Conflicts of Interest: When You Are in One

As a director or officer in a corporation, you owe the corporation and other individuals fiduciary duties. Owing fiduciary duties means that directors or officers have legal duties to place the interests of others or the corporation ahead of their own. One such fiduciary duty owed is the duty of loyalty, which means that the party must place the corporation’s interests ahead of their own. A common area where the duty of loyalty is jeopardized is in situations of conflicts of interest.

Conflicts of interest refer to a situation in which the concerns or aims of two different parties are incompatible. More specifically, in regards to the duty of loyalty, it refers to a situation in which a person is in a position to derive personal benefit from actions or decisions made in their official capacity. A director or officer, in his special position to the company, may attempt to derive a personal benefit at the expense of the corporation.

A popular situation whereby there is a conflict of interest occurs when a director or officer may attempt to transact with himself on behalf of the corporation. Because this is such an easy situation for a director or officer to derive a personal benefit, the director or officer must be able to prove that the transaction was entirely fair. He can do so by showing that both the process by which the transaction transpired and that the price received was fair to the corporation.

Another situation for a conflict of interest is whereby a director or officer receives a business opportunity in his capacity with the corporation. It is a conflict of interest for the director or officer to keep the opportunity for himself.

Directors and officers in their special positions have certain duties in relation to the corporation. Conflicts of interest are a common area where their fiduciary duties come into question. Under no circumstances can they take advantage of conflicts of interest for their own benefit to the detriment of the corporation. If you have questions regarding actions by a director or officer, whether or not you are the director or officer yourself, consulting with the right legal team can ensure whether or not actions are considered a conflict of interest issue. Call the Trembly Law Firm at (305) 431-5678 today to schedule a consultation.