Interest Group Analysis of Delaware Law: The Corporate Opportunity Doctrine as Case Study

27 Pages Posted: 9 Jan 2017 Last revised: 22 Feb 2017

See all articles by Stephen M. Bainbridge

Stephen M. Bainbridge

University of California, Los Angeles (UCLA) - School of Law

Date Written: January 5, 2017

Abstract

Although the prohibition on taking of organizational opportunities is well established, the standards applied to this problem in corporate law disputes are vague and imprecise. Corporate directors and officers lack clear guidance as to when a business venture may be taken for themselves or must first be offered to the corporation. This article reviews the relevant Delaware case law, focusing on the ambiguities inherent therein. It then offers a proposed alternative regime, providing greater certainty and predictability.

The article then turns the question of why Delaware courts have resisted adopting a more determinate standard, such as the one offered here. It argues that — at least in this context — Delaware judges are concerned neither with maximizing the number of Delaware incorporations or promoting the interests of the Delaware bar. Instead, mandatory indeterminacy with respect to corporate opportunities is driven by the Delaware courts’ self-interest in maximizing their reputation.

Keywords: Corporate Opportunity Doctrine, Fiduciary Duties, Directors, Officers, Interest Groups, Indeterminacy, Judicial Incentives

JEL Classification: K22

Suggested Citation

Bainbridge, Stephen Mark, Interest Group Analysis of Delaware Law: The Corporate Opportunity Doctrine as Case Study (January 5, 2017). UCLA School of Law, Law-Econ Research Paper No. 17-01. Available at SSRN: https://ssrn.com/abstract=2894577

Stephen Mark Bainbridge (Contact Author)

University of California, Los Angeles (UCLA) - School of Law ( email )

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