Business judgment rule

Abstract

In this paper the author shows the shortcomings of the business judgment rule in the Serbian Company Act. Business judgment rule is a judicially created American doctrine that has gained widespread popularity in other countries. The trend of legal transplanting has not bypassed our country, and for this reason it is very important to define this rule and to properly understand the reason for its existence. Because of that the first part of this paper is dedicated to analysing the onset and deployment of this specific rule. Although the core of this paper is aimed at defining the subset of people who are protected by this rule, it is as well aimed at determining the precedents needed to get this protection mechanism operational. These conditions actually construct duty of care and are used to define the business judgment rule, and are not unanimously accepted in all law systems. In the paper these conditions have been individually analysed: 1. business decision; 2. absence of conflict of interest; 3. good faith; 4. informed decisions making; 5. the care of a prudent business person and 6. honest belief that the decision was in the company's best interest. The final segment of this paper shows the reverse distribution of the burden of proof which undermines the efficiency of the protective role of the business judgment rule.

Keywords

• business judgment rule
• directors' liability
• duty of care
• conflict of interest