The ''corporate opportunity'' doctrine is the legal principle providing that
directors
Director may refer to:
Literature
* ''Director'' (magazine), a British magazine
* ''The Director'' (novel), a 1971 novel by Henry Denker
* ''The Director'' (play), a 2000 play by Nancy Hasty
Music
* Director (band), an Irish rock band
* ''D ...
, officers, and controlling shareholders of a
corporation
A corporation is an organization—usually a group of people or a company—authorized by the state to act as a single entity (a legal entity recognized by private and public law "born out of statute"; a legal person in legal context) and r ...
must not take for themselves any business opportunity that could benefit the corporation. The corporate opportunity doctrine is one application of the
fiduciary
A fiduciary is a person who holds a legal or ethical relationship of trust with one or more other parties (person or group of persons). Typically, a fiduciary prudently takes care of money or other assets for another person. One party, for exampl ...
duty of loyalty The duty of loyalty is often called the cardinal principal of fiduciary relationships, but is particularly strict in the law of trusts. In that context, the term refers to a trustee's duty to administer the trust solely in the interest of the bene ...
.
Application
The corporate opportunity doctrine does not apply to all fiduciaries of a corporation; rather, it is limited to directors, officers, and controlling shareholders. The doctrine applies regardless of whether the corporation is harmed by the transaction; indeed, it applies even if the corporation benefits from the transaction. The corporate opportunity doctrine only applies if the opportunity was not disclosed to the corporation. If the opportunity was disclosed to the board of directors and the board declined to take the opportunity for the corporation, the fiduciary may take the opportunity for themself. When the corporate opportunity doctrine applies, the corporation is entitled to all profits earned by the fiduciary from the transaction. In the leading
English law
English law is the common law legal system of England and Wales, comprising mainly criminal law and civil law, each branch having its own courts and procedures.
Principal elements of English law
Although the common law has, historically, be ...
case of it was held that "The rule of equity which insists on those who by use of a fiduciary position make a profit, being liable to account for that profit, in no way depends on fraud, or absence of ''
bona fide
In human interactions, good faith ( la, bona fides) is a sincere intention to be fair, open, and honest, regardless of the outcome of the interaction. Some Latin phrases have lost their literal meaning over centuries, but that is not the case ...
s'' ... or whether the plaintiff has in fact been damaged or benefited by his action."
Elements
A business opportunity is a corporate opportunity if the corporation is financially able to undertake the opportunity, the opportunity is within the corporation's line of business, and the corporation has an interest or expectancy in the opportunity. The
Delaware Court of Chancery
The Delaware Court of Chancery is a court of equity in the American state of Delaware. It is one of Delaware's three constitutional courts, along with the Supreme Court and Superior Court. Since 2018, the court consists of seven judges. The chi ...
has stated, "An opportunity is within a corporation's line of business . . . if it is an activity as to which the corporation has fundamental knowledge, practical experience and ability to pursue." In ''
In re
''In re'', Latin for "in the matter f, is a term with several different, but related meanings.
Legal use
In the legal system in the United States, ''In re'' is used to indicate that a judicial proceeding may not have formally designated advers ...
eBay, Inc. Shareholders Litigation'', investing in various
securities
A security is a tradable financial asset. The term commonly refers to any form of financial instrument, but its legal definition varies by jurisdiction. In some countries and languages people commonly use the term "security" to refer to any for ...
was held to be in a line of business of eBay despite the fact that eBay's primary purpose is to provide an online auction platform. Investing was in a line of business of eBay because eBay "consistently invested a portion of its cash on hand in marketable securities." A corporation has an interest or expectancy in a business opportunity if the opportunity would further an established business policy of the corporation.
[18B Am. Jur. 2d ''Corporations'' § 1542 (1964).]
See also
*
Fiduciary duty
A fiduciary is a person who holds a legal or ethical relationship of trust with one or more other parties (person or group of persons). Typically, a fiduciary prudently takes care of money or other assets for another person. One party, for exampl ...
*
Duty of loyalty The duty of loyalty is often called the cardinal principal of fiduciary relationships, but is particularly strict in the law of trusts. In that context, the term refers to a trustee's duty to administer the trust solely in the interest of the bene ...
*
Self-dealing
Self-dealing is the conduct of a trustee, attorney, corporate officer, or other fiduciary that consists of taking advantage of their position in a transaction and acting in their own interests rather than in the interests of the beneficiaries of ...
References
{{Aspects of corporations
Legal doctrines and principles
Corporate law