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Florida Corporate Law – The Business Judgment Rule

Posted on: June 18, 2012

The business judgment rule has been traditionally applied to protect corporate directors from personal liability.  However, the presumption of correctness provided to directors under this rule is limited in nature under Florida law.

In Florida, the business judgment rule has been codified in Florida Statutes 607.0830(1), which reads:
A director shall discharge his or her duties as a director, including his or her duties as a member of a committee:
(a)In good faith;
(b)With the care an ordinarily prudent person in a like position would exercise under similar circumstances; and 
(c)In a manner he or she reasonably believes to be in the best interests of the corporation.
Interestingly, this section states that a director shall not be held liable for any action taken as a director, or failure to take any action, if he or she performed his duties in compliance with section 607.0830.  See Fla. Stat. § 607.0830(5).  
Furthermore, Florida Statute section 607.0831 goes on to state that a director is not personally liable for monetary damages for any statement, vote, decision, or failure to act, regarding corporate management or policy, unless:
(a)The director breached or failed to perform his or her duties as a director; and
(b)The director’s breach of, or failure to perform, those duties constitutes:
1.A violation of the criminal law, unless the director had reasonable cause to believe his or her conduct was lawful or had no reasonable cause to believe his or her conduct was unlawful…;
2.A transaction from which the director derived an improper personal benefit, either directly or indirectly;
3.A circumstance under which the liability provisions of s. 607.0834 are applicable (note: section 607.0834 deals with liability for unlawful distributions);
4.In a proceeding by or in the right of the corporation to procure a judgment in its favor or by or in the right of a shareholder, conscious disregard for the best interest of the corporation, or willful misconduct; or
5.In a proceeding by or in the right of someone other than the corporation or a shareholder, recklessness or an act or omission which was committed in bad faith or with malicious purpose or in a manner exhibiting wanton and willful disregard of human rights, safety, or property.
It is important to note that while courts have described the business judgment rule as a “presumption” in favor of directors, it is not a traditional evidentiary presumption; the rule exists as a substantive rule where a board of directors is given wide discretion to make decisions and a court generally will not substitute its judgment for that of the directors.
Whether you are a shareholder or a director, if you have an issue that implicates the business judgment rule call one of our South Florida Corporate lawyers today at (954)-759-7009. Together we can determine whether you may a claim or what defenses you may have. Consulting with an experienced South Florida Lawyer today can maximize your chances of a successful our for your case.