Business Opportunity Doctrine
The Business Opportunity Doctrine is an equitable principal employed by Illinois Courts, which provides that a fiduciary such as an officer or director may not seize or develop an opportunity that belongs to the company, or deprive the company of an opportunity by hiding it.
Basic ElementsThe elements of the Doctrine are: (a) The opportunity at issue is of practical advantage to the corporation of which the Defendant is an officer or director (e.g. "reasonably incident to the present or prospective business of the Corporation"); (b) The opportunity fits into the business of the corporation or into an established corporate policy which the acquisition of the opportunity would forward (e.g. "an interest or tangible expectancy"); (c) The corporation has an interest, actual or in expectancy, in the subject property (e.g. "an interest or tangible expectancy"), or the purchase or acquisition of the property by the officer or director may hinder or defeat the plans and purposes of the corporation in the carrying on and developing the legitimate business for which it was created (e.g. "essential to its existence"); and, as set forth most recently in case law; and finally, (d) The Defendant officer or director has not presented the opportunity to the corporation for its consideration, or has done so, the Corporation has chosen to pursue the opportunity and the Defendant officer or director pursues that opportunity regardless.
When does a Business Opportunity exist?The following factors are considered in determining the existence of a business opportunity: (1) Whether the business opportunity presented is one in which the complaining corporation has an interest or an expectancy growing out of an existing contractual right; (2) The relationship of the opportunity to the corporation's business purposes and current activities -- whether essential, necessary, or merely desirable to its reasonable needs and aspirations; (3) Whether, within or without the Corporation's powers, the opportunity embraces areas adaptable to the Corporation's business and into which the Corporation might easily, naturally or logically expand; (4) The nature of the opportunity -- whether prospectively harmful or unfair; (5) Whether the Corporation has the financial ability to acquire the opportunity; and (6) Whether the opportunity includes activities as to which the corporation has fundamental knowledge, practical experience, facilities, equipment, personnel, and the ability to pursue. Finally, note that the burden of proving the existence of a corporate opportunity rests upon the party challenging the conduct of the fiduciary.
ConclusionThe basic tenet of the Business Opportunity Doctrine is that Directors and Officers cannot compete with the business to which they owe a duty of loyalty. While the original conception of the Doctrine appeared to restrict fiduciaries from taking any opportunities that the business could have pursued, more recent decisions have provided that disclosure to the business and its subsequent decision to decline an opportunity relieves the fiduciary of further obligation. However, failure to disclose and tender the opportunity will result in the fiduciary being estopped from exploiting that opportunity on their own behalf.