Imposing fiduciary duties on company officers and directors gives companies the ability to examine new business opportunities and share confidential information about such pursuits with the company’s management without fear that company officers will steal the opportunity for themselves instead of pursuing it for the company’s benefit. As a fiduciary, the corporate officer must put the interests of the company before the self-interest of the director or officer.
Generally, a corporate director or officer may not take advantage of a business opportunity if: (1) the company has the financial ability to undertake the opportunity; (2) the opportunity is in the corporation’s line of business and is of practical advantage to it; and, (3) the corporation has an interest or reasonable expectancy in the opportunity.
Fiduciary duties that directors and officers owe to a company require that the business interests of the company take precedence over the pecuniary interests of the director or officer. Simply, fiduciary duties owed by corporate officers and directors prohibit self-dealing. These obligations on corporate officers and directors to refrain from usurping corporate opportunities are even more important when the business opportunity involves new or novel opportunities that are not widely known to the general public or when they are single-opportunity ventures (the purchase of a certain piece of real estate, for example).
To succeed, grow, and prosper, companies must constantly identify new growth opportunities. Once identified, each opportunity must be examined and scrutinized by the company, though it’s employees, officers, and directors. Without requiring that the company’s officers and directors refrain from self-dealing, companies would constantly be at risk of losing out on potential growth opportunities. Therefore, imposing the very high burden of fiduciary duties on corporate officers and directors protects the company from losing out on the possibility of profiting from these opportunities, and also encourages companies to share confidential information relating to new business opportunities. This ability to share information fosters aggressive growth and allows for the most comprehensive evaluation of potential business opportunities.
Written By:
Edward Allred
Watts Guerra LLP
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Office (210) 447-0500
Mobile (210) 685-1845
eallred@guerrallp.com
© Watts Guerra LLP 2015
