On The Business Judgment Rule

The Business Judgment Rule is a very important legal system in the field of American corporate law. In accordance with the Business Judgment Rule, a business decision is recognized as a normal one so far as directors are reasonably informed in making the business decision and make the decision with good faith and for the best interest of the corporation. When such a business decision is subject to challenge, the court will dismiss the claim without assessing the intrinsic value the challenged decision to the corporation. Drawing its attention impartially to the normal risks in commercial activities, The Business Judgment Rule know well the normal risks from the loss made by the directors fail to perform their obligation, hence, it can tackle the problem related to liability rises out of the decision-making. Therefore, The Business Judgment Rule not only can encourage directors boldly make decision for the interests of the company but also keep the directors from doing harm to the company's interest by abusing their power. As China in its early stage of corporate law development, to make good study the Business Judgment is a meaning matter in perfecting the system about director and corporate both in theory and in practice. However, up to date, rarely has scholar made systematic study thereon in China. In view of the above context, the author selects "On the Business Judgment Rule " as the topic of this LL.M thesis in the hope that, by making a systematic study on the Business Judgment Rule, I can expose its real meaning and provide suggestions for the improvement of China's corporate legal system.In addition to the preface, this thesis consists of four parts.The first part gives the general survey of the Business Judgment Rule. Firstly, three concepts of Business Judgment Rule were introduced, followed by the author's opinion about the Business Judgment Rule. Secondly, the author reviews the development of Business Judgment in America.The second part is about the requirement for application, the feature and the function of the Business Judgment Rule .As for the requirement for application, the author analyses it from the aspects of the subject, the object, thesubjective and objective elements of the rule. As for the feature, the author presents three ones: process-orientated in review, judicial non-review and not in written form. To the function, the rule is to preserve the directors' power, to promote the directors exercise their power freely and fully, to keep both the directors and shareholders from abusing their own power.The third part discusses the rational basis of the Business judgment Rule .In the author's view, the reason for rule the is neither all earning belonging to the corporate nor the wide gap between the income and probable liability for damage of directors nor the judge's incompetence in commercial business. The reason for the rule is simply the incomplete contract of the director's power.The fourth part analysis the theoretical and the practical significance for China to absorb the Business Judgment Rule, followed by presenting some suggestions to improve the legislation of China's corporations legal system.