Duty of Loyalty is a term used in corporation law to describe a fiduciaries' "conflicts of interest and requires fiduciaries to put the corporation's interests ahead of their own." "Corporate fiduciaries breach their duty of loyalty when they divert corporate assets, opportunities, or information for personal gain."

It is generally acceptable if a director makes a decision for the corporation that profits both him and the corporation. The duty of loyalty is breached when the director puts their interest in front of that of the corporation.

Conditions of self-dealing transaction

• Flagrant Diversion: corporate official stealing tangible corporate assets - "a plain breach of the fiduciary's duty of loyalty since the diversion was unauthorized and the corporation received no benefit in the transaction."
• Self-Dealing: A key player and the corporation are on opposite sides of the transaction or the key player has helped influence the corporation's decisions to enter the transaction. "When a fiduciary enters into a transaction with the corporation on unfair terms, the effect is the same as if he had appropriated the difference between the transaction's fair value and the transaction's price."
• Executive Compensation
• Usurping Corporate Opportunity
  Corporate opportunity
  The corporate opportunity doctrine is the legal principle providing that directors, officers, and controlling shareholders of a corporation must not take for themselves any business opportunity that could benefit the corporation...
  
  
• Disclosure to Shareholders
• Trading on Inside Information
• Selling out
• Entrenchment
• The key player's personal financial interest are at least potentially in conflict with the financial interests of the corporation.

Ways the proponent of a self-dealing transaction can avoid invalidation

• By showing approval by a majority of disinterested directors
• Showing ratification by shareholders (MBCA 8.63)
• Showing transaction was inherently fair (MBCA 8.61)

U.S. Model Business Corporation Act

Section 8.60 of the Model Business Corporation Act

Model Business Corporation Act

The Model Business Corporation Act is a model set of law prepared by the Committee on Corporate Laws of the Section of Business Law of the American Bar Association and is followed by twenty-four states.-History:...

 states there is a conflict of interest

Conflict of interest

A conflict of interest occurs when an individual or organization is involved in multiple interests, one of which could possibly corrupt the motivation for an act in the other....

 when the director knows that at the time of a commitment that he or a related person is 1) a party to the transaction or 2) has a beneficial financial interest in the transaction that the interest and exercises his influence to the detriment of the corporation.

See also

• Self-dealing
  Self-dealing
  Self-dealing is the conduct of a trustee, an attorney, a corporate officer, or other fiduciary that consists of taking advantage of his position in a transaction and acting for his own interests rather than for the interests of the beneficiaries of the trust, corporate shareholders, or his clients...
  
  
• Corporate opportunity
  Corporate opportunity
  The corporate opportunity doctrine is the legal principle providing that directors, officers, and controlling shareholders of a corporation must not take for themselves any business opportunity that could benefit the corporation...
  
  
• Duty of care
  Duty of care
  In tort law, a duty of care is a legal obligation imposed on an individual requiring that they adhere to a standard of reasonable care while performing any acts that could foreseeably harm others. It is the first element that must be established to proceed with an action in negligence. The claimant...
  
  
• Business Judgment Rule
• Fiduciary management
  Fiduciary management
  Fiduciary management is an approach to asset management that involves an asset owner appointing a third party to manage the total assets of the asset owner on an integrated basis through a combination of advisory and delegated investment services, with a view to achieving the asset owner's overall...