Which of the following is true in regard to the business judgment rule if one or more individual directors have a personal interest in a transaction being considered by the board?
A) The decision may be entitled to the protection of the business judgment rule if the transaction is approved by a majority of the inside directors.
B) The decision may be entitled to the protection of the business judgment rule if the transaction is approved by a majority of the disinterested directors.
C) The decision is not entitled to the protection of the business judgment rule resulting in a higher level of proof regarding the reasonableness of the transaction being required from the board of directors.
D) The decision is not entitled to the protection of the business judgment rule leading to a legally established conclusion of illegality on the part of the board of directors.

Question

Quizplus · Accepted Answer

If one or more individual directors have a personal interest in a transaction being considered by the board, the decision may still be entitled to the protection of the business judgment rule if it is approved by a majority of the disinterested directors. This means that as long as there are enough directors who do not have a personal interest in the transaction and they approve it, the decision can still be protected by the business judgment rule. However, if the decision is made solely by directors with a personal interest or there is not enough disinterested directors to approve it, the decision may not be protected and a higher level of proof regarding the reasonableness of the transaction may be required. Choice A is incorrect because inside directors can also have personal interests in the transaction. Choice C is partially correct but it does not explain that the decision may still be protected if approved by a majority of the disinterested directors. Choice D is incorrect because not being entitled to the protection of the business judgment rule does not automatically result in a legally established conclusion of illegality.

Which of the Following Is True in Regard to the Business