Business Associations

Corporate Duty of Loyalty

A corporate director or officer has a duty of loyalty to the corporation.

A fiduciary who makes a personal contract with the corporation has the burden of proving entire fairness in his self-dealing or by safeharboring the decision with a majority of disinterested directors or shareholders.

Entire Fairness

Entire fairness means the substance of the deal is fair, and the procedure of entering into the deal is fair, including that it is needed for the company.

Corporate Business Opportunity

To find that a corporate officer or director breached his duty of loyalty by taking a business opportunity for himself, the plaintiff must show both that he was a fiduciary and that there was a corporate opportunity.

To find that there was a corporate opportunity, Delaware courts use a number of factors to determine whether it is a breach of his duty of loyalty to the company.

The factors in support of finding it to be a breach are:

  1. The corporation is financially able to exploit the opportunity
  2. The opportunity is within the corporation's line of business
  3. The corporation has an interest or expectancy in the opportunity
  4. By taking the opportunity for his own, the corporate fiduciary will thereby be placed in a position harmful to his duties to the corporation.