Corporations Bar Practice Exam 2025 – Complete Prep Resource

The Business Judgment Rule is a foundational principle in corporate law that serves to protect directors and officers of a corporation from liability for decisions that are made in good faith, with a reasonable amount of care, and in what they believe to be the best interests of the corporation. This rule acknowledges that directors often have to make difficult decisions based on uncertain information and dynamic market conditions.

Under this rule, as long as the directors are acting within their authority, exercising sound judgment, and are not engaging in self-dealing or other forms of misconduct, the courts will generally not interfere with their decision-making. This judicial deference allows directors the freedom to take risks and develop strategies that might be in the long-term interest of the corporation, without fear of personal liability for honest mistakes or unanticipated negative outcomes.

In contrast, the other choices do not pertain to the role or protections offered by the Business Judgment Rule. While shareholders may experience market volatility, the rule does not protect them from it. Similarly, wrongful termination protections for employees and safeguards for investors losing capital are addressed under different legal principles and regulations, not through the Business Judgment Rule.