In Florida, the business judgment rule offers a level of protection for directors from personal liability concerning a majority of their actions. This is one Florida LLC benefit. The rule presumes that a corporate director has acted in good faith and done so in the best interests of the corporation. With that in mind, a director cannot be found liable for damages unless a corporation proves the director was in breach of their duties. Breach of duty must be proven to have been the following:
- A criminal violation that was knowingly committed.
- A transaction for improper personal benefit, otherwise known as self-dealing.
- An improper distribution to the shareholders.
- Acting in a knowing disregard for the corporation’s best interest.
- Acting in willful misconduct.
Protections Provided by Business Judgment Rule
Generally, the business judgment rule prevents courts from calling directors to account for either their actions or inactions, regardless of how poor their judgment is determined to be. The underlying theory for this is that a judge is unlikely to have the same level of business expertise that a corporate director has, and therefore should not impose their judgments on the business decisions. The business judgment rule is described as offering presumption against director liability, meaning that it is going to be difficult for the plaintiff to prove that the director breached their fiduciary duties and should be held liable.
The business judgment rule does not outline any causes of action against directors or impose any duties. Additionally, creditors of the corporation do not have any cause of action against the director even if the director has acted outside of the rule’s protections. The purpose of the business judgment rule is to protect the director from personal liability and identify any situations that might result in those protections being lost.
The Business Judgment Rule Applied
While the business judgment rule offers a good deal of protection to a director from any personal liability, that protection can end up coming with a large price tag for legal fees. Additionally, these lawsuits tend to be difficult to dismiss or dispose of before trial, whether by motion to dismiss or motion for summary judgment.
Motion to Dismiss: Several courts have questioned if business judgment rulings should even be considered for motions to dismiss. Additionally, these cases often contain allegations of conscious disregard for the corporation’s best interest, which are difficult to dismiss outright.
Motion for Summary Judgment: Florida state courts have shown a general hostility toward summary judgment in tort cases. A director is likely to have a better chance in federal court for summary judgments.
Business Judgment Rule: Final Thoughts
In general, so long as a director complies with their fiduciary duties, the decisions they make on behalf of the corporation are protect by the business judgment rule. This also assumes that the director has acted in good faith, on an informed basis, and with the best interests of the corporation in mind. If legal conflicts arise that involve the business judgment rule, courts will not second-guess the decisions of the director or hold the director personally liable even if the decisions were deemed to be poor or wrong ones.
In Florida, the business judgment rule offers strong protection for directors and their actions, along with other benefits. However, in the event of legal conflict where there is a considerable amount at stake for your company, resolution can be high in cost and time-consuming. Consult with experienced attorneys to ensure that adequate preparation is given to the matters at hand, especially if you have a Single Member LLC.