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Duty of Loyalty is a term used in corporate law to describe a fiduciary’s loyalty to a corporation.

Section 8.60 of The Model Business Corporation states there is a conflict of interest when the director knows that at the time of a commitment that he or a related person is 1) a party to the transaction or 2) has a beneficial financial interest in the transaction that the interest.

Conditions of self-dealing transaction

• A key player and the corporation are on opposite sides of the transaction
• The key player has helped influence the corporation’s decisions to enter the transaction
• The key player’s personal financial interest are at least potentially in conflict with the financial interests of the corporation.

Definition: General duty imposed on a person with power

Ways the proponent of a self-dealing transaction can avoid invalidation

• By showing approval by a majority of disinterested directors
• Showing ratification by shareholders (MBCA 8.63)
• Showing transaction was inherently fair (MBCA 8.61)

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