Self-Dealing Definition and Legal Meaning

On this page, you'll find the legal definition and meaning of Self-Dealing, written in plain English, along with examples of how it is used.

What is Self-Dealing?

(n) Self dealing is an insider trading by an informed person to draw undue benefit by transacting in a commodity in tune with the information he got, whether directly or indirectly, before such information are made to the public

History and Meaning of Self-Dealing

Self-dealing is a term used in corporate law and refers to an insider or a person in a position of trust using their position or knowledge to gain an unfair advantage or profit. This insider could be a board member, an executive officer, or any other individual with access to privileged information. Self-dealing is considered a violation of ethical rules and fiduciary obligations and can result in legal consequences.

The term self-dealing originated from the Latin word meaning "selfish dealings." Over time, self-dealing has become a critical issue in corporate law, and regulatory bodies have put measures in place to prevent such practices. Self-dealing transactions are often condemned in business environments because it undermines the integrity of the company, affecting the interests of stakeholders.

Examples of Self-Dealing

  1. A board member of a company purchases stock in that same company after learning that the company is about to launch a new, successful product. The board member uses this insider information to make an unfair profit.

  2. An executive officer of a company sells his company's shares before making an announcement that could negatively impact the company's stock price. The officer uses the inside knowledge to avoid financial losses.

  3. A business owner hires his own company to provide services to his main business, paying higher rates than necessary for the services. In this transaction, the owner is enriching themselves at the cost of the business and undermining the interests of the stakeholders.

Legal Terms Similar to Self-Dealing

  1. Insider trading – refers to the buying or selling of securities or stocks of a publicly-traded company by individuals with privileged information about the company.

  2. Conflict of Interest – It refers to a situation where a person has competing interests or loyalties that make it difficult to maintain the neutrality and objectivity of the decision-making process.

  3. Fiduciary Duty – It refers to a legal obligation of one party to act primarily for the benefit of another party in a fiduciary relationship. This relationship is based on trust, good faith, and confidence.

  4. Breach of trust – is a legal term that refers to the betrayal of confidence or trust placed by one party in another who has breached such confidence.

  5. Fraud – This is a legal term that involves intentional deception or misrepresentation for personal gain. It can be any dishonest act that deprives another party of something valuable or causes them harm.