Directors ‘Liability in Light of Business Judgment Rule, with emphasis on Delaware’s Laws.

Business judgment rule refers to the presumption that directors are not responsible for losses that may be suffered as a result of a decision that directors made or authorized in good faith. It protects directors from personal civil liability for the decisions they make on behalf of a corporation, even though the decision proves to be erroneous. This rule is applicable upon an examination of certain preconditions, but prevents courts to second-guess director’s decisions. The basis of this rule lays on the fact that if discretion of management of the company is referred to directors, they must be protected against claims on application of this discretion. Otherwise, management of modern companies is impossible. Therefore, this article examines the standard of liability as business judgment should be regarded as a rule which prevents courts from reviewing directors’ decisions absent grounds breach of fiduciary duties (such as of self-dealing, lack of independence or irrational decisions). This article will discuss emergence and application of business judgment rule in Delaware courts and analyzes the existence of this rule in Iran’s legal system.