Lagarde, who succeed disgraced Frenchman Dominique Strauss-Kahn as head of the IMF, had faced the possibility of a year in prison and a €15,000 fine after her conviction was handed down by a Paris court on Monday.
But she will not face any punishment despite the conviction, judges ruled. However she may still yet lose her job. In Washington, an IMF spokesman said the agency's board would meet shortly to discuss the verdict.
Lagarde was found to be at fault over her decision to let a dispute over Bernard Tapie's sale of the Adidas sports brand to Credit Lyonnais bank be resolved by a private arbitration panel rather than the usual courts, and then of failing to challenge the 404-million-euro ($422 million) award that followed.
Lagarde, who was France's finance minister between 2007 and 2011, was not in the Paris court to hear the decision because she is in Washington, where the International Monetary Fund is based, her lawyer said.
Lagarde had argued in court on Friday she had acted in good faith in approving the 404-million-euro ($422 million) payment to Tapie to settle the row.
“In this case, as in all other cases, I acted according to trust and with the knowledge of the facts and my sole aim was to defend the general interest,” the 60-year-old former corporate lawyer said.
The IMF has so far given Lagarde its full backing in the case, but the organisation would be concerned at any damage to its reputation that a conviction will now bring.
Lagarde was being tried by the Court of Justice of the Republic, a tribunal staffed by judges and members of parliament that hears cases against ministers accused of wrongdoing in office.
Strain on family
Lagarde choked back tears on Friday as she said the trial had put her family through a “testing” time.
The prosecutor has made it clear he is opposed to convicting Lagarde, judging the evidence to support the charge of negligence too flimsy.
“The hearings have not backed up a very weak charge,” Jean-Claude Marin told the court.
The prosecutor's office had advised against bringing the case to trial.
Lagarde waved through the settlement to Tapie in 2008.
The payout raised concerns given Tapie's vocal support for Lagarde's then boss, ex-president Nicolas Sarkozy, and it was subsequently cancelled by the courts.
Tapie sold Adidas to Credit Lyonnais for the equivalent of €315.5 million in 1993. The bank sold it on the following year for 701 million euros, prompting claims from Tapie that he had been cheated.
Lagarde has told the trial she had trusted the judgement of her subordinates in the process and had not been included in some of the negotiations in the ministry and in the president's office.
As IMF chief Lagarde has been a key player in bailout negotiations for Greece and has also worked to reform the US- and Europe-dominated institution to reflect China's growing global leverage.
Lagarde succeeded her disgraced compatriot Dominique Strauss-Kahn as IMF managing director after he resigned to fight sexual assault charges.
Another former IMF head, Rodrigo Rato of Spain, is currently standing trial on charges of misusing funds when he was head of Spanish lender Bankia.