Corporate opportunity doctrine: A South African company law perspective

Abstract

The corporate opportunity doctrine is a legal principle that demands that directors, officers and controlling shareholders of a company must not take for themselves any business opportunity that could benefit the company. However, this restriction does not apply to every member of a corporation. It is rather limited to those who could be said to stand in a fiduciary relationship with the company. The common law duties of directors are fiduciary duties of good faith, loyalty, and honesty. Every director owes to the company a duty to act in good faith and to serve in the best interests of the company. There are various responsibilities which stem from the duty of loyalty and honesty, that a director must show towards their company. These responsibilities include the duty to avoid conflict of interest, the duty of care, skill, and diligence, as well as the duty to disclose personal financial interests. These principles, which evolved at common law, are now statutorily recognised in South Africa. The Companies Act 71 of 2008 codifies the fiduciary duties of directors and makes them mandatory, prescriptive, and unalterable and applies to all companies. According to this Act, directors are not allowed to contract out of these duties. The aim of these duties is to raise the standard of corporate governance and directorial behaviour. It is the board of directors that has the full authority to exercise all the powers and perform the functions of the company to the extent that the Companies Act or company’s Memorandum of Incorporation does not provide otherwise. The broad nature of these powers demands close statutory and judicial monitoring. This is to avoid abuses that could occur in dealing with corporate opportunities. In addition, the law dictates that opportunities available to the company must not be diverted by a director to personal use. This dissertation, through a doctrinal approach, explores this legal prescription in the South African law. It is aimed at ensuring probity in corporategovernance.