The Scope of the Business Judgment Rule and its Relation to the Fiduciary Duties of Company Directors

Abstract

Due to the dynamic and ever-changing nature of the corporate field, it is impossible to consistently ensure that the business entity will get guaranteed income from its business activities and that all corporate decisions made by the director will be beneficial to the company. If the company directors were to be held responsible for any decision that did not result in a profit for the company, this would limit their freedom of action and discourage them from taking risky steps. The main subject of this article is the Business Judgment Rule, which stipulates that a company director has the authority to make bad (unprofitable) decisions within specific legal limits without being held accountable for them. Furthermore, an appropriate balance must be maintained in the legal system between the freedom of the corporate directors under the business judgment rule and the risk of being held accountable for dishonest activities and unreasonable steps taken by them.