The Business Judgement Rule applies to legally capable foundations

Members of foundation boards are increasingly facing liability risks.
As part of the 2023 reform of foundation law in Germany, the legislator addressed this issue. Since then, the Business Judgement Rule has also applied to members of foundation bodies, granting them a special liability privilege. Previously, this rule was known only from corporate law.

The Business Judgement Rule: Reduced liability for executive and supervisory board members

The Business Judgement Rule (BJR) originates from US law and was first introduced into German law in 2005, initially applying only to the directors of stock corporations under the German Stock Corporation Act (AktG).

The rule offers protection when decision-makers take a business decision that later turns out to be disadvantageous – provided it was made to the best of their knowledge and in good faith.
This liability privilege, set out in Sections 93(1) Sentence 2 and 116 Sentence 1 of the German Stock Corporation Act (AktG), is also applied, among others, to managing directors of limited liability companies (GmbH).

The rule applies when a business decision

• in good faith,
• without personal or improper interests,
• based on an appropriate information base,
• with sufficient consideration of risks and opportunities,
• and in the best interests of the organisation.

If these conditions are met, the Business Judgement Rule protects against personal liability – even if the (mis)judgement ultimately causes damage to the organisation.

The rationale behind this rule is clear: it aims to encourage reasonable risk-taking by decision-makers in order to enable business growth – without them having to constantly fear personal liability.

Foundation Law Reform brought many changes for foundations

The most recent major reform of foundation law came into force in July 2023, aiming primarily to simplify the self-administration of foundations and to provide greater flexibility.

As part of the reform, it was legally established that the founder’s intent must carry significant weight in the administration of the foundation.
In addition, the various components of a foundation’s assets are now legally defined as either core capital (“Grundstockvermögen”) or other assets.

Further details can be found in our article titled “Key changes in foundation law”.

To increase transparency in the foundation sector, a public register of foundations has been introduced.
However, the launch of the register will not take place on 1 January 2026 as originally planned.

You can read more about this in our article “The foundation register is coming”.

Introduction of the Business Judgement Rule into foundation law

The introduction of the Business Judgement Rule into foundation law was also part of the reform.
Section 84a (2) sentence 2 of the German Civil Code (BGB) now includes a corresponding liability privilege for all members of foundation bodies.

The rule applies when members of a foundation’s governing bodies make important business (“entrepreneurial”) decisions on behalf of the foundation, which later turn out to be incorrect or harmful – but were made in accordance with the Business Judgement Rule or the provisions of the foundation’s statutes.
This can become particularly relevant, for example, when board members decide how the foundation’s assets should be invested in the future.

In such cases, there can be significant liability risks for decision-makers – especially if poor investment decisions cause lasting damage to the foundation’s core capital (Grundstockvermögen).

If legal proceedings are initiated over liability, one key question is likely to be decisive:
Was the decision based on an appropriate level of information and a careful weighing of all relevant risks and opportunities?
Or should additional expert advice have been obtained in order to make a reliable decision?

In this context, the assessment must be made ex ante – that is, based on the circumstances at the time the decision was taken.
If personal interests influenced the decision, the liability privilege no longer applies.

What has changed through the legal introduction of the Business Judgement Rule?

Since the introduction of Section 84a (2) sentence 2 of the German Civil Code (BGB), there is now a legal provision regarding liability privileges for members of foundation bodies.
This is a welcome development, as it provides greater legal certainty and support for foundation board members and contributes to transparency.

And yet, the legal introduction does not fundamentally change much.
Even before the reform of foundation law, the Business Judgement Rule was applied in liability proceedings.
The concept of a “responsible and commercially reasonable decision” had already played a role in determining fault.

In this respect, the codification of the Business Judgement Rule in foundation law does not revolutionise the issue of liability for members of foundation bodies.

However, ignoring or being unaware of the Business Judgement Rule now carries a new risk:
Anyone in a position of responsibility who fails to consider this rule when making decisions may in future lose the protection of the liability privilege – on the grounds that they did not exercise the due care required in such circumstances and therefore acted with gross negligence.

Document decision-making processes, define guidelines clearly

This ultimately raises the question: What can – and what should – foundations and their board members do now?

Members of foundation bodies are well advised to approach decision-making processes – especially those involving certain risks – with even greater care, and to document them thoroughly in order to be prepared in the event of liability proceedings.

Foundations are well advised to provide clarity for those in positions of responsibility – either through their statutes or internal guidelines – and, above all, to clearly define key decision-making processes in order to give decision-makers greater legal certainty.

Key questions on the topic

What is the Business Judgement Rule?

The Business Judgement Rule (BJR) – as set out in Sections 93(1) sentence 2 and 116(1) of the German Stock Corporation Act (AktG) – generally protects executive and supervisory board members of stock corporations, as well as managing directors of limited liability companies (GmbHs), from personal liability.
This protection applies when they make business decisions in good faith, free from personal interests, and based on adequate information.
If a decision later proves to be wrong, liability does not apply under these conditions – provided the decision was made in the best interest of the company.

Does the Business Judgement Rule apply to foundation law in Germany?

Since the 2023 reform of foundation law, the Business Judgement Rule has also been legally established for members of foundation bodies (Section 84a (2) sentence 2 of the German Civil Code – BGB).
Previously, the BJR was applied only in the context of determining fault during liability proceedings.

What should members of foundation bodies keep in mind regarding the Business Judgement Rule?

Members of foundation bodies should be fully aware of the Business Judgement Rule and ensure that their decisions – especially in situations with potential liability risks – are properly documented.
This helps to effectively defend against liability claims if necessary.

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