Delaware
How Auerbach v. Bennett applies in Delaware: state-specific rules, key cases, and bar exam notes for Corporations.
Delaware law follows the principles established in Auerbach v. Bennett, emphasizing the corporate governance rights of directors within the context of business judgment. The court typically upholds the decisions made by corporate boards if they fall within a reasonable exercise of their discretion, reflecting Delaware's strong commitment to fostering business activity.
In Delaware, the business judgment rule protects the decisions made by corporate directors as long as they are made in good faith, with the care that an ordinarily prudent person in a similar position would use, and in a manner that the directors reasonably believe to be in the best interests of the corporation.
The court held that directors can be held liable for breaching their duty of care if they fail to inform themselves adequately before making significant corporate decisions.
This case reinforced the business judgment rule, emphasizing that directors are not liable for decisions made in good faith and with a reasonable basis, even if they result in poor outcomes.
The court affirmed that the business judgment rule provides directors with protection from liability when making decisions that are not motivated by self-interest.
Delaware's approach aligns closely with federal standards under the business judgment rule; however, Delaware offers more extensive case law that outlines the scope and limitations of director discretion. Unlike some SEC regulations, Delaware courts typically focus on the business realities facing companies, giving boards of directors significant leeway.
Auerbach v. Bennett and principles of the business judgment rule are frequently tested in the Delaware bar exam, particularly regarding corporate governance and director duties.