The Business Judgement Rule
Association board members have the challenging task of governing and managing the matters of their communities. They are responsible for making necessary decisions that impact the lives of the association members, such as setting budgets, managing finances, enforcing rules and regulations, and determining community amenities and infrastructure. In carrying out these responsibilities, board members must exercise their business judgment, and the business judgment rule is a crucial legal principle that guides their decision-making process.
The Business Judgement Rule
The business judgment rule is a legal principle that protects board members from personal liability for decisions made in good faith and the association's best interests. This rule recognizes that board members may need to correct their decision-making process. Still, they are protected from liability if they act in good faith, exercise due diligence, gather all necessary information, consult with experts or professionals when necessary, and make decisions that are in the association's best interests.
Additionally, board members must act within their scope of authority, staying within their jurisdiction and acting with proper authorization. They should document their decision-making process carefully and inform all association members of their decisions and rationale.
What the Business Judgement Rule Doesn't Cover
However, the business judgment rule does not provide blanket immunity for all decisions made by board members. The business judgment rule may not protect board members from liability if a decision is made recklessly or with gross negligence. Therefore, board members should consult with legal counsel when making critical decisions that may have legal consequences.
The business judgment rule is a vital legal principle that guides the decision-making process of association board members. Board members must act in good faith, exercise due diligence, and document their decision-making process carefully to benefit from this rule. However, it's essential to consult with legal counsel when making critical decisions that may have legal consequences.
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Condominium Associates does not give legal advice. Please seek a lawyer. Contact us today with questions you may have.