Florida’s Business Judgment Rule May Protect You
As the owner, manager, majority shareholder, or head level employee of a company, you are expected to act in the company’s best interest. You are expected to, among many other things, manage the company’s affairs properly, protect its interests, guard it against competitors and generally do anything else possible to ensure the health and viability of the company, and the profits and success of the company’s shareholders.
Yet, we also know that business is unpredictable. Businesses go under, or have bad breaks, even with the best businesspeople in charge. No matter how good, diligent and hard working you may be, sometimes bad things just happen in business.
The Business Judgment Rule
That’s why the law has established what is known as the business judgment rule. The business judgment rule is a rule that makes it hard for shareholders, partners, or others in your company to sue you if something bad happens to the company, so long as your acts and decisions were made in good faith and as the name implies, using good judgment.
You are initially protected by a basic presumption in the law, that all corporate officers are acting with good judgment. That means that anybody seeking to sue you for not acting in good judgment, has the burden of proving their case at trial. The law assumes already that you are acting in good faith.
Business Judgment Factors
But the law still has requirements that you have to meet, to show that you acted with good judgment, and in the best interest of the company. You must demonstrate that:
- The decision that anybody is challenging you on is, in fact, a business decision, and that the decision that is being challenged was carried out in your position as an owner or director
- That you did not receive any kind of personal benefit from any transaction that anybody alleges was improper or against the interests of the company
- That you used ordinary due care, in the same way that a similar person would in your position, and
- That you acted in good faith
Looking at these factors, it is clear that simply acting in poor judgment, or making a simple oversight (in injury law terms, we may call it “negligence”) may not be enough to get you into legal trouble. However, if you act with fraud, or with gross disregard, or with willful ignorance, or you’re engaging in acts of self-dealing, you could end up in legal trouble for decisions that end up hurting your company.
The practical problem that directors or officers have who are facing challenges, is that whether or not they acted in good faith can be a factual question that can take time and money in court to prove. Additionally, many of the factors are subjective, which means you will have to convince a judge or jury that you acted with good business judgment.
Call Pike & Lustig, LLP at 561-291-8298. Our West Palm Beach business litigation attorneys try cases in court for businesses, employees, independent contractors, and anyone else who has a business related case.