By J. Eric Lockridge and Glenn M. Farnet

Louisiana protects corporate directors and officers from liability to shareholders or others when they make decisions in good faith and reasonably believe that their decisions are in the best interest of the organization. This principal, called the “business judgment rule,” gives officers and directors the freedom to take risks and to make decisions without wondering if shareholders or others will attempt to sue them, personally, if a particular decision ultimately results in a loss to the company. The business judgment rule itself is not news; it has been discussed in American case law since at least the 1940s, and is now codified in the statutory law of some states, including Louisiana. The blog-worthy news about the business judgment rule is a December 13, 2011 court decision from a federal court in California in FDIC v. Perry noting that the statutory version of the rule enacted by California’s legislature protects only corporate directors, not officers. You can see the opinion here, and an interesting commentary on the opinion by Kevin LaCroix here.

Unlike California’s law, the Louisiana statute that codifies the business judgment rule, La. R.S. 12:91, provides business-judgment-rule protections to directors and officers of corporations, partnerships, and limited liability companies formed in Louisiana. Louisiana provides strong protection to directors and officers who act in good faith and exercise reasonable diligence in making decisions. Louisiana is already attracting digital-media and other high-tech and entertainment-related business from California with the possibility of attractive tax credits, free workforce training, and other incentives. The fact that Louisiana’s corporate law is more management-friendly than California’s is one more factor for businesses to consider when thinking about expanding or relocating to Louisiana.