Recognizing and Avoiding Self Dealing

As a high level officer or owner of a company, you have a lot of protections to keep from getting sued from those that you have a duty to protect, such as company members or shareholders. You have room to defend yourself, and argue that what you allegedly did was done in good faith and in the best interest of the company.

But there’s one area where that argument often doesn’t fly, and which gets high level officers in trouble: self dealing.

What is Self Dealing?

As the name implies, self dealing means using the benefits or powers of your company position to benefit you, personally, as opposed to benefitting the company.

Many people think that self dealing is limited to just blatantly obvious wrongs, like stealing company money or property. But self dealing can encompass a wide variety of actions that just that, and even things that don’t benefit you, but benefit relatives or loved ones, can be considered self dealing.

Examples of Self Dealing

Anytime you make a decision to use or expend corporate assets, or to have the company do anything that may benefit you solely, you are self dealing.

For example, imagine that your company needed someone for a long term service contract to do your company’s cybersecurity services. There are a lot of good companies out there—but you choose to have the company hire your wife’s company.

Your wife’s company may be eminently qualified, and do the job just fine, and perhaps there would never be an issue. But you nonetheless never bothered to see if another company could do a better job or could do the job for cheaper. And you, through your wife, derived a personal benefit from awarding her company that contract.

Ice cream maker Ben and Jerry’s ran into trouble with this some years ago, when the company used corporate funds to help a nonprofit organization—an organization that the company’s head of the Board of Directors had a close association with.

You can also self deal by having corporate labor work on your own projects or personal items. Imagine having your company’s graphics or marketing department do a banner for your son’s business for free.

Self dealing does sometimes happen without any ill intent, but not always. Often, corporate executives know in advance that they will be leaving the company. But before that is made public, they make decisions that they know will weaken their current company.

Is it Ever OK?

This isn’t to say a company can never do anything that ends up having a personal benefit for a corporate officer. It just means that any such thing should be put through the proper channels—approval by whomever would normally make such approvals.

You can also use corporate resolutions to document events or decisions where you may get a personal benefit. While this won’t excuse very egregious self dealing, in closer, judgment calls, it can show that you were being open and transparent, which could limit your liability.

Run your business the safe way-with legal counsel by your side. Let our business and employment attorneys help you. Call the West Palm Beach business litigation lawyers at Pike & Lustig today for help and advice.

Sources:

investopedia.com/terms/s/self-dealing.asp#:~:text=Self%2Ddealing%20is%20when%20a,for%20those%20who%20commit%20it.

nypost.com/2021/08/28/head-of-ben-jerrys-board-accused-of-alleged-self-dealing/