Given that Delaware is home to most major U.S. corporations, a number of states follow Delaware precedent. It serves as a good framework for BJR inquiries but does not necessarily reflect the law in every state.

Practical Application of the BJR

If a filed lawsuit relates to a shareholder dispute involving director decisions, the BJR often functions as a “front end” legal protection. This is routinely used to ask for an early dismissal of director defendants. Since the presumption is that the directors acted in good faith, plaintiffs bear the burden of rebutting the presumption in order to survive a motion to dismiss. Although the underlying notion of the BJR presumes that directors are making decisions in the best interests of the company, that isn’t always the case (i.e. cases of self-dealing).

Shareholder Dispute Lawyers and BJR

To combat potential allegations that a director’s actions fall outside the scope of the BJR presumption, it is a good business practice to document business decisions. These documents should show that the director:

(1) Acted in good faith,

(2) On a fully informed basis, and

(3) Can justify how he/she expects the ultimate outcome to be beneficial to the company. This is especially important when the short-term impact is not necessarily beneficial.

In the event of a filed lawsuit, a shareholder dispute lawyer can help determine which BJR analysis is applicable. This depends on the location of the business’s incorporation. A shareholder dispute lawyer can also assess the actions of the director. Finally, this lawyer can evaluate whether they fall within the protections of the BJR.

Questions About a Shareholder Dispute?

Rogge Dunn Group has shareholder dispute lawyers familiar with the wide range of potential, and often complex, litigation. The Firm’s plaintiff clients include minority shareholders (both individuals and groups) and limited partners. Oftentimes, they assert claims based on minority shareholder oppression and breach of fiduciary duty against majority owners in control of corporate entities and partnerships. The Firm also represents and protects the rights of majority and controlling shareholders, corporate officers, directors, managers, and general partners against claims by those holding minority interests and other issues inherent in a “business divorce.”

For more information, contact the Rogge Dunn Group here.

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