What is the business judgment rule?

While limited liability protects the owners, directors and officers of a corporation, they may still be personally liable in situation where they have severely mismanaged the corporation. However, it is very rare for directors to be found personally liable because of the business judgment rule. This rule basically says that a director will not be held personally liable for a bad decision as long as he or she was acting in good faith, was diligent in learning information relative to that decision and was not personally interested in the underlying transaction. This rule therefore provides a broad amount of protection to corporate directors.