Question

1. The Business Judgment Rule is a principle that provides protection to directors, trustees, and officers of a corporation or organization when making decisions on behalf of the entity. It assumes that these individuals act in good faith, with the best interest of the organization in mind, and exercise reasonable care and diligence in making decisions.

2. In the context of the Business Judgment Rule, consider the following scenario:

Alice and Bob are directors of XYZ Corporation, a manufacturing company. The corporation is facing financial challenges, with declining sales and profits. As a result, shareholders are concerned about the future of the company. Alice and Bob, as directors, are tasked with making decisions to address the financial issues and ensure the survival of the company.

Discuss the application of the Business Judgment Rule in the following situations:

1. Alice and Bob decide to enter into a risky joint venture with a foreign company to expand their market presence. The joint venture has potential for high returns but also carries significant financial risks.


2. A shareholder files a lawsuit against Alice and Bob, alleging that they mismanaged the company's finances and caused significant losses. The shareholder claims that Alice and Bob, as directors, should be held personally liable for the losses.


3. The board of directors, including Alice and Bob, decides to sell a non-profitable division of the company to cut costs and focus on the core profitable business segments.