Under which of the following should Michael and the board of directors defend themselves in an action brought by shareholders for harming the corporation?

A) The superior judgment rule.
B) The research and investigation rule.
C) The business judgment rule.
D) The rule of corporate integrity.
E) There is no defense.

Question

Diana Lopez · Accepted Answer

Final Answer : C, Explanation :  The business judgment rule is the appropriate defense for Michael and the board of directors. This rule protects directors and officers of a corporation when they make decisions that, in hindsight, turn out to be poor or harmful, as long as the decisions were made in good faith, with the care that an ordinarily prudent person in a like position would use, and with the reasonable belief that they were acting in the best interests of the corporation. Since Michael investigated the machine and presented its benefits to the board, which then approved the purchase, their actions can be defended under the business judgment rule, assuming they acted in good faith and with due diligence at the time of the decision.

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