Guide for Corporate Directors: Duty of Loyalty

Corporate board of directors meeting room empty fiduciary duties
Understanding the Duty of Loyalty: A Guide for Corporate Directors

Understanding the Duty of Loyalty: A Guide for Corporate Directors

The duty of loyalty is a cornerstone of corporate governance. It requires directors to act in good faith and prioritize the interests of the corporation above their own. This fiduciary obligation ensures that directors do not exploit their position for personal gain at the expense of the company they serve.

What Is the Duty of Loyalty?

At its core, the duty of loyalty demands selflessness, integrity, and honesty. Directors must not use their position to benefit themselves or engage in transactions that disadvantage the corporation. This includes avoiding conflicts of interest and fully disclosing any potential personal stakes in corporate decisions.

Common Violations

  • Usurping Corporate Opportunities: Taking business deals or ventures that rightfully belong to the corporation.
  • Interested Director Transactions: Engaging in contracts where the director has a financial interest without proper disclosure or approval.
  • Self-Dealing: Leveraging corporate assets or relationships for personal benefit.

How to Comply with the Duty of Loyalty

  • Always act in the best interest of the corporation.
  • Disclose any conflicts of interest to the board.
  • Recuse yourself from votes or decisions where you have a personal stake.
  • Ensure full transparency in any related-party transactions.

Consequences of Breach

Directors who violate the duty of loyalty may be held personally liable for any resulting harm or unjust enrichment. Courts may impose remedies such as restitution, rescission of unfair contracts, or constructive trusts over ill-gotten gains.

Best Practices

  • Implement robust conflict-of-interest policies.
  • Maintain detailed board meeting minutes documenting any potential issues and resolutions.
  • Consult legal counsel when uncertain about potential loyalty concerns.

© 2025 Cantrell Firm. This blog is for informational purposes only and does not constitute legal advice.

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How to Choose the Right Legal Entity for Your New Business

How to Choose the Right Legal Entity for Your New Business

By Blake Cantrell

Legal structure planning

Introduction

Starting a new business is an exciting journey, but before launching your product or acquiring customers, you must make one of the most foundational decisions—choosing the right legal entity. Your choice of legal structure affects taxes, liability, fundraising capabilities, and long-term growth strategies. This guide explores the key legal structures available to entrepreneurs, compares their benefits and drawbacks, and highlights special considerations for businesses in Oklahoma.

Why Legal Entity Choice Matters

The legal entity you select impacts:

  • Personal liability: Are your personal assets protected from business debts?
  • Tax obligations: Will you face double taxation or benefit from pass-through treatment?
  • Ownership structure: How many people can own the company and what rights do they have?
  • Fundraising options: Will investors find your entity attractive?
  • Administrative complexity: How much paperwork and compliance is required?

Common Business Entities

1. Sole Proprietorship

The simplest and most common form of business ownership. No separate legal entity is formed—it's just you and your business.

  • Pros: Easy setup, complete control, no formal registration in most states including Oklahoma.
  • Cons: Unlimited personal liability, difficult to raise capital, no separation between personal and business assets.

2. Partnership

Involves two or more people running a business. Partnerships can be general or limited.

  • Pros: Shared resources and responsibilities, simple tax treatment.
  • Cons: Unlimited liability for general partners, potential for conflicts, requires a well-drafted agreement.

3. Limited Liability Company (LLC)

A hybrid structure combining features of corporations and partnerships. Extremely popular among startups and small businesses in Oklahoma.

  • Pros: Pass-through taxation, limited liability, flexible management, low formation cost in Oklahoma ($25).
  • Cons: Self-employment taxes can be higher, not ideal for venture capital funding.

4. Corporation (C-Corp and S-Corp)

Separate legal entities that offer strong liability protection and fundraising potential. C-Corps are typically suited for businesses intending to scale significantly or go public.

  • C-Corp Pros: Unlimited shareholders, attractive to investors, separate taxation.
  • C-Corp Cons: Double taxation, more regulation, costly compliance.
  • S-Corp Pros: Pass-through taxation, limited liability, reduced self-employment tax.
  • S-Corp Cons: 100 shareholder limit, US citizens/residents only, strict formalities.

State-Specific Considerations in Oklahoma

In Oklahoma, LLCs and Corporations are registered through the Secretary of State. The cost to register an LLC is $25, while corporations cost $50. Operating Agreements are not mandatory for LLCs, but highly recommended.

Additionally, Oklahoma’s relatively low cost of living and pro-business regulations make it an attractive location for entrepreneurs.

Choosing Based on Future Goals

When deciding on your entity, ask yourself:

  • Will I raise outside investment?
  • How many owners will there be?
  • Do I plan to go public eventually?
  • Am I comfortable with additional compliance for liability protection?

Comparison Table

Entity Type Liability Protection Taxation Ease of Formation Fundraising
Sole Proprietorship No Personal income tax Very easy Low
Partnership Limited for LPs Pass-through Easy Moderate
LLC Yes Pass-through Moderate Moderate
C-Corp Yes Double taxation Complex High
S-Corp Yes Pass-through Complex Moderate

Conclusion

There is no one-size-fits-all answer when it comes to legal entities. Each structure offers unique advantages and limitations. Whether you're a solo freelancer in Tulsa or launching a scalable tech startup in Norman, selecting the appropriate legal structure is crucial to your success. Consider your short- and long-term business goals, tax implications, and funding strategy.

Consult with a business attorney or CPA to ensure you're making the most informed decision. And remember, the structure you choose today can be changed later—but starting with the right foundation makes all the difference.