How does the business judgment rule protect corporate directors?

The business judgment rule primarily serves to protect corporate directors by shielding them from liability for decisions made in good faith. This legal doctrine acknowledges that directors often face complex and uncertain situations and need the discretion to make choices that they believe are in the best interest of the corporation. As long as their decisions exhibit reasonable care, are made in good faith, and involve a rational basis, they can act without fear of personal liability even if those decisions do not lead to favorable outcomes.

This protection encourages directors to make bold and innovative decisions that can ultimately benefit the corporation and its shareholders. It allows directors to focus on long-term strategies without the constant threat of legal repercussions, as the rule presumes that they are acting in a manner that is intended to further the interests of the business.