Should corporate legal risk be treated similarly to corporate business risks? Currently, the law draws a clear-cut distinction between the two sources of risk, permitting the latter type of risk and banning the former. As a result, fiduciaries are shielded from personal liability in the case of business risk and are entirely exposed to civil and criminal liability that arises from legal risk-taking. As corporate law theorists have underscored, the differential treatment of business and legal risk is highly problematic from the perspective of firms and shareholders. To begin with, legal risk cannot be completely averted or eliminated. More importantly, decisions involving negligible levels of legal risk might yield significant profits for firms. Thus, the outright ban on legal risk-taking harms shareholders, who would have favored a more nuanced regime to legal risk.
Corporate Governance, Compliance, Business Judgement Rule, Legal Risk, Business Risk
Libson, Adi and Parchomovsky, Gideon, "Are All Risks Created Equal? Rethinking the Distinction Between Legal and Business Risk in Corporate Law" (2021). Faculty Scholarship at Penn Law. 2806.
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