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Business Judgment Rule

In Missouri, the “Business Judgment Rule” is a legal principle which protects directors and officers of a corporation from liability for decisions made within the director’s or officer’s authority that are made in good faith and uninfluenced by any other consideration than the honest belief that the action serves the best interests of the corporation. Betty G. Weldon Revocable Trust v. Weldon, 231 S.W.3d 158, 171 (Mo. Ct. App. 2007). The rule also applies to managers and those in charge of limited liability companies. Sutherland v. Sutherland, 348 S.W.3d 84, 90 (Mo. Ct. App. 2011) (citing Section 347.088, RSMo). The business judgment rule precludes courts from interfering with the decisions of officers, directors and/or managers — unless there is a showing of (1) fraud, (2) illegal conduct, (3) actions outside of the decision-maker’s authority or (4) irrational business judgment. Ironite Products Co. v. Samuels, 985 S.W.2d 858, 862 (Mo. Ct. App. 1998).

The rationale for the business judgment is straightforward and clear. Courts are reluctant to interfere with internal business management decisions and will be hard-pressed to second guess decisions made in good faith about the business. From a practitioner’s perspective, this generally does hold a lot of weight with Courts. For that reason, it is inevitable that in essentially any case involving a claim of liability against the person(s) in charge of a corporation or LLC there will be a defense that the decisions/actions were made in the defendant’s best business judgment, thus insulating him/her from liability. A plaintiff — usually an owner or shareholder of the company — will then typically have the onus of arguing that the conduct fits within an exception to the business judgment rule. 

Contact with questions relating to corporations, limited liability companies, LLC lawsuits, corporate lawsuits and business disputes and litigation.