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Business Judgment Rule

The business judgment rule is a doctrine developed by courts in reviewing the actions of directors. Generally, courts do not hold directors personally liable for a business decision, even when a decision turns out to be a bad one, so long as the director has not breached a duty to the corporation. A director who acts in good faith, remains informed about the corporation’s business, and does not engage in self-dealing or transactions involving conflicts of interest will not be subject to personal liability.

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