Legal Question in Business Law in California

Re: Conflict of Interest

Please elaborate on the negative effect on shareholders/employees of company x and any agreement between company x and its shareholders/employees with respect to retirement funds and benefits.

Re: Conflict of Interest

Officers as well as directors and controlling shareholders owe a duty of loyalty to the corporation. Seizing opportunities that belong to x and funneling them through y is improper, although the term "illegal" is usually reserved for acts that are made criminally wrong (rather than civil wrongs, as here).

The remedies which an injured party might seek in a lawsuit include money damages, voiding the improper transactions, and/or removal of the officers.

Injured parties with standing to sue could include other shareholders, the corporation itself, and probably other directors and officers even though not shareholders. Possibly even employees whose interest is only as pension-plan beneficiaries could bring suit. However, the suit or suits should probably be brought (if necessary) in the name(s) of one or a few persons most directly affected, such as the major shareholders who are not involved with "y."

If the companies are relatively large and/or publicly-traded securities are involved, the issues and processes become more complex.

Consulting with and retaining counsel with substantial experience in corporate litigation is essential. If the facts are as stated and there are no obvious defenses, this should be a winnable suit or suits.

Re: Conflict of Interest

You have a very good question. The issue really is one that we call a breach of fiduciary duty and "usurpation of corporate opportunity". The officers and directors of your corportion owe the corporation a duty of loyalty.

With any corporate opportunity the officers/directors must first present such an opportunity to the corporation. If they fail to do so it is not "illegal" such as in a criminal offense that might subject them to a loss of liberty, i.e., jail or prison.

Instead, the failure to present such opportunities to the corporation may subject the officers/directors to liability, i.e., owe money to the corporation for the lost opportunity and disgorging of profits made from this venture.

Depending on the amounts of money involved you, if you are a shareholder, will want to sit down and discuss the situation with an attorney.

I would be happy to discuss this matter with you if you like.

J. Caleb Donner