INVESTMENT STRATEGY
CONFLICTS OF INTEREST
SPONSORED CONTENT
Corporate Opportunities
DO THE RULES APPLY TO REAL ESTATE?
by Garrett Sutton
f you invest in or syndicate real estate, what are your duties to
is in their core business. The duty of loyalty requires officers and directors to apprise the corporation (or LLC or LP) of “corporate opportunities.” The corporation gets to decide if it wants it or not. If the company doesn’t move forward, then the executive may be free to pursue it, or not. The decision may be at the company’s discretion. During their time in office, officers will likely discover business opportunities for the corporation. The officer may also have personal
business opportunities that are somehow related to the corporation’s business. For example, if the officer is an inventor who focuses on telecommunications products, the officer will likely be interested in all such business opportunities. The corporation may be able to pursue some opportunities the officer discovers for the corporation, but not others. If the corporation turns down one opportunity, is the officer then able to pursue it?
I
your investors? You owe them a duty of loyalty. But how far does that go? The issue of corporate opportu- nities is important. I wrote a whole chapter on it (from which part of this is excerpted) in my newest book “Veil Not Fail.” Before discussing its applicability to real estate, let’s review corporate opportunity in a business setting.
WHAT IS CORPORATE OPPORTUNITY?
A corporate opportunity is any investment, purchase, lease, or any other opportunity that is in the line of the corporation’s business and is of practical advantage to the corporation. If an officer or director embraces such opportunity by taking it as their own, they may violate their duty of loyalty, especially if by doing so their self-interest will be brought into conflict with the corporation’s interests. Will the officer be loyal to the company or to their own business? The conflict is clear. The simplest case involving a breach of the duty of loyalty is where a corporate executive expropriates a business opportunity that right- fully belongs to the corporation. For example, assume that a company distributes window shades, but a key executive takes the exclusive distributorship rights for a new type of awning. The corporation should have obtained the distributorship. It
12 | think realty magazine :: july – august 2022
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