Reasons of Application of the Business Judgment Rule
Articles
Justinas Jarusevičius
Vilnius University
Published 2019-02-20
https://doi.org/10.15388/Teise.2019.110.5
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Keywords

company law
civil liability of the executives of the private legal entities
business judgment rule
reasons of application

How to Cite

Jarusevičius J. (2019) “Reasons of Application of the Business Judgment Rule”, Teisė, 1100, pp. 80-102. doi: 10.15388/Teise.2019.110.5.

Abstract

[full article and abstract in Lithuanian; abstract in English]

The reasons which led to the formation of the business judgment rule and its implementation are discussed in the present article. The courts usually have the competence to rule on the legality of the defendant’s actions and (or) their civil liability. Courts’ competence is being limited when the legality of the business decisions is analyzed and (or) the case of civil liability of the board members‘ or chief executive officer‘s of the private legal entities is decided. Due to the application of the business judgment rule the courts should abstain from evaluating the legality of the business judgments of the private legal entities, if they turned to be unprofitable or profitable not enough where such decisions were made by complying with the duties applied to the board members or chief executive officers. Motives, which justifies special civil liability regime of the directors are analyzed in the article.

Summary

Although the courts usually have the competence to rule on the legality of the defendant’s actions and (or) their civil liability, Courts’ competence is being limited when the legality of the business decisions is analyzed and (or) the case of civil liability of the board members‘ or chief executive officer‘s of the private legal entities is decided due to the appli- cation of the business judgment rule. As the business judgment rule has been identified by the case law of the Supreme Court of Lithuania, in this article author analyzes the reasons which led to the formation of the business judgment rule and its implementation in the jurisdiction of its origin – United States of America. Conclussions demonstrate that business judgment rule was implemented in the US case law with the purpose to guarantee and declare clearly that the ultimate decision maker within the private legal entity are board members or chief executive officers and not the courts. Business judgment rule works as a guarantee for the executives that they will not be held liable or criticized for the well-informed and fair decisions they make in the course of the company’s management. It encourages board members and chief exec- utive officers to take the risk needed for the development of company.

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