He urged the directors that Eat Well buy the shares, but three directors rejected his proposal. Bill then told the directors that he intended to buy the shares himself. Accordingly, Bill did not breach a duty of loyalty. He informed the Board and waited for them to reject the proposal. The issue is whether a director breaches a duty of loyalty by competing with his corporation.
Directors owe a duty of loyalty to the corporation.
The director must act in good faith and with the conscientiousness, morality, fairness and honesty that the law requires of fiduciaries. Under the duty of loyalty, the director must not compete with the corporation. Due to his efforts and skills of being in the restaurant business, he started an aggressive, promotional campaign and in fact, a significant number of Eat Well's regular customers began going to Gourmet instead. Cal will succeed on both grounds to set aside the January 24 resolution. The issue is whether a unanimous vote was required.