Corporations

Question 1

Business judgment rule

Answer 1

The business judgment rule is a presumption that a director’s decision may not be challenged if the director (1) acted in good faith, (2) with the care that an ordinary prudent person would exercise in a like position, and (3) in a manner the director reasonably believed to be in the best interest of the corporation

Question 2

Personal interest in the transaction (director)

Answer 2

A transaction cannot be set aside merely because a director had a personal interest in the transaction if (1) the director disclosed the material facts of the transaction to disinterested members of the board [or the shareholders], who approved the transaction, or (2) the transaction was fair to the corporation

Question 3

Limiting liability in articles of incorporation

Answer 3

A corporation’s articles of incorporation may limit or eliminate directors’ personal liability for money damages to the shareholders or corporation for actions taken.

Liability cannot be eliminated to the extent that the director (1) received a benefit to which he was not entitled, (2) intentionally inflicted harm on the corporation or its shareholders, (3) approved unlawful distributions, or (4) intentionally committed a crime