The Duty of Directors and Officers Regarding Corporate Opportunities

The corporate opportunity doctrine provides that corporate directors and officers have an obligation not to take personal advantage of opportunities that may be to the advantage of their corporation. The doctrine follows from the duty of loyalty of directors and officers to the corporation.

In determining the existence of a corporate opportunity, the court will resolve whether the opportunity is in the line of business engaged in by the corporation and whether the corporation would be able to take advantage of the opportunity. If the court decides that the business opportunity engaged in by a director or officer for his or her own benefit could have been of advantage to the corporation, a trust in favor of the corporation will be imposed on the property, interests, and profits acquired by the director or officer through the opportunity.

The corporate opportunity doctrine is an equitable doctrine, and its application depends upon a balance of fairness in light of the factual situation presented in each case. A court thus is likely to consider factors such as:

  • How valuable the opportunity is to the corporation and what the likelihood of the corporation taking advantage of the corporation would have been;

  • Whether the opportunity was presented to the director or officer as a result of that person's relationship with the corporation; and

  • The extent to which the opportunity puts the director or officer in competition with the corporation or diminishes the performance of fiduciary and good faith obligations of the director or officer toward the corporation.

The corporate opportunity doctrine may be viewed as a rule of disclosure. If a director or officer learns of an opportunity that could be of benefit to the corporation, full disclosure to the corporation of the opportunity would allow an informed choice by the corporation between adopting the opportunity or leaving the opportunity to the director or officer.

Copyright 2011 LexisNexis, a division of Reed Elsevier Inc.


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