Corporate Interested-Director Transaction Requirements in Alabama

At a glance

Requirements one by one

The current statute covers directors, officers, and controlled entities

Ala. Code § 10A-2A-1.01 names Chapter 2A as the Alabama Business Corporation Law, and § 10A-2A-1.40(4) defines a corporation as an entity incorporated or existing under that chapter. Section 10A-2A-8.60(a)(1) reaches an effected or proposed act or transaction by the corporation or an entity it controls.

The transaction is conflicting when, at the relevant time, a director or officer is a party, knowingly has a known material financial interest, or knows that a related person is a party or materially interested. The provision therefore expressly covers officers and proposed transactions, not only completed transactions involving directors.

Interest, control, relationship, and qualification are defined

Control includes power to elect or remove a governing-authority majority and a separate economic branch based on majority risk of loss or residual returns. A director's or officer's material financial interest must be nonspeculative, non-general, and reasonably expected to impair objective judgment in negotiating, authorizing, or approving the transaction.

Section 10A-2A-1.43 defines a material relationship by expected impairment of a director's objectivity and defines a qualified director for § 10A-2A-8.60 by excluding the conflicted director and directors with specified material relationships. Section 10A-2A-2.02(e) supplies the spouse, family, household, controlled-entity, governing-role, fiduciary, and employer branches of “related person.” Those standards require facts, not labels.

Disclosure changes between board and stockholder routes

Required disclosure includes the existence and nature of the director's or officer's conflict and all known subject-matter facts a qualified director would reasonably believe material to deciding whether to proceed. The board route requires disclosure of information the qualified directors do not already know.

For conflicts arising only through the specified governing/fiduciary or employer related-person branches, subsection (c)(2) permits modified disclosure when the conflicted person reasonably believes full disclosure would violate law, an enforceable confidentiality obligation, or a professional-ethics rule. The person must still disclose all nonviolative information, the conflict, and the nature of the nondisclosure duty.

The stockholder route adds notice describing the action, communication of required disclosure not already known, and a written pre-vote statement to the secretary or tabulator identifying the known nonqualified shares and their holders.

Qualified-director approval has a two-person floor

Approval requires an affirmative majority of qualified directors voting, but never fewer than two. A committee must consist only of qualified directors and approve by a majority of all its members, again with at least two. A majority, but no fewer than two, of all qualified board or committee directors is the special conflict-procedure quorum.

If this vote does not independently satisfy a certificate, bylaw, or other statutory authorization requirement, subsection (c)(4) requires separate board or committee action; nonqualified directors may participate in that separate action. Section 10A-2A-8.60 states no additional good-faith condition for the conflict vote.

Qualified-share approval uses votes cast but an entitled-vote quorum

The approval threshold is a majority of votes cast by holders of all qualified shares. Its quorum is a majority of the votes entitled to be cast by all qualified shares, so the approval numerator and quorum denominator differ.

Qualified shares exclude shares held by the conflicted director or officer and by related persons, except the employer-related branch in § 10A-2A-2.02(e)(vi). “Holder” reaches record and beneficial stockholders and unrestricted voting-trust beneficial owners. A failure to provide the written share-identification statement has a narrow cure only when the conflicted person establishes that it was neither intended to influence nor actually determined the vote.

This conflict vote also does not replace a greater independent authorization requirement in the certificate, bylaws, or chapter. Nonqualified shares may participate in that separate action.

Fairness is defined, but the ordinary branch states no burden

A transaction is fair to the corporation when it is beneficial to the corporation or stockholders in their stockholder capacity, given the consideration or other benefit, and appropriately accounts for both fair insider dealings and arm's-length comparability. Relevant time is the compliant board- action time or, if no such action occurs, when the corporation or controlled entity becomes legally obligated to close.

Fairness at that time is a separate route under subsection (b)(2)(iii). The section does not expressly allocate the burden between challenger and defender for that ordinary-transaction route.

Presence, participation, and consent do not supply the qualified vote

Subsection (c)(1) allows the conflicted director or officer to be present, participate, or have been involved in initiation, negotiation, or approval. The statutory protection still depends on the required qualified-director vote.

Section 10A-2A-8.21 generally requires a signed consent from every director for board action without a meeting. Subsection (c)(5) reconciles that unanimity with the conflict process: the action remains effective even though the conflicted director signs. Subsection (d)(7) similarly says nonqualified-share holders may sign an otherwise compliant stockholder consent.

Controlling-stockholder and going-private transactions use separate routes

Section 10A-2A-8.60(a) defines a controlling stockholder through majority voting power, contractual board-election power, at least one-third voting power plus managerial authority, or majority voting power when the board is eliminated. A control group is two or more noncontrolling persons whose agreement, arrangement, or understanding makes them a controlling stockholder.

For a controlling-stockholder transaction that is not going private, subsection (e)(2) provides alternative routes: informed qualified-board or committee approval by a majority of at least two; an informed, uncoerced disinterested-stockholder majority vote when the transaction was conditioned on that approval when submitted; or fairness at the relevant time. A going-private transaction instead requires both approval routes or fairness.

These branches mark the boundary of this ordinary private-company survey. They do not decide whether any person actually controls, a transaction is going private, voters are disinterested, disclosure is complete, or approval is uncoerced.

Corporate opportunities and compensation have separate text

Section 10A-2A-2.02(b)(6) permits a certificate provision limiting or eliminating a duty to offer listed corporate opportunities. Applying that provision to an officer or the officer's related person also requires later qualified-director approval under the § 10A-2A-8.60 procedure, subject to any limit in the approving action.

Section 10A-2A-8.11 separately permits the board to fix director compensation unless the certificate or bylaws provide otherwise. It does not itself declare every compensation decision outside the conflict statute.

Statutory protection is interest-ground limited

For an ordinary conflicting-interest transaction, a compliant route prevents equitable relief, director-or-officer damages, or other sanctions in the named stockholder or corporate proceeding on the ground of that person's interest. The controlling-stockholder branch separately addresses specified fiduciary- duty claims. Neither formulation is an unqualified declaration that the transaction is authorized, valid, fair, or immune from every ground of relief.

Section 10A-2A-16.01 requires records of stockholder, board, and committee meetings and actions without a meeting, maintained for reasonably timely inspection. The record documents the process without proving a statutory predicate.

What trips people up

Ala. Act 2026-495 §§ 6, 8 (HB 248) made the amendments effective on August 1, 2026, and the current official compilation already includes its expanded § 10A-2A-8.60. The act also says its amendments do not apply to or affect a civil action or proceeding completed or pending on or before that date, so the current procedure should not be projected backward onto such a proceeding.

Conflict approval and ordinary transaction authorization are distinct. Even a fully compliant qualified-director or qualified-share vote may need a separate action when the certificate, bylaws, or another provision imposes its own quorum or vote requirement.

Common questions

Must the conflicted director or officer leave the meeting?

No departure requirement appears in subsection (c)(1). Presence and participation do not defeat compliant action, but they do not replace the qualified-director majority of at least two.

May a conflicted director sign a unanimous board consent?

Yes. Subsection (c)(5) expressly preserves otherwise compliant action without a meeting even though the conflicted director signs the consent required by § 10A-2A-8.21.

Is a majority of votes cast enough for the stockholder route?

It is the approval threshold, but the vote also needs a quorum consisting of a majority of all votes entitled to be cast by qualified shares and the notice, disclosure, and holder-identification predicates.

Does the ordinary safe harbor decide a controlling-stockholder deal?

Not by itself. Subsection (b)(2) excepts controlling-stockholder transactions and subsection (e) supplies their separate procedures, including a distinct dual-approval rule for going-private transactions.

Statutes and sources

• Ala. Code §§ 10A-2A-1.01 and -1.40(4) — governing law and corporation scope. Official Alabama Code §§ 1.01 and 1.40, accessed September 4, 2026.
• Ala. Code § 10A-2A-1.43 — qualified director and material relationship. Official Alabama Code text, accessed September 4, 2026.
• Ala. Code § 10A-2A-2.02(b)(6), (e) — corporate-opportunity provision and related-person definition. Official Alabama Code text, accessed September 4, 2026.
• Ala. Code §§ 10A-2A-8.11, -8.21, and -8.60 — compensation, board consent, ordinary conflicts, controlling-stockholder transactions, and statutory effect. Official Alabama Code §§ 8.11, 8.21, and 8.60, accessed September 4, 2026.
• Ala. Code § 10A-2A-16.01 — corporate action records. Official Alabama Code text, accessed September 4, 2026.
• Ala. Act 2026-495 §§ 6, 8 (HB 248) — pending-proceeding transition and August 1, 2026 effective date. Official enrolled act, accessed September 4, 2026.