Pg 31 Flashcards
What is the best defence for misappropriation or usurpation of corporate opportunities?
That the board rejected the opportunity or approved the defendant taking it. As long as there was full disclosure of all material facts to the corporation and the corporation declined to take the business opportunity, then the director officer can personally take advantage of it.
What is the consequence when a director an officer usurps a corporate opportunity?
The corporation can elect to claim the benefits of the transaction.
Because directors and officers are fiduciaries for their corporations, what are things they cannot get?
– commission – bonus – gift - profit – any advantage on the side for their official action
What is the only way that a director or official can keep a reward that they got related to their purchase, sale, lease, or contract with a corporation?
If they fully disclose it to the corporation and get the consent of the corporation to keep it
If a bank officer made a deal with a steel corporation that if he approved the loan to the corporation he would get a 1/2 interest in the venture, and this made him $73,000, what would happen?
He would be liable to the bank for the profits from his official relationship to the bank even though the bank suffered no loss
If a director knows that fraud is being attempted against the corporation, what must he do?
He must tell the other officers about the facts and use every effort to prevent the fraud. If he passively acquiesces to this and any part of the corporation’s assets or profits are fraudulently gotten, then he is guilty of neglect of his duty to the corporation and he is liable even though he didn’t personally profit.
What is the duty of an employee not to compete?
Employees of the corporation (including directors and officers) are stopped from actively competing with their employer while they are employed and they do not need a noncompete agreement.
The reasoning is that the knowledge and expertise of a corporation’s employees are included in the corporations assets, so if a director, officer, or employee uses that knowledge or expertise in competition with his employer, that is a misuse of corporate assets.
What is an exception to the rule that employees cannot compete against the corporation?
They can make important preparations to compete while they are still an employee, like buy land, buildings, or equipment for a future operation. After the employment has been terminated, then they can actively compete.
How do the different jurisdictions treat an employee telling fellow workers of his intent to start competing against the corporation while he is still an employee?
- some jurisdictions: allow this to happen and mild forms of solicitation toward the coworkers
– other jurisdictions: do not allow this until the employment is severed
Is it OK for past employees to use corporate information to compete after their employment is over?
No, because that is part of the duty of an employee not to compete
What are some different examples of using corporate information to compete with a corporation after you are finished being employed by the corporation?
- trade secrets
– proprietary information like processes
– customer lists
– information the corporation has developed overtime in the course of its business that has saleable value and is not a matter of public common knowledge
If you have a falling out with your partners and then you start your own business and use the customer list of the original corporation to do targeted solicitations, is that OK?
No
What is the line between soliciting other people to get involved in your business venture and advising other people about your business venture while you are still employed with a corporation you are about to compete with?
Soliciting is not allowed but advising is and it turns on how specific the communication is. If you were just giving general information about your preparation to leave a company, that is OK, or just telling customers that you were leaving and starting your own company is OK, but you cannot press customers for business while you are still an employee.
What is the situation that you can’t use the customer list of a corporation to compete against the corporation?
If the list is considered to be confidential or amounts to a trade secret, then you cannot use any information from it to approach customers. This could happen because of unusually sensitive information, information is not generally known in the trade, or it was built after great effort or expense to the corporation.
If you used to be the employee of a cleaning business and you use their customer list of clients to get your own clients, is that OK?
No, because that list was developed after great effort and expense and wasn’t common knowledge. If the names could’ve been gotten from a phone book, that is OK.
