The business judgment rule is a legal safety net for corporate directors and officers. It protects them from being personally liable for decisions made in good faith, with reasonable care, and in the company’s best interest. 

Essentially, think about it like this: Running a business involves risks. Not every decision will lead to success, but as long as leaders are not acting recklessly, the law offers them the benefit of the doubt. However, this protection is not unlimited. If directors or officers are caught committing fraud, breaking the law, or completely neglecting their duties, the business judgment rule won’t save them.

The business judgment rule protects corporate directors and officers by giving the unwritten assumption that the business acted in good faith with people’s best interests at heart.