Answer to Question 1
The business judgment rule states that managers are not liable for decisions they make in good faith if (1 ) it is done without a conflict of interest; (2 ) it is done with the care that an ordinary prudent person would take in a similar situation; and (3 ) it is done in a manner they reasonably believe to be in the best interests of the corporation.
Answer to Question 2
Delaware offers corporations several advantages:
Flexible laws that favor management. For example, a Delaware court recently upheld the enforceability of bylaws requiring shareholders who want to sue a Delaware company to do so in Delaware. For a company, defending a lawsuit on its home turf is much more convenient and predictable, not to mention cheaper, than being sued in another state.
An efficient court system. Delaware has a special court called a Chancery Court that hears nothing but business cases and has judges who are experts in corporate law.
A neutral arena. Because very few businesses are actually based in Delaware, it is viewed as being a neutral place in which to try cases. None of the parties has a home court advantage.
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