Directors’ Duty of Loyalty

Quite apart from the statutory fiduciary duty examined in the foregoing chapter, all fiduciaries, including directors, are under a strict duty of loyalty. ¹ The duty of loyalty includes two main components. These are a duty to avoid conflicts between self-interest and the interests of the company (the no-conflict rule), and a duty not to make secret profits from their fiduciary position (the no-profit rule). ² The no-conflict rule usually arises where a director uses his position to procure advantageous contracts or other transactions with the company. The no-profit rule usually arises where a director diverts to his own use a corporate opportunity, a director uses for his own purpose corporate information, or a director competes with his company.