The business valuation rule is the legal case doctrine revealed in the corporate law that the court is subject to the business appraisal of the company executives. It is rooted in the principle that "the directors of a company... dressed as presumed, in accordance with their law, to be [motivated] in their behavior by bona fide assumptions for the benefit of corporations whose business shareholders have committed to cost them ". Rules exist in some forms in most common law countries, including the United States, Canada, England and Wales, and Australia.
To challenge the actions of the company's board of directors, the plaintiff assumes "the burden of providing evidence that the directors, in reaching their challenged decision, violate one of the triads of their fiduciary duty - goodwill, loyalty, or reasonable attention". Failure to do so, the plaintiff "is not entitled to any attempt unless the transaction is a waste... [ie,] the exchange is so biased that no ordinary business person, good judgment can conclude that the company has accepted the consideration adequate ".
Video Business judgment rule
Basis
Bearing in mind that the director can not ascertain the success of the company, the business valuation rule stipulates that the court will not review the business decision of the board of directors performing its duties (1) in good faith; (2) be careful that the normally wise person in such a position will exercise in similar circumstances; and (3) in the manner directed by the directors to be in the best interests of the company. As part of their maintenance duties, directors have an obligation not to waste company assets by paying more for property or work services. The business valuation rule is very difficult to overcome and the court will not disrupt the directors unless it is clear that they are guilty of fraud or misappropriation of corporate funds, etc.
As a result, business valuation rules create strong assumptions that support the company's board of directors, freeing its members from the likelihood of liability for decisions that result in losses to corporations. The presumption is that "in making business decisions do not involve self-interest or self-handling, the company directors act on the basis of information, in good faith, and with honest confidence that their actions are in the best interests of the company." In short, it exists so the council will not experience legal action only from bad decisions. As the Delaware Supreme Court has said, the court "shall not substitute for its own idea of ​​what or whether a sound business judgment" if "the directors of the company act on the basis of information, in good faith and in the honest belief that the action taken is in the best interest of the company. "
Maps Business judgment rule
Duty of care and loyalty obligation
Although the concept of common law differs from the duty of care, loyalty obligations are often evaluated by courts in certain cases dealing with offenses by the council. Although business valuation rules are historically associated primarily with the standard of behavioral care obligations, shareholders who demand directors often burden maintenance duties and liability violations of allegiance.
This forces the court to evaluate the maintenance task (using the standard business review review rule) along with the loyalty assignment that involves a violation of personal interest (as opposed to gross incompetence with maintenance tasks). Violations of the obligations of care are reviewed on the basis of a high standard of negligence, not due to a simple omission.
As a result, over time, one of the review points that have entered the business valuation rule is a ban on personal interest transactions. Conflicting interest transactions occur when a director, who has conflicting interests in connection with a transaction, knows that he or a related person is (1) a party to the transaction; (2) having a favorable financial interest in, or closely linked to, transactions that are reasonably expected to affect the director's assessment if he votes on the transaction; or (3) is the director, general partner, agent or employee of another entity with whom the corporation transacts business and the transaction is very important for the company so that a normal business journey will be brought before the board.
Standard review
The following test is built in the opinion for Grobow v. Perot , 539 A.2d 180 (Del. 1988), as a guide to satisfaction of business valuation rules. Directors in business must:
- act in good faith;
- acting in the interests of the corporation;
- act on information;
- not wasteful;
- does not involve self-interest (the task of the concept of loyalty plays a role here).
Rationale
Under the Delaware General Company Law, the business valuation rule is a descendant of the basic principle, codified in Del. Code Ann. chest. 8, Ã, § 141 (a), that Delaware's business and business affairs are managed by or under its board of directors. In carrying out their managerial role, directors are responsible for the inevitable fiduciary duty to the corporation. The rationale for this rule is the recognition by the court that, in a business environment that is inherently risky, the Board of Directors should be free to take risks without fear of lawsuits affecting their judgment.
The presumption filed by the Rules of Business Court may be denied by the plaintiff. "The business valuation rule is the assumption that in making business decisions, the directors of the company act on the basis of information, in good faith and in the honest belief that the actions taken are in the best interests of the company. the council as not knowing should deny the assumption that its business considerations are information. "Furthermore, the rebuttal usually requires a sign that the defendants violate the duty of care or loyalty (with a court that assumes the director's good intentions otherwise).
If the plaintiff can point out that an act should not be protected by a business valuation rule (such as when a director decides to grant more than a certain percentage of the company's profits to a charity (liability for breach of care) or his own pocket line with self- loyalty violation)), then the burden will shift to the defendant to show that the action meets the burden of good faith/rational decision. In many cases, it is relatively easy for a director to find some rational reason for his actions and, with a court that uses the business valuation rules, the case may be dismissed (US courts do not trust being involved in business matters). All directors must have the option to veto the decision.
Often, winning cases for plaintiffs involving business valuation rules involve actions that constitute corporate waste. Also, note that some Board decisions are outside the business valuation rules. For example, in the context of a takeover, the court will apply a tighter Unocal test, also called intermediate supervision. Illegal decisions are also not covered by business valuation rules.
One of the earliest cases, Dodge v. Ford Motor Co. , decides, for example, that "the equity court will not interfere in the management of the directors unless it is clearly made to appear that they are guilty of fraud or misappropriation of corporate funds, or refuse to declare dividends when the company has a net profit surplus that can, without prejudice business, share among their shareholders, and when the refusal to do so would amount to such misuse of discretion would be a fraud, or a gross violation of their goodwill to the shareholders. "
See also
- Company
- Company law
- US corporate law
- British corporate law
- German company law
- In Derivative Litigation Back Caremark International Inc., 698 A.2d 959 (Del. Ch. 1996)
- Benihana from Tokyo, Inc. v. Benihana, Inc.
Note
External links
- Company House in United Kingdom
Source of the article : Wikipedia
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