Reference no: EM133190209
Duty of Loyalty
Loyalty can be defined as faithfulness to one's obligations and duties. In the corporate context, the duty of loyalty requires directors and officers to subordinate their personal interests to the welfare of the corporation. For instance, a director should not oppose a transaction that is in the corporation's best interest simply because pursuing it may cost the director his or her position.
Directors cannot use corporate funds or confidential corporate information for personal advantage and must refrain from self-dealing. Cases dealing with the duty of loyalty typically involve one or more of the following:
Question 1. Competing with the corporation.
Question 2. Usurping (taking personal advantage of) a corporate opportunity.
Question 3. Pursuing an interest that conflicts with that of the corporation.
Question 4. Using information that is not available to the public to make a profit trading securities (see the discussion of insider trading in Chapter 42).
Question 5. Authorizing a corporate transaction that is detrimental to minority shareholders.
Question 6. Selling control over the corporation.
Classic Case 40.1
Guth v. Loft, Inc.
Supreme Court of Delaware, 23 Del.Ch. 255, 5 A.2d 503 (1939).
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