It seems fairly clear that the business judgment rule will protect a director from liability arising from a claim of breach of the duty of care, which involves general mismanagement. Texas case law specifically addressing which fiduciary duties are subject to protection from the business judgment rule is limited. When Does the Business Judgment Rule Apply?
The Texas Supreme Court has stated that “courts will not interfere with the officers or directors in control of the corporation’s affairs based on allegations of mere mismanagement, neglect, or abuse of discretion.” The business judgment rule, however, does not protect fiduciaries from liability for acts that are dishonest, fraudulent, or self-dealing. The rule protects directors from liability for actions within the honest exercise of a director’s business judgment and discretion, even if the actions are negligent, unwise, inexpedient, or imprudent. Under the rule, a director acting in good faith is not liable for mistakes in business judgment that damage the corporation’s interests. The business judgment rule may protect a corporation’s officers or directors from liability for a breach of fiduciary duty claim by the corporation.
Directors must use their unbiased business judgment for the sole benefit of the corporation.
#Business judgment rule code#
Fiduciary duties are not codified in the Texas Business Organizations Code (BOC), but instead have developed through Texas case law and generally include the duty of loyalty, duty of care, and duty of obedience (also known as the duty to follow the law). Corporate officers and directors owe a fiduciary duty to the corporation that they serve, and they can be held liable if they breach that fiduciary duty.
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