close

Blogs > Shareholder Disputes in Pennsylvania

Can You Take That New Business Opportunity for Yourself? What You Should Know About the Corporate Opportunity Doctrine

Of course, it depends. As an officer/owner in a business, you should be aware of the corporate opportunity doctrine. The corporate opportunity doctrine prohibits you from taking a business opportunity that may belong to the corporation. As an officer in the corporation, you have a duty of loyalty and a fiduciary duty to the corporation. You may violate those duties, however, if you take a business opportunity for yourself that is in line with the corporation’s business activities, and one in which the corporation has a legitimate interest or expectancy. For example, if your company makes and sells product A, and you learn that one of the company’s clients wants product B, and the company can expand and make product B, you likely cannot start a separate company on your own and make and sell product B.

As always, there are exceptions to this rule. For example, an officer or director may not be charged with usurpation of corporate opportunity when the corporation is unable to avail itself of the business opportunity. For instance, if the company in the hypothetical above does not have the financial resources to make product B, then you may be able to proceed and make product B through your new company. The safer course of action, however, is to make a full disclosure of the opportunity to the company and have the company declare that it does not have interest in making or cannot make product B. If you proceed without making a full disclosure of the business opportunity, you risk litigation over whether or not the company could have made product B.

Further, there is no “missed corporate opportunity” where the products being manufactured, although similar, have completely different applications and markets. For example, you could argue that product B does not fall within the company’s wheelhouse. Again, however, the safest course of action is full disclosure of the opportunity.

If you have questions about this or any other shareholder issue, please contact me at smawji@norris-law.com.