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Explaining the business judgment rule

On Behalf of | Jul 11, 2022 | Business Law

Setting up a business in South Carolina will involve a great many details. One of these will be to protect yourself against frivolous allegations about the way you do business. The best way to do so will be to use a legal doctrine known as the Business Judgment Rule. This rule states that your board of directors is presumed to act in good faith.

You have a responsibility to your shareholders

Business law is full of many complex and seemingly contradictory rules and regulations. The Business Judgment Rule has been created for the purpose of cutting through as many of them as possible. Acting in good faith means that you take due care to uphold the expected standards of care that your shareholders expect. This is the assumption everyone acts on.

The Business Judgment Rule does not create a set of standards that are impossible to live up to. The rule assumes that managers will not always make the optimal choice. However, it protects them against frivolous lawsuits based on those choices.

Standards of shareholder loyalty must be enforced

The business that you operate in South Carolina is expected to live up to a wide variety of standards. These are ethical as well as legal. You have the responsibility to provide a clear and level playing ground for your investors. The Business Judgment Rule has been set up to help enforce these rules.

A person can challenge your loyalty to these standards by filing a claim against you in court. However, the burden of proof will be on their shoulders. They must present strong evidence that you have not lived up to the standards that your shareholders expect of you. If a person bringing a claim can’t do this, their case in court will not proceed.