What is the Florida Business Judgment Rule and How Does it Apply to Shareholder Litigation?
A minority shareholder puts faith in the hands of the officers, directors, and other decision makers of a corporation. When something goes terribly wrong, a shareholder may have a claim against the company. However, corporate officers and corporate directors have wide latitude to make business decisions. Shareholders take on certain inherent risks when investing in a company. Within this article, our Miami shareholder dispute lawyer discusses the key things that you should know about the business judgment rule and the impact that it can have on shareholder litigation in Florida.
The Business Judgment Rule: Explained
As simply described by the Legal Information Institute, the business judgment rule is a legal principle that shields corporate officers and directors from liability for decisions made on behalf of the corporation if certain conditions are met. Essentially, it is a legal rule that acknowledges that running a business involves taking risks and directors and officers should not be held liable for honest mistakes of judgment or bad outcomes if they acted in good faith.
Officers and Directors Can Use the Business Judgement Rule as a Defense to a Claim
In shareholder litigation in Florida, officers and directors often invoke the business judgment rule as a defense to claims alleging that their decisions harmed the company. To successfully use this defense, they must show that:
- They made the decision in question in good faith;
- They acted with the care that a reasonably prudent person in a similar position would exercise; and
- They acted in a manner they reasonably believed to be in the best interests of the corporation.
In other words, officers or directors can demonstrate they conducted reasonably due diligence and made informed decisions without conflicts of interest; they are generally protected from liability in shareholder litigation via the business judgment rule.
Shareholders Can Overcome Florida’s Business Judgment Rule in Limited Circumstances
Although the business judgment rule provides a robust defense for officers and directors, it is not insurmountable. Shareholders in Florida can overcome this defense by demonstrating that the decision-makers engaged in fraud, illegal conduct, or acted in bad faith. Beyond that, if shareholders can establish that officers or directors had a personal interest that conflicted with the corporation’s interests, this may also weaken the Business Judgment Rule defense. The burden of proof is high for shareholders, and they must provide convincing evidence to overcome this rule. These are complicated cases. Legal representation from a top-rated Florida shareholder lawyer is a must.
Contact Our Miami Shareholder Dispute Attorney Today
At Pike & Lustig, LLP, we provide solutions-oriented legal guidance and support to clients in a wide range of commercial disputes, including in shareholder litigation. If you have any questions about the business judgment rule and shareholder disputes, please do not hesitate to contact us today. With an office in Miami, West Palm Beach, and Wellington, our firm takes on shareholder disputes throughout the surrounding region in Southeast Florida.