“Usurp” Corporate Opportunity?

WHAT DOES IT MEAN TO “USURP” A CORPORATE OPPORTUNITY?

The term “usurp” in the context of business law means: “to take or make use of without right” according to the Merriam-Webster online dictionary.

As we have discussed in our other postings, company directors, shareholder and officers have various fiduciary duties to one another and to the company. One of these duties is the duty of loyalty to the company. For officers and directors in particular, they are not allowed to put their own interests above the interests of the company.

This issue comes up sometimes in the context of corporate opportunity. A corporate opportunity is a business opportunity presented to the company. It is a breach of this duty of loyalty for an officer or director to “exploit their position as a company insider” by taking a business opportunity that belongs to the company. See Miller v. Miller, 22 N.W.2d 71, 78 (Minn. 1974). This type of wrongful conduct is called: “usurping a corporate opportunity” or “usurpation of corporate opportunity.”

For a simple example, imagine Tom and Harry are business partners who own a real estate investment company that invests in apartment buildings. They both have decided to start looking for another suitable apartment building for the company to purchase. One day, Tom is not available to look at several apartment buildings that have been identified as potential investments, so Harry goes out and looks at them alone. In doing so Harry finds that one of them can be purchased and turned quickly for a substantial profit that would fit perfectly in the company portfolio. However, the deal is so attractive, Harry buys the building in his own name without telling Tom, and keeps the profits to himself. In this case Harry has usurped a company opportunity.

Most states recognize a claim for usurpation of corporate opportunity including Minnesota and North Dakota. The same concepts generally apply regardless of whether the company is a limited liability company, partnership or corporation. If you believe a significant company opportunity has been wrongly usurped, feel free to call for a free initial consult.