Directors owe a fiduciary duty to the corporation. This means that at all times directors owe a duty of loyalty to the corporation, that is, the best interest of the corporation is paramount.
Premised on disclosure and fair play, breached by
conflict of interest/self-dealing
corporate opportunity
- not illegal for directors to do business with the corporation provided that directors:
disclose interest to other directors, recuse himself from the vote, and the board in good faith authorizes contract or
disclose his interest as in the contract or transaction to shareholders and approval is in good faith by a vote of the shareholders
ensure the contract or transaction was fair to the corporation as of the time it was authorized, approved or ratified by directors, committee members or a shareholder
can be attacked under theory of corporate opportunity, looking at following factors
prior negotiations with corporation
whether the opportunity was offered to the corporation or directors as agents for the corporation
whether the director landed the opportunity by reason of his post or position with the corporation
financial status of corporation
generally, director can not exploit or take for himself an opportunity that rightly belongs to corporation. 2 ways hey may exploit without serious consequences
through full disclosure to the corporation
if the corporation has been presented with the opportunity and rejects it in good faith
remedy
A constructive trust is the remedy available when a corporate opportunity has been exploited illegally by a director. The contract will be cancelled and an appointed trustee must account for all transactions since the date the director took the
- it is arguable here that there was not full disclosure, and although the 2/3 of the voting power allowed the investment, however, such a huge investment should not have had a vote without more members present