Discuss On British And American Standards For Cognizance Of The Corporate Opportunity

The legal research on corporate opportunity originated from the common law countries. After 100 years' development, the duty of not to usurp corporate opportunities has been generally acknowledged as an important part of the director's duty of loyalty. Even so, there still are many divergences and disputes in concrete theory problems of corporate opportunity, not only in judicial circle but also in company law circle.Among them, the biggest dispute and difficult point is the problem of cognizance and discrimination of the corporate opportunities, namely how to cognize a business opportunity that belongs to the company while not to directors or senior officers, and under which conditions directors or senior officers are in breach of duty of loyalty through employing corporate opportunities. The basic premise of the cognizance is just the question which is emphatically discussed in this paper——the standard for cognizance of the corporate opportunity.Though corporate opportunity doctrine was introduced into China by Article 149 of the new Company Law, which clearly stipulates that "The director and senior officer may not use the favorable conditions and conveniences to seek the business opportunities that shall belong to the company either for his own account or for any other person's account without the approval of the shareholders meeting or the general meeting of shareholders", compared with corporate opportunity law system in common law countries, the provision of our country appears too general to be used in practical operations.Thus, this paper compares the standards for cognizance of the corporate opportunity of UK and that of U.S. A referring to the related regulations and cases of both countries, and discusses on the perfection of China's legislation of corporate opportunity. This paper consists of three parts:Introduction, Text and Concluding Remarks。 The Introduction briefly introduces the research object, narrows the research scope to the standard for cognizance of corporate opportunity among the theories of corporate opportunity. Meanwhile, this part depicts the research status and points out the research purpose and meaning of this paper.The Text is divided into five parts:Part One studies on the properties of corporate opportunity. The author considers that Property Theory and Right Theory can't justify themselves, though both of them are reasonable to some extent. In essence, corporate opportunity is a kind of possibility that may help a company realize business transaction and obtain realistic business interest in the future. From the aspect of legal nature, corporate opportunity is a kind of property interest, which should become one of the objects protected by law as an individual interest morphology in the background of market economy nowadays.Part Two introduces the British standards for cognizance of the corporate opportunity. This part introduces the no-conflicts principle, the no-profit rule and the modified rule that are adopted by British case law through three typical cases. On this basis, this part probes into an unsolved problem-the relationship between the no-conflicts principle and the no-profit rule. The author holds that the no-profit rule is better understood as an instantiating rule of the no-conflicts principle than as a sister rule. Then, this part confirms that Companies Act 2006 of UK inherited the no-conflicts principle of the equity law.Part Three mainly introduces the American standards for cognizance of the corporate opportunity. First, this part explains the concept of America Law, and points out that such a concept doesn't exist under the non-single judicial system of America. Second, introduces five mainstream standards adopted by American states, including interest or expectancy test, line of business test, fairness test, hybrid test and Dr.Clerk's "different companies, different tests". Part Four is a focal point and also an innovative point of this paper. In the beginning, this part comments briefly on British and American standards. The no-conflicts principle is of intense strictness, which encounters much opposed sound in UK, furthermore, it's more reasonable to say that this principle stipulates why the directors or senior officers can't usurp the corporate opportunities rather than to say it stipulates the standard for cognizance of the corporate opportunity. However, American standards puts emphasis on the properties of corporate opportunity itself, and measures the relationship between a business opportunity and a company considering on many factors. Then, this part compares and analyses thoroughly between British standards and American standards by the methods of comparison theory. This part concludes the disputes of these two countries' standards into four aspects:indirect v. direct, strict v. flexible, clear&certain v. ambiguous & uncertain, inveterate v. modern. Once again, analyzes these disputes objectively, after considering on the factors such as American special non-single judicial system, American unique internal institutional background-institutional competition, the deviation caused by subjective understanding and so on, the author concludes that American standards are no better than British standards, the strict no-conflicts principle may more accord with the institutional background of UK and Path Dependence Theory, and also satisfy the demands of the governance and development of companies in UK.Part Five also is the key point of this paper, on the basis of the introduction and comments in previous paper, this part rethinks the deficiency of theories and vacancies of system in China's corporate opportunity law system, and puts forward concrete suggestions for perfection, combining with present status of corporate opportunity legislation of China. In the form, the author agrees with such a kind of perfection model:The corporate opportunity law system is still stipulated resumptively in the general principles of Company Law, but concrete regulations such as the standard for cognizance of corporate opportunity are stipulated in judicial interpretation as supplementary provisions, the company's Articles of Association can also make additional provisions certainly. In content, on the one hand, our country should enlarge the range of obligation subjects to controlling shareholders and supervisors, on the other hand, it's necessary to establish our country's standard for cognizance of corporate opportunity, and four factors shall be considered:First, the transaction intent of opportunity provider; Second, corporate opportunity is gained by directors or senior officers when they are holding posts; Third, corporate opportunity must be closely related with the company's present or future business activities; Fourth, the company enjoys interest or expectancy interest on this business opportunity. In addition, for public company and closed company, and for full-time director and part-time director of public company, the factors that need to consider are different.The Concluding Remarks quote a celebrated dictum said by American famous jurist Bodenheimer, the main meaning of this dictum is "a truly great legal system ought to be a system that combines rigidity with inflexibility, relates the stable continuous efficiency to developing varied interest, thus possesses the abilities of long existence and avoiding disasters". This dictum provides deep enlightenment to our country's reform of corporate opportunity legal system. Under the background of the worldwide institutional competition, our country should not only pursue the advancement and rationality of the system, but also think of the enforcement cost and practical effect of the system; our country should persist in Chinese-featured corporate opportunity legal system, and absorb other countries' merit for innovation as well.