Corporate Interested-Director Transaction Requirements in Arkansas

At a glance

Requirements one by one

First identify which corporation act applies

Ark. Code § 4-27-1701 preserves preexisting law for older corporations that did not elect into the 1987 Act. Its effective-date provision, § 4-27-1706, says “on and after midnight, December 31, 1987.” The routes below concern a corporation governed by that Act; formation date and any election matter.

Indirect interests include positions at the other entity

Under § 4-27-831(b), the second indirect-interest branch includes a director, officer, or trustee position at the other transaction party. That branch does not expressly require the material financial interest used by the first branch. The provision also says the transaction “should be considered by the board of directors of the corporation.”

Disclosed board approval uses its own denominator

The board or committee must know the material transaction and interest facts. For example, if three directors have no direct or indirect interest, an affirmative majority requires two of those directors. Their approving majority also supplies the conflict quorum under § 4-27-831(c).

Shareholder approval excludes specified shares

Section 4-27-831(d) requires approval by a majority of eligible shares, rather than a majority merely of votes cast. It excludes interested-director shares and shares controlled by the entity in the material-interest/general-partner branch. The common-director/officer/trustee entity branch is not itself named in that exclusion. The excluded votes still count for approval under other sections of the Act.

Fairness is an independent alternative

The complete fairness condition in § 4-27-831(a)(3) is “the transaction was fair to the corporation.” The section supplies no elements, measurement date, or burden allocation. This limited statutory route does not resolve those separate questions.

Written action still needs the ordinary consent record

Under § 4-27-821, absent a contrary articles or bylaws provision, all directors must take the action and sign consents describing it. The action becomes effective when the last director signs unless the consent specifies another date. The conflict provision supplies no special omitted-signature mechanism.

Compensation and loans have separate provisions

Section 4-27-811 allows the board to fix director compensation unless the articles or bylaws provide otherwise; it does not expressly exempt that pay from § 4-27-831. Section 4-27-832 separately permits a loan or guarantee based on the specified outstanding-share vote without the benefited director’s shares, or on a board determination of corporate benefit and approval of the specific transaction or a general plan.

The statutory effect is limited and records remain necessary

Section 4-27-831 says “not voidable by the corporation solely because of the director’s interest.” It does not promise general immunity from other claims. Section 4-27-1601(a), (d) requires permanent meeting and action records in written or reasonably convertible form, including committee action taken in place of the board.

What trips people up

One director cannot supply the statutory board approval even if that person is the only director without an interest. An interested director may be present and cast a vote without spoiling otherwise compliant approval, but that vote cannot fill the disinterested-majority requirement.

The shareholder quorum sentence unusually includes “whether or not present.” Do not silently replace that language with a standard present-share quorum.

Common questions

Can an older corporation elect into the 1987 Act?

Section 4-27-1701 permits an articles amendment approved by at least two-thirds of each outstanding class. Once made, the election is irrevocable.

Does violating the director-loan provision cancel the debt?

No. Section 4-27-832(b) expressly preserves the borrower’s liability on the loan.

Does the director-loan provision govern every special corporation?

Section 4-27-832(c) excludes loans and guarantees authorized by a statute regulating a special class of corporations.

Statutes and sources

All quoted passages below are from the official 1987 Act 958, fetched September 4, 2026. Original section numbers and lettering are retained; the citations identify their current codified counterparts. The later 2019 Act 819 and 2021 Act 523 were also checked on that date; their record amendments concern the separate franchise-report provision.

• Ark. Code § 4-27-831 (1987 Act 958, § 64-819): “A. A conflict of interest transaction is a transaction with the corporation in which a director of the corporation has a direct or indirect interest. A conflict of interest transaction is not voidable by the corporation solely because of the director's interest in the transaction if any one of the following is true: 1. the material facts of the transaction and the director's interest were disclosed or known to the board of directors or a committee of the board of directors and the board of directors or committee authorized, approved, or ratified the transaction; 2. the material facts of the transaction and the director's interest were disclosed or known to the shareholders entitled to vote and they authorized, approved, or ratified the transaction; or 3. the transaction was fair to the corporation. B. For purposes of this section, a director of the corporation has an indirect interest in a transaction and it should be considered by the board of directors of the corporation if (1) another entity in which he has a material financial interest or in which he is a general partner is a party to the transaction or (2) another entity of which he is a director, officer, or trustee is a party to the transaction. C. For purposes of subsection (A)(1), a conflict of interest transaction is authorized, approved, or ratified if it receives the affirmative vote of a majority of the directors on the board of directors (or on the committee) who have no direct or indirect interest in the transaction, but a transaction may not be authorized, approved, or ratified under this section by a single director. If a majority of the directors who have no direct or indirect interest in the transaction vote to authorize, approve, or ratify the transaction, a quorum is present for the purpose of taking action under this section. The presence of, or a vote cast by, a director with a direct or indirect interest in the transaction does not affect the validity of any action taken under subsection (A)(1) if the transaction is otherwise authorized, approved, or ratified as provided in that subsection. D. For purposes of subsection (A)(2), a conflict of interest transaction is authorized, approved, or ratified if it receives the vote of a majority of the shares entitled to be counted under this subsection. Shares owned by or voted under the control of a director who has a direct or indirect interest in the transaction, and shares owned by or voted under the control of an entity described in subsection (B)(1), may not be counted in a vote of shareholders to determine whether to authorize, approve, or ratify a conflict of interest transaction under subsection (A)(2). The vote of those shares, however, is counted in determining whether the transaction is approved under other sections of this Act. A majority of the shares, whether or not present, that are entitled to be counted in a vote on the transaction under this subsection constitutes a quorum for the purpose of taking action under this section.”

• Ark. Code § 4-27-832 (1987 Act 958, § 64-820): “A. Except as provided by subsection (C), a corporation may not lend money to or guarantee the obligation of a director of the corporation unless: 1. the particular loan or guarantee is approved by a majority of the votes represented by the outstanding voting shares of all classes, voting as a single voting group, except the votes of shares owned by or voted under the control of the benefited director; or 2. the corporation's board of directors determines that the loan or guarantee benefits the corporation and either approves the specific loan or guarantee or a general plan authorizing loans and guarantees. B. The fact that a loan or guarantee is made in violation of this section does not affect the borrower's liability on the loan. C. This section does not apply to loans and guarantees authorized by statute regulating any special class of corporations.”

• Ark. Code § 4-27-821 (1987 Act 958, § 64-813): “A. Unless the articles of incorporation or bylaws provide otherwise, action required or permitted by this Act to be taken at a board of directors' meeting may be taken without a meeting if the action is taken by all members of the board. The action must be evidenced by one or more written consents describing the action taken, signed by each director, and included in the minutes or filed with the corporate records reflecting the action taken. B. Action taken under this section is effective when the last director signs the consent, unless the consent specifies a different effective date. C. A consent signed under this section has the effect of a meeting vote and may be described as such in any document.”

• Ark. Code § 4-27-811 (1987 Act 958, § 64-811): “Unless the articles of incorporation or bylaws provide otherwise, the board of directors may fix the compensation of directors.”

• Ark. Code § 4-27-1601(a)-(d) (1987 Act 958, § 64-1601): “A. A corporation shall keep as permanent records minutes of all meetings of its shareholders and board of directors, a record of all actions taken by the shareholders or board of directors without a meeting, and a record of all actions taken by a committee of the board of directors in place of the board of directors on behalf of the corporation. B. A corporation shall maintain appropriate accounting records. C. A corporation or its agent shall maintain a record of its shareholders, in a form that permits preparation of a list of the names and addresses of all shareholders, in alphabetical order by class of shares showing the number and class of shares held by each. D. A corporation shall maintain its records in written form or in another form capable of conversion into written form within a reasonable time. ”

• Ark. Code § 4-27-1701 (1987 Act 958, § 64-1701): “This Act applies to all domestic corporations incorporated on or after its effective date as specified in 64-1706. A cor- poration incorporated prior to such effective date under any general statute of this State providing for incorporation of cor- porations for profit may elect to be governed by the provisions of this Act by amending its articles of incorporation to provide that it shall be so governed. Such election may be made at any time after the effective date of this Act, but once made shall be irre- vocable. The amendment to the articles of incorporation effecting such election must be approved by the affirmative vote of the holders of at least two-thirds (2/3) of the shares of each outstanding class of the corporation's capital stock. Domestic corporations existing prior to the effective date of this Act which do not elect to be governed by its provisions shall continue to be governed by pre-existing law.”

• Ark. Code § 4-27-1706 (1987 Act 958, § 64-1706): “This Act shall be effective on and after midnight, December 31, 1987.”