Research Into The Legal Issue Of Directors Seizing Corporate Business Opportunities

Based on the obligation of directors being loyal to the company, upon multiple years of judicial practice, common law countries have formed the corporate opportunity doctrine which is crucial in the corporate law system and which is increasingly mature. However, constant development and evolution of corporate administration mode in practice tends to gradually fuel the desire of corporate management to abuse their powers which would finally lead to common behaviors of directors and senior officers of the company seizing corporate business opportunities in the operation of the company. Civil law countries have also introduced the corporate opportunity doctrine successively to relieve the tension between private benefits of directors and the overall benefits of the companies in the economic operation of each country.Corporate Law of PRC issued in 2005 made fundamental stipulations regarding the practice of directors and senior officers seizing corporate business opportunities, signaling China’s formal introduction of the corporate opportunity doctrine, offering statutory support to the judgment of each level of courts nationwide. By the time of the issuance of the updated Corporate Law in 2014, corporate opportunity doctrine had been applied for 9 years in China. However, it was always in the preliminary stage without substantive progress. Either in terms of theory or practice, there are many question marks regarding the doctrine. For example: the standard for identifying corporate business opportunities, the defense of directors, the legal consequences of directors violating the non-competition prohibition obligation, etc. These issues are exactly core elements for establishing the corporate opportunity doctrine. Currently, relevant literatures in China of corporate opportunity doctrine are mostly about the introduction of theories in common law countries and basically the same with minor differences. Therefore, studying and improving the corporate opportunity doctrine that adapts to the situation in China is an urgent task.Except the sections of abstract and conclusions, the main body of this paper consists of five sections.By introducing relevant cases, Section I raises major problems in China’s current laws elated to corporate opportunity doctrine, including unclear standard for identifying corporate business opportunities, lack of stipulations on reasonable use of corporate business opportunities and incompleteness of accountability system, etc.Section II is about the identification standard of corporate business opportunities of domestic and foreign theoretical circles. Foreign standards regarding the identification of corporate business opportunities mainly include standards of interest and expectation interest, business scope, fairness test, two-step analysis, misuse of powers and others. Typical views in Chinese theory circle regarding the identification standard of corporate business opportunities include: Professor Liu Junhai’s theory,Professor Xu Xiaosong’s theory and Professor Wang Yingli’s theory.Section III is about the defense of directors seizing corporate business opportunities, specifying that directors and senior officers of the company are not completely forbidden to use corporate business opportunities, but are allowed to use these opportunities under certain conditions. However, differences in identification standards of each country lead to different defenses accordingly. In summary, these defenses mainly include: the company gives up the opportunities; the company is unable to use the opportunities; the other party of the transaction does not agree to the use of the opportunities by the company; directors have obtained such opportunities solely out of personal abilities.Section IV is about the legal consequences of directors violating the duty of loyalty and legal remedies. Legal consequences of directors violating the duty of loyalty have two aspects; internal consequences and external consequences. Regarding legal remedies, the civil law system and the common law system, arguably, lead to the same goal through different approaches. Recovery of illegal gains and constructive trust are more typical remedies.Section V raises proposals to perfect and reconstruct corporate opportunity doctrine in China, mainly including specific clarification of the identification standard for corporate business opportunities and reasonable cases of directors using corporate business opportunities, improvement of the stipulations on legal consequences of directors seizing corporate business opportunities, reinforcement of restrictions on resigning directors and differentiated treatment of different directors.