Corporate Interested-Director Transaction Requirements in Maryland
At a glance
| Governing law, entity, transaction, and covered-person scope | Maryland General Corporation Law; ordinary domestic private business corporation. Covers corporation-director contract/transaction and transaction with another corporation, firm, or entity where its director is also director or has material financial interest; no general officer route (§ 2-419(a)) |
|---|---|
| Interest, relationship, control, and materiality definitions | Express triggers are common directorship or material financial interest in other entity; section does not define material financial interest, disinterested, indirect interest, related person, control, independence, or relevant time (§ 2-419(a)-(b)) |
| Required disclosure, facts, timing, knowledge, and recipients | Fact of common directorship or interest disclosed or known to board/committee or stockholders entitled to vote. Section does not expressly require all material transaction facts, director-source disclosure, writing, confidential-information exception, or special timing (§ 2-419(b)(1)) |
| Disinterested or qualified board/committee composition, quorum, vote, and good faith | Affirmative majority of disinterested board/committee directors, even below quorum; common/interested directors count toward quorum. No good-faith, minimum-two, committee-selection, or qualified-only deliberation rule. General board quorum/vote yields to this different proportion (§§ 2-408(a)-(b), 2-419(b)(1)(i), (c)) |
| Disinterested shareholder notice, voting group, quorum, consent, and threshold | Majority of votes cast by entitled stockholders excluding shares owned record/beneficially by interested director/entity; excluded shares still count toward quorum. Ordinary quorum is majority of all entitled votes. General consent routes exist, but § 2-419 states no conflict-specific consent formula (§§ 2-419(b)(1)(ii), (c), 2-505, 2-506(a)) |
| Fairness alternative, relevant time, burden, and statutory standard | Fair and reasonable to corporation is alternative. Without qualifying board/shareholder approval, validity proponent bears proof burden at authorization, approval, or ratification time; reasonable director compensation excluded from this burden rule. No fairness factors stated (§ 2-419(b)(2), (d)) |
| Interested-person presence, participation, vote, abstention, and written consent | Interested director's presence or counted board vote is not sole voidability ground when subsection (b) met; interested directors/shares count for quorum, but shareholder approval vote excludes their shares. General board/committee consent requires every member entitled to vote, with no special conflict abstention (§§ 2-408(c), 2-419(a), (b)(1), (c)) |
| Controlling stockholders, officers, compensation, and special transaction routes | No general officer, controlling-stockholder, going-private, loan, business-opportunity, or public-company branch. Reasonable board-fixed director compensation is outside fairness-burden subsection; referenced indemnification procedures satisfy approval branch, and compliant indemnification instruments are deemed fair/reasonable (§ 2-419(d)(2), (e)) |
| Statutory effect, remedies, records, fiduciary, and public-company boundaries | Contract/transaction not void/voidable solely for listed conflict/presence/vote grounds if subsection (b) met; otherwise validity proponent carries stated fairness burden. Director duties remain under sole-source conduct statute; board/stockholder consents filed with meeting records (§§ 2-405.1(c), (i), 2-408(c), 2-419(a), (d), 2-505(a)) |
Requirements one by one
Covered contracts and interest triggers
Md. Code, Corps. & Ass'ns § 2-419(a) covers a contract or other transaction between the corporation and one of its directors. It also covers a transaction with another corporation, firm, or entity in which a corporation director is also a director or has a material financial interest.
The common-directorship branch does not state a separate financial-materiality condition. The section also does not define material financial interest, disinterested status, indirect interest, related person, control, or independence, and it does not create a general conflict procedure for an officer who is not also a covered director.
Maryland states a narrower disclosure subject than many states
Md. Code, Corps. & Ass'ns § 2-419(b)(1) requires the fact of the common directorship or interest to be disclosed to or known by the board, committee, or stockholders using the approval route. It does not separately say that every material fact about the transaction must be disclosed, identify the director as the required source, demand a writing, or state a special disclosure time.
That statutory wording should not be expanded into a conclusion that a particular disclosure is complete, informed, or sufficient for another rule.
Board approval uses a disinterested majority and a separate quorum count
The board or committee must authorize, approve, or ratify through the affirmative vote of a majority of disinterested directors. Section 2-419(b)(1)(i) allows that group to be smaller than quorum, and subsection (c) lets common or interested directors count toward the meeting's quorum.
Md. Code, Corps. & Ass'ns § 2-408(a)-(b) supplies the general baseline unless the charter, bylaws, or article changes it: a majority of the entire board is quorum, subject to the permitted bylaw reductions, and a majority present acts. Section 2-419 supplies the different conflict-approval proportion. It does not add a good-faith condition, two-director floor, special committee-selection process, or qualified-only deliberation rule.
The shareholder vote excludes interests that can still make quorum
Under Md. Code, Corps. & Ass'ns § 2-419(b)(1)(ii), a majority of votes cast by entitled stockholders approves, but the count excludes shares owned of record or beneficially by the interested director or by the interested corporation, firm, or other entity. Subsection (c) nevertheless allows that stock to count toward the meeting's quorum.
Md. Code, Corps. & Ass'ns § 2-506(a) ordinarily sets quorum at a majority of all votes entitled and approval at a majority of votes cast at a quorate meeting. The conflict-specific share exclusion controls the approval numerator without removing those holdings from the quorum count.
General Md. Code, Corps. & Ass'ns § 2-505(a)-(b) authorizes unanimous stockholder consent and specified meeting-equivalent consent routes for particular stock classes or charter-authorized common stock. Section 2-419, however, defines the conflict route through a majority of eligible votes cast and separately speaks of a meeting quorum; it states no conflict-specific written-consent formula.
Fairness includes a time and an express burden
Md. Code, Corps. & Ass'ns § 2-419(b)(2), (d) makes fairness and reasonableness to the corporation a standalone alternative. If the transaction was not approved through the board or stockholder route, the person asserting its validity bears the burden of proving fairness and reasonableness at the time of authorization, approval, or ratification. The statute states no substantive fairness factors.
The burden subsection does not apply when the board fixes reasonable director compensation. That exception does not decide whether a particular amount is reasonable.
Participation and consent do not use the same count
When subsection (b) is met, § 2-419(a) says the director's presence at the board or committee meeting or the counting of that director's vote is not by itself a reason to void the transaction. The qualifying board approval still requires a majority of disinterested directors, and the shareholder approval excludes the interested holdings even though those people and shares can count for quorum.
For action without a board or committee meeting, Md. Code, Corps. & Ass'ns § 2-408(c) requires unanimous written or electronic consent by every member entitled to vote and filing with the minutes. Section 2-419 provides no special interested-director written abstention route.
Indemnification has an express cross-reference
Md. Code, Corps. & Ass'ns § 2-419(e) says any procedure authorized by the subtitle's indemnification section satisfies the conflict-approval branch. It also deems a charter, bylaw, contract, or transaction requiring or permitting indemnification, including expense advances, fair and reasonable when it complies with that indemnification section. This is a statutory special case, not a general finding about unrelated interested transactions.
The effect is narrow and director duties remain separate
Section 2-419(a) prevents the contract or transaction from being void or voidable solely because of the common directorship or interest, the interested director's presence, or the counting of that director's vote when subsection (b) is satisfied. It does not declare that every authorization, duty, remedy, securities, enforcement, or public-company question has been resolved.
Md. Code, Corps. & Ass'ns § 2-405.1(c), (i) separately supplies the good-faith, best-interests, and ordinary-prudence duties and calls itself the sole source of director duties for corporate transactions. Sections 2-408(c) and 2-505(a) require board, committee, and stockholder consents to be filed with the corresponding meeting records. Documentation does not itself establish the substantive predicates.
What trips people up
Maryland excludes interested shares from the approval vote but includes them in the quorum count. The same director's holdings can therefore help establish that a stockholder meeting may act while supplying none of the votes needed for the conflict approval under Md. Code, Corps. & Ass'ns § 2-419(b)(1)(ii), (c).
Common questions
Does § 2-419 require disclosure of all material transaction facts?
Its stated disclosure subject is the fact of the common directorship or interest. The section does not itself list all material transaction facts, so this page does not add that language or decide whether another duty requires more in a particular record.
Does an interested director's board vote count toward approval?
The vote is not itself a reason for voidability when the statutory conditions are met, but the qualifying board route still requires the affirmative vote of a majority of disinterested directors. The interested director may count toward quorum, not toward that required disinterested majority.
Does § 2-419 cover an interested officer who is not a director?
No general officer route appears in the section. It defines the covered transaction through a corporation director's party status, common directorship, or material financial interest.
Statutes and sources
- Md. Code, Corps. & Ass'ns § 2-405.1(c), (i) — transaction-applicable director duties and sole-source boundary. Official Maryland General Assembly text, accessed September 4, 2026.
- Md. Code, Corps. & Ass'ns § 2-408(a)-(c) — general board vote, quorum, and unanimous consent. Official Maryland General Assembly text, accessed September 4, 2026.
- Md. Code, Corps. & Ass'ns § 2-419 — covered conflicts, disclosure, approvals, fairness burden, quorum, compensation, indemnification, and statutory effect. Official Maryland General Assembly text, accessed September 4, 2026.
- Md. Code, Corps. & Ass'ns §§ 2-505(a)-(b) and 2-506(a) — general stockholder consent, quorum, and approval. Official § 2-505 and official § 2-506, accessed September 4, 2026.
Source links
Every statute quoted above, linked, with the date we checked it.
What does Maryland law mean for your facts?
You just read the general rule. Ask your own question and see which parts of current Maryland law apply to your situation, with citations you can check.
Opens in Ezel Pro.
- Starts from the statutes this survey is built on
- Cites every source it relies on, so you can verify it
- Chat, drafting and research in one workspace