A corporate opportunity refers to any business opportunity that may benefit a corporation. The corporate opportunity doctrine governs the legal responsibility of directors, officers and controlling shareholders in a corporation, under the duty of loyalty, not to take such opportunities for themselves without first disclosing the opportunity to the board of directors of the corporation and giving the board the opportunity to decline the opportunity on behalf of the corporation. If this procedure is violated, and a corporate fiduciary takes the corporate opportunity anyway, then the fiduciary has violated its duty of loyalty, and the corporation will be entitled to a constructive trust of all profits obtained from the wrongful transaction.
See, e.g. Guth v. Loft, Inc., 5 A. 2d 503 (Del. Ch. 1939) and Broz v. Cellular Info. Sys. Inc., 673 A.2d 148 (Del. 1996):
". . . a corporate officer or director may not take a business opportunity for his own if: (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; and (4) by taking the opportunity for his own, the corporate fiduciary will thereby be placed in a position inimicable to his duties to the corporation. The Court in Guth also derived a corollary which states that a director or officer may take a corporate opportunity if: (1) the opportunity is presented to the director or officer in his individual and not his corporate capacity; (2) the opportunity is not essential to the corporation; (3) the corporation holds no interest or expectancy in the opportunity; and (4) the director or officer has not wrongfully employed the resources of the corporation in pursuing or exploiting the opportunity. Guth, 5 A.2d at 509."
See also In re eBay, Inc. S'holders Litig., 2004 Del. Ch. LEXIS 4 (2004).
Definition from Nolo’s Plain-English Law Dictionary
A business opportunity that becomes known to a director or officer of a corporation or LLC due to his or her position within the company. The director or officer owes a duty of loyalty to the company not to use the opportunity or knowledge for his or her own benefit unless the company gives its permission.
Definition provided by Nolo’s Plain-English Law Dictionary.
August 19, 2010, 5:13 pm