MBE Rules · Business Associations
Duty of Loyalty — Corporate Opportunity
Corporate opportunity doctrine (Cal.)
The rule
A director or officer may not take a business opportunity in the corporation's line of business or in which it has an interest or expectancy without first offering it to the corporation and obtaining disinterested rejection.
In plain English
The Duty of Loyalty requires that corporate directors and officers prioritize the interests of the corporation over their own. If they come across a business opportunity related to the corporation's business, they must present it to the corporation first and can only pursue it personally if the corporation declines the opportunity without any interested parties involved.
Worked example
A director of a tech company learns about a new software development project that aligns perfectly with the company's goals. Instead of presenting this opportunity to the company, the director decides to pursue it independently. The company later discovers this and can hold the director liable for breaching the Duty of Loyalty.
Memory hook
Offer it first, or it's a loyalty curse!
The trap
Exams may present scenarios where the opportunity seems unrelated to the corporation's business, leading students to mistakenly believe the Duty of Loyalty does not apply. Students must carefully analyze the connection between the opportunity and the corporation's interests.
How examiners test it
Questions often involve fact patterns where a director or officer encounters a potential business opportunity, requiring students to assess whether the Duty of Loyalty has been violated based on the circumstances of the opportunity's disclosure.
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