Shareholder Lawsuits In Florida: What Is The Business Judgment Rule?
Minority shareholders put an enormous amount of trust in the hands of corporate officers and corporate directors. When the people running a corporation abuse their power, it can cause serious damage to the shareholders. In certain circumstances, shareholders can file a lawsuit to seek compensation for their losses.
That being said, there are limits on what a shareholder can sue for. In Florida, a legal principle known as the “business judgment rule” provides certain protections for the board of directors and individual corporate officers. Here, our West Palm Beach shareholder dispute attorneys highlight the most important things to know about Florida’s business judgment rule.
The Business Judgment Rule: Explained
As succinctly defined by the Cornell Legal Information Institute, the business judgment rule is a “defense” that a corporate director or corporate officer can use if they are facing a lawsuit for violating their duty of care. It is often an issue in shareholder disputes. In effect, this business judgment rule is a legal doctrine that holds that the decision-makers of a corporation have wide discretion to do what they think is right.
Three Things a Corporate Officer/Director Must Prove to Rely on the Business Judgment Rule
If a corporate insider is facing a lawsuit for violating their duty of care to the company, they can invoke the business judgment rule as a legal defense against the claim. Florida’s business judgment rule doctrine holds that a executive is generally not liable for the consequences of a bad decision if they can prove the following two things:
- They acted in good faith; and
- They used reasonable prudence.
How the Business Judgment Rule Impacts Shareholder Lawsuits
In practice, the business judgment rule is essentially a presumption in favor of the board of directors. It prevents a shareholder from bringing a lawsuit simply because a business decision went wrong. All business carries risks. Florida law does not hold corporate officers or corporate directors legally liable simply because of errors, ill-advised decisions, or otherwise made a choice that did not work out.
A shareholder who files a lawsuit against the board of directors or an individual corporate officer may need to defeat the business judgement rule. To bring a successful lawsuit against the board or an executive, they will be required to prove that decision makers did not act in good faith and/or that decision makers failed to act with reasonable prudence towards the best interests of the company.
Schedule a Confidential Consultation With a Shareholder Dispute Lawyer in South Florida
At Pike & Lustig, LLP, we are devoted to helping our clients find solutions that actually work. If you have any questions or concerns about the business judgment rule, our Florida shareholder dispute lawyers can help. Give us a call now or use our online contact form to set up a confidential consultation. We are well-positioned to serve communities throughout Southeast Florida from our office locations in West Palm Beach, Miami, and Palm Beach Gardens.