The duty prohibits self-dealing, usurping corporate opportunities, competing with the entity, and acting on conflicting interests. Breach is not protected by the business judgment rule and cannot be exculpated by charter provision.
Good faith is treated as a component of loyalty.
Alternative Names:
Duty of Loyalty|Loyalty Duty
Why it Matters?
Exculpatory charter provisions eliminate duty of care liability but cannot reach loyalty breaches, which makes characterizing a claim as loyalty rather than care the plaintiff's objective and the defense's target. Interested transactions can be cleansed through independent director or shareholder approval after full disclosure, which shifts review back to business judgment. Corporate opportunity claims turn on whether the opportunity was in the entity's line of business and financially capable of pursuit.
Frequently Confused with
Related terms
Frequently asked questions
Can loyalty breaches be exculpated?
How are interested transactions cleansed?
