A Director Tried to Take the Company's Next Location Herself

The situation

What Deepa and Carmela were actually afraid of was simple to state and hard to sit with: that the next profitable location in their own franchise system would open a short drive from their existing stores, under a competitor's ownership, and there would be nothing they could do about it because that competitor was their own director.

Deepa worked full time as an air traffic controller and Carmela managed a department at a hospital. Neither had left their careers to run the business day to day. Instead, several years earlier, they had invested together in a corporation that held three locations of a national quick-service franchise across central Ontario, and had brought in Rosa, an experienced operator in the same franchise system, to run operations as a director and minority shareholder. The arrangement had worked well. Revenue across the three locations sat in the low double digits of millions, and Rosa's operational judgment was a large part of why.

The franchisor periodically released new territories to existing franchisees before opening them to outside applicants, a standard practice meant to reward operators already performing well within the system. When a new territory came open in a growing corridor near Bracebridge, the offer went, as it usually did, to Rosa directly, since she was the franchisor's primary point of contact for the group. What Deepa and Carmela did not know, until a franchisor representative mentioned it in an unrelated call, was that Rosa had begun negotiating to take the territory under a numbered company of her own rather than passing it to the corporation the three of them jointly owned.

Nothing about the franchise agreement technically stopped the franchisor from dealing with Rosa personally. The problem was Rosa's other role, as a director of the corporation that had built the operating relationship the franchisor was now rewarding. Directors owe the company they serve a duty not to take for themselves an opportunity that properly belongs to it, and a new territory offered on the strength of the corporation's own track record was, on its face, exactly that kind of opportunity.

Deepa learned the details from the franchisor representative almost in passing, during a call about an unrelated equipment supplier issue at one of the existing locations. The representative assumed Deepa already knew, since the numbered company Rosa had incorporated to hold the new territory used a name close enough to the existing franchisee corporation's own that no one on the franchisor's side thought to flag it as a separate entity. That assumption, more than anything Rosa had actually said to either co-owner, was what first made the arrangement feel less like an oversight and more like something meant to go unnoticed.

The complication

The legal question was not especially close. Ontario corporate law recognizes what is often called the corporate opportunity doctrine: a director who learns of a business opportunity through their position with the company cannot quietly divert it to themselves, even if the company might not otherwise have pursued it. Rosa had learned of this specific territory because of her role managing the existing locations and her standing relationship with the franchisor built on the corporation's performance, not her own. That made the opportunity the corporation's to accept or decline, not Rosa's to take personally.

What made the file hard was not the law but the clock. The franchisor's offer to Rosa came with a ten-day window before the territory would be reoffered elsewhere in the system, and roughly half of that window had already passed by the time Deepa and Carmela learned what was happening. There was no realistic path to a negotiated settlement over weeks, no room for a measured letter-and-response exchange, and no ability to wait for a full accounting of what Rosa had already discussed with the franchisor before acting.

Compressing the timeline changed almost every choice on the file. Ordinarily, a dispute like this would start with a demand letter setting out the corporation's position and inviting a response within a reasonable period. Here, a reasonable period did not exist. We had to reach Rosa, reach the franchisor, and put the corporation's claim to the territory on record within days, all while confirming that Deepa and Carmela, as the majority shareholders, actually had the authority to assert the corporation's interest without Rosa's cooperation.

There was also a relationship to protect, not just a deadline to meet. Rosa still ran three profitable locations and her continued involvement mattered to the business regardless of how the territory dispute resolved. The approach could not simply be adversarial; it had to leave room for Rosa to step back from the personal negotiation without the confrontation becoming the reason she walked away from the company altogether.

Adding to the pressure, Deepa and Carmela were not entirely certain, at the outset, how far Rosa's negotiations with the franchisor had actually progressed. It was possible a preliminary agreement already existed between Rosa's numbered company and the franchisor that had simply not been formalized yet, which would have changed the strength of the corporation's claim considerably. We could not wait to find out before acting, since any delay spent confirming the exact state of Rosa's negotiation was delay the ten-day window did not allow, so the response had to be built to work whether her discussions were preliminary or nearly final.

What we did

1. Confirmed Deepa and Carmela's authority to act for the corporation despite Rosa's role as a director, verifying through the shareholder agreement and corporate records that a majority of shareholders could direct the corporation's response to the opportunity without requiring Rosa's sign-off, which let us move immediately instead of first resolving an internal governance question that could easily have eaten several of the ten days on its own.
2. Sent a same-week letter to Rosa setting out the corporate opportunity doctrine in plain terms, explaining that the territory had come to her attention through her role with the corporation and belonged to it as a result, and requesting written confirmation within days that she would withdraw the numbered company's negotiation with the franchisor and step back from pursuing the location personally.
3. Contacted the franchisor's legal department directly to put the corporation's position on record before the ten-day window closed, since an unaddressed offer sitting with Rosa personally risked being treated as accepted, or lapsing to a third-party applicant, regardless of how the internal dispute between the shareholders eventually resolved. That call also confirmed the franchisor had no independent view on who, between Rosa and the corporation, should hold the territory.
4. Requested an extension of the franchisor's deadline to allow the internal issue to be resolved without the corporation losing the territory by default, explaining candidly to the franchisor that the delay was a governance matter between shareholders rather than any hesitation about the corporation's genuine interest in operating the location. Franchisors generally prefer a resolved dispute to a rushed one, and that preference bought real time.
5. Prepared the corporation's own formal application for the territory in parallel with the demand to Rosa, gathering the corporation's financial statements and operating history so that if Rosa did not step back voluntarily, the corporation had already positioned itself to take the opportunity directly rather than losing further days assembling an application from scratch once the extension came through and the clock started running again.
6. Negotiated Rosa's withdrawal from the personal negotiation in exchange for confirming her continued role and compensation as the operator of the new location once it belonged to the corporation, an approach that resolved the legal dispute without forcing Rosa out of a business relationship that had otherwise worked well for years and that the business still needed to keep running well.
7. Drafted a written opportunities policy for the board requiring that any business opportunity a director or officer becomes aware of through their role, including new territories, leases, or acquisitions, be disclosed in writing to the full board before being pursued by anyone individually, with a defined short window for the board to respond one way or the other so a live opportunity could not stall indefinitely either.
8. Reviewed the existing shareholder agreement for the gaps that had allowed the ambiguity to arise in the first place, and recommended amendments clarifying how future franchisor communications would be routed, so no single director could again be the sole point of contact for opportunities that legally belonged to the company as a whole rather than to whichever individual happened to answer the phone first.

The outcome

Rosa withdrew her personal negotiation within the extended window, and the franchisor reissued the territory offer to the corporation directly. The new location opened under the same ownership structure as the existing three, with Rosa continuing as the operator responsible for its day-to-day management, compensated on terms the board approved rather than terms she had negotiated for herself outside the company.

The corporation did not lose the opportunity, and the working relationship with Rosa, while more formally structured afterward, did not collapse either. That second result mattered nearly as much as the first. A director who diverts a corporate opportunity is not always acting out of bad faith; sometimes it is closer to a blurred line between a role and a personal ambition that no one had ever made explicit. Resolving it without ending the relationship preserved the operational expertise the business depended on.

The opportunities policy adopted afterward changed how the corporation operates going forward. Every new territory, lease, or acquisition opportunity that comes to a director or officer through the business now goes to the board before anyone pursues it individually, in writing, with a record of when it was disclosed. Deepa and Carmela did not need the doctrine explained to them a second time; they needed a process that made sure the question never again turned on who happened to answer the phone when the franchisor called.

The financial outcome was modest against the scale of the underlying business, since the new location's projected revenue was a fraction of what the existing three stores already produced together, but the governance outcome was not modest at all. Deepa said afterward that what unsettled her most was not the money, it was realizing how close the corporation had come to losing an opportunity it was entitled to simply because no one had ever written down who was supposed to be told about opportunities like it in the first place.

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