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Simple English definitions for legal terms

duty of loyalty

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A quick definition of duty of loyalty:

The duty of loyalty is a responsibility that company directors have to put the interests of the company and its shareholders before their own personal interests. This means they cannot use company assets or information for their own benefit. They must also keep any information they learn as a director confidential and report any conflicts of interest to the company. If they have a personal conflict, they must tell the other directors so they can make a decision without them. Directors must also present any opportunities that could benefit the company to the board before trying to benefit from them.

A more thorough explanation:

The duty of loyalty is a responsibility that company directors have to put the interests of the company and its shareholders before their own personal interests. This means that they cannot use company assets, opportunities, or information for their own benefit. If they do, they are violating their duty of loyalty.

For example, if a director takes advantage of information that is valuable to the company and uses it to make a profit for themselves, they are violating their duty of loyalty. Another example is if a director takes a corporate opportunity for themselves instead of offering it to the company first.

In addition to these examples, the duty of loyalty also requires directors to keep any information they receive as directors confidential and to report any conflicts of interest to the company. If a conflict of interest does exist, the director should disclose all relevant information.

To avoid violating their duty of loyalty, directors should disclose any personal conflicts they may have to the board of directors so that a disinterested vote can be taken without them. They should also present any opportunities that are relevant to the corporation to the board before trying to benefit from them.

Overall, the duty of loyalty is an important responsibility that directors have to ensure that they act in the best interests of the company and its shareholders.

duty of good faith | duty to mitigate

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