What is Corporate Opportunity? A Comprehensive Legal Overview

Q: Can a board member start a competing business?

Not without disclosing the opportunity to the corporation first, as it may violate the corporate opportunity doctrine.

Q: What happens if I breach my fiduciary duty?

You may face legal consequences, including the corporation claiming any profits made from the opportunity.

Definition & Meaning

Corporate opportunity is a legal principle that prevents members of a company's board of directors, executives, and employees from using information obtained through their official roles for personal gain. This principle is particularly relevant for individuals who have a fiduciary duty to the corporation, meaning they must act in the best interest of the company. Under this doctrine, if a business opportunity arises that could benefit the corporation, the fiduciary must disclose it rather than pursuing it for personal profit. If they fail to do so, the corporation may claim any profits earned from that opportunity.

Table of content

Legal Use & context

The concept of corporate opportunity is primarily used in corporate law. It is essential for maintaining trust and integrity within corporate governance. This principle is often invoked in cases involving breaches of fiduciary duty, where directors or officers may have acted against the interests of the corporation. Users can manage related legal issues through forms and templates available on platforms like US Legal Forms, which are designed to assist individuals in navigating corporate governance matters.

Key legal elements

Fiduciary duty: The obligation of directors and officers to act in the best interest of the corporation.
Disclosure requirement: Fiduciaries must disclose any business opportunities to the corporation.
Prohibition on self-dealing: Fiduciaries cannot pursue opportunities for personal gain if they could benefit the corporation.
Entitlement to profits: If a fiduciary fails to disclose an opportunity, the corporation can claim any resulting profits.

Real-world examples

Here are a couple of examples of abatement:

Example 1: A board member of a technology company learns about a new software development project that could significantly increase the company's market share. Instead of informing the company, they decide to start a competing venture using the same idea. This would be a violation of the corporate opportunity doctrine.

Example 2: An executive at a real estate firm discovers a prime property for sale. They inform the board, which decides to pursue the purchase. The executive does not face any legal issues because they disclosed the opportunity. (hypothetical example)

State-by-state differences

State	Corporate Opportunity Doctrine
Delaware	Strongly enforces the doctrine, with case law emphasizing fiduciary duties.
California	Similar enforcement as Delaware, with additional protections for minority shareholders.
New York	Recognizes the doctrine but has specific statutes that may influence its application.

This is not a complete list. State laws vary, and users should consult local rules for specific guidance.

Comparison with related terms

Term	Definition
Fiduciary Duty	The obligation to act in the best interest of another party, typically the corporation.
Self-Dealing	When a fiduciary makes decisions that benefit themselves at the expense of the corporation.
Conflict of Interest	A situation where a fiduciary's personal interests may conflict with their duties to the corporation.

Common misunderstandings

Some believe that corporate opportunity only applies to directors; however, it also applies to executives and employees with fiduciary duties.
Another misconception is that disclosing an opportunity absolves a fiduciary from liability; disclosure must be made timely and appropriately to the corporation.
Many think that pursuing a business opportunity is acceptable as long as it is not directly competitive; this is incorrect if the opportunity could benefit the corporation.

What to do if this term applies to you

If you believe you are in a situation involving corporate opportunity, consider the following steps:

Document any opportunities that arise and disclose them to your board or relevant authority within the corporation.
Consult with a legal professional to understand your obligations and potential liabilities.
Explore US Legal Forms for templates related to corporate governance and fiduciary duties to assist in managing your responsibilities.

Find the legal form that fits your case

Browse our library of 85,000+ state-specific legal templates.

This field is required

Quick facts

Typical Fees: Varies by legal counsel.
Jurisdiction: Corporate law varies by state.
Possible Penalties: Loss of profits, legal action by the corporation.

Key takeaways

Frequently asked questions

What is a fiduciary duty?

A fiduciary duty is a legal obligation to act in the best interest of another party, such as a corporation.