Corporate Interested-Director Transaction Requirements in Pennsylvania

At a glance

Requirements one by one

Governing law, entity, transaction, and covered-person scope

15 Pa.C.S. § 1103 defines a business corporation as a domestic corporation for profit within the statutory subpart. 15 Pa.C.S. § 1728(a) covers its contracts or transactions with directors or officers and deals with another corporation, partnership, joint venture, trust, or other enterprise when a corporate director or officer is a governor or officer there or has a financial or other interest.

The section states no materiality threshold, related-person list, control test, or definition of disinterested. Actual voter status and interest therefore cannot be assumed merely from a job title or ownership label.

Disclosure and disinterested-board approval

Under § 1728(a)(1), the material facts about the relationship or interest and the contract or transaction must be disclosed to or known by the board. The board then authorizes through affirmative votes of a majority of the disinterested directors, even when that group is smaller than a quorum.

15 Pa.C.S. § 1727(a)-(b) separately makes a majority of directors in office the ordinary quorum and a majority present and voting the board act unless the bylaws provide otherwise. Ordinary written board action requires every director in office at the effective time to sign, and the consents go with the minutes.

Shareholder approval

Section 1728(a)(2) recognizes specific good-faith approval by the shareholders entitled to vote after disclosure or knowledge of the same material facts. It does not exclude shares associated with the interested director or officer.

Under 15 Pa.C.S. §§ 1756(a) and 1757(a), the default meeting quorum is a majority of all votes entitled on the matter, including any separate class majority, and the ordinary approval is a majority of votes cast by all entitled shareholders, plus any required class majority. A shareholder-adopted bylaw can lawfully change those defaults.

Fairness is a separate route

Section 1728(a)(3) independently recognizes a transaction that is fair to the corporation when authorized, approved, or ratified by the board or shareholders. The section neither defines fairness nor states who bears its proof burden. This cell does not supply either answer from outside the statute.

Participation, vote, quorum, and consent

Section 1728(a)-(b) prevents the director's or officer's presence, participation, or counted vote from being a voidability reason by itself when a statutory route applies. Common or interested directors may count toward board quorum. Their participation does not turn their votes into the disinterested- director majority required by subsection (a)(1).

The conflict section states no special written-abstention route. Shareholder action without a meeting follows 15 Pa.C.S. § 1766(a)-(c): unanimity unless the bylaws authorize meeting-minimum partial consent, filing with shareholder minutes, and prompt notice to nonconsenting voters after ordinary partial- consent action.

Common associations and wholly owned entities

Pennsylvania divides the common-official branch by ownership. For an association not wholly owned by the corporation, subsection (d) accepts an ordinary approval or fairness route or a two-part alternative: the common official does not participate personally and substantially in negotiating for either side and does not cast a vote necessary for either association's meeting approval.

For a wholly owned association, subsection (e) says the transaction is not void or voidable solely because the corporate director or officer also serves the owned association. No added approval or negotiation condition appears in that narrow branch.

Bylaw restrictions and statutory effect

Section 1728(c) makes the entire provision applicable unless the bylaws further restrict it. The current bylaws therefore matter before relying on any route. Section 1728 does not state a separate controlling-stockholder or going-private process, and director compensation is cross-referenced to a different section.

When a route applies, the transaction is not void or voidable solely because of the covered relationship or interest, presence or participation, or counted vote. “Solely” is load-bearing: the section does not decide independent authorization, fairness, enforceability, fiduciary duties, securities rules, or other remedies.

Records and external boundaries

15 Pa.C.S. § 1508(a)-(b) requires complete and accurate books, account records, shareholder and director minutes, and the share register; it also expressly includes consents in lieu of meetings in the inspectionable record package. Those records can document the statutory process but cannot prove interest, disinterestedness, fairness, authorization, or fiduciary compliance by themselves.

What trips people up

Pennsylvania's below-quorum rule applies to the disinterested approval group, not to every aspect of board authority. The corporate records still must show the operative approval and any separate action required by the transaction or governing documents.

The wholly owned and non-wholly-owned common-association branches also should not be collapsed. Only the non-wholly-owned alternative uses the no-substantial- negotiation and nonnecessary-vote conditions.

Common questions

Does § 1728 cover officers who are not directors?

Yes. Subsection (a) expressly covers a contract or transaction involving one or more of the corporation's directors or officers, subject to its other terms.

Must the interested director leave the meeting?

The section does not require departure and expressly permits presence or participation without voidability solely for that reason. The required board approval still comes from a majority of disinterested directors.

May the bylaws impose a stricter rule?

Yes. Subsection (c) says § 1728 applies except as otherwise restricted in the bylaws.

Statutes and sources

• 15 Pa.C.S. § 1103 — business-corporation, board, and officer definitions. Official General Assembly PDF, accessed September 4, 2026.
• 15 Pa.C.S. §§ 1727-1728 — board action and interested director/officer transaction procedure. Official § 1727 and official § 1728, accessed September 4, 2026.
• 15 Pa.C.S. §§ 1756-1757 and 1766 — shareholder quorum, vote, and consent. Official § 1756, § 1757, and § 1766, accessed September 4, 2026.
• 15 Pa.C.S. § 1508(a)-(b) — corporate minutes and consent records. Official General Assembly PDF, accessed September 4, 2026.