Corporate opportunity refers to the fiduciary duties of senior executives and directors of corporations to not take business opportunities away from the corporation for their own benefit. The doctrine of corporate opportunity dictates the broad principle that executives should not abuse their positions within the corporation as it is their job to act in the best interests of the corporation.
Courts differ on how to evaluate what constitutes a corporate opportunity. The Chancery Court of Delaware in Broz v. Cellular Info. Sys. set some helpful factors in determining corporate opportunity: “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 inimical to his duties to the corporation.” These factors highlight the difficulties in determining when a director has wrongly taken advantage of a corporate opportunity because an action often may be wrong in one circumstance but not another. For example, if a director made a personal bid for a business for sale within their corporation’s industry, they may not have breached their fiduciary duties if the corporation could not afford such a purchase, but if the corporation could have made the purchase, the director likely would have breached their duty.
While jurisdictions and situations differ on how to determine and handle corporate opportunity, the general concept is that fiduciaries must be open with their peers about any conflicts of interest they have and recuse themselves where possible. Courts tend to be much more critical where it appears that the fiduciary attempted to conceal actions in order to take advantage of corporate opportunities.
[Last updated in January of 2022 by the Wex Definitions Team]
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