Corporate Interested-Director Transaction Requirements in Tennessee
At a glance
| Governing law, entity, transaction, and covered-person scope | Tennessee Business Corporation Act, §§ 48-18-701 to -704; effected/proposed transaction by corporation or corporation-controlled entity involving corporation director/officer as party, known material financial interest, or known related-person party/material interest at relevant time (§ 48-18-701(1)-(2), (8)) |
|---|---|
| Interest, relationship, control, and materiality definitions | Control means majority governing-body election/removal power or majority risk-of-loss/residual-return exposure. Material financial interest/relationship asks reasonable expected impairment of objective judgment. Related person includes detailed family, household, controlled-entity, board/general-partner/governing-body/fiduciary, and employer branches (§ 48-18-701(1), (4)-(7)) |
| Required disclosure, facts, timing, knowledge, and recipients | Director/officer discloses conflict existence/nature plus all known subject-matter facts a conflict-free decisionmaker would reasonably believe material. Board route allows known facts; modified disclosure for specified related-person confidentiality duties requires all nonviolative facts, conflict, and duty nature. Shareholder route adds transaction-action notice and written pre-vote unqualified-share identification to secretary/tabulator (§§ 48-18-701(9), -703(a)-(b), -704(a)-(b)) |
| Disinterested or qualified board/committee composition, quorum, vote, and good faith | Affirmative majority, but ≥2, qualified directors after disclosure; they deliberate/vote without any other director. Committee all qualified and either all board-qualified directors or their majority appointees. Majority/≥2 special quorum; separate ordinary authorization action required if documents/law demand more, and nonqualified directors may participate there. No separate good-faith condition stated (§ 48-18-703) |
| Disinterested shareholder notice, voting group, quorum, consent, and threshold | Majority of votes cast by qualified-share holders; quorum is majority of votes entitled from all qualified shares. Excludes shares held by conflicted director/officer or related person except employer branch; holder includes record/beneficial. Nonqualified shares may participate in separately required authorization. Identification-only failure has narrow court-discretion route (§ 48-18-704) |
| Fairness alternative, relevant time, burden, and statutory standard | Transaction as whole beneficial to corporation, considering fair director/officer dealings and arm's-length comparability given consideration. Judged at relevant time: compliant board action, or legal-obligation time when no board action. Section says transaction must be established fair but does not expressly assign the actor or burden (§§ 48-18-701(3), (8), -702(b)(3)) |
| Interested-person presence, participation, vote, abstention, and written consent | Qualified directors deliberate/vote without any other director. Ordinary board no-meeting action requires every director's signed consent indicating vote/abstention; required meeting-level affirmative votes act, so conflict procedure and consent must be reconciled. Shareholder consent similarly allows all holders to sign with vote/abstention or charter-authorized meeting minimum (§§ 48-17-104, 48-18-202, -703(a)(1)) |
| Controlling stockholders, officers, compensation, and special transaction routes | Express officers, related persons, and corporation-controlled entities; no controlling-stockholder, going-private, corporate-opportunity, loan, or public-company branch in Part 7. Board generally fixes director compensation unless charter/bylaws provide otherwise (§§ 48-18-111, -701 to -704) |
| Statutory effect, remedies, records, fiduciary, and public-company boundaries | Non-conflict transaction cannot face equitable relief/director-or-officer damages/other sanctions merely for that person's interest; conflict transaction gets same interest-based limitation upon route. Independent ordinary authorization expressly preserved; permanent meeting/consent/committee records required. Governing documents, fiduciary, securities, authorization, and other grounds remain (§§ 48-18-702 to -704, 48-26-101(a), (d)) |
Requirements one by one
The current Part 7 replaced the former conflict section
The signed 2012 act repealed former Tenn. Code Ann. §§ 48-18-302 and 48-18-303, redesignated former § 48-18-304 as § 48-18-302, and enacted the current conflict rules as §§ 48-18-701 through 48-18-704. The old section number therefore does not identify today's conflict procedure.
Current § 48-18-701 reaches a proposed or effected transaction by the corporation or an entity it controls. It covers a director or officer who is a party, knowingly has a material financial interest, or knows a related person is a party or materially interested at the relevant time.
Control, interests, relationships, and relevant time are defined
Control includes power to elect or remove a governing-body majority and a separate economic branch based on majority risk of loss or residual returns. A material financial interest or relationship turns on expected impairment of objective judgment rather than a fixed dollar or ownership threshold.
The related-person list reaches specified family and household members, controlled entities, certain corporations and unincorporated entities, fiduciary relationships, and an employer branch. Relevant time is the compliant board-action time or, when no such board action occurs, the time the corporation or its controlled entity becomes legally obligated to close.
Required disclosure includes every known material subject-matter fact
Required disclosure covers the conflict's existence and nature plus all known subject-matter facts that a conflict-free director or officer would reasonably believe material to deciding whether to proceed.
The modified route is limited to a conflict arising only through specified entity, fiduciary, or employer relationships and information protected by law, an enforceable confidentiality obligation, or professional ethics. The conflicted director or officer must still disclose every nonviolative fact, the conflict, and the nature of the nondisclosure duty.
Qualified directors act without any other director
Tenn. Code Ann. § 48-18-703 requires an affirmative majority, but at least two, of the qualified directors who vote after disclosure. Those directors must deliberate and vote without participation by any other director.
A committee must consist entirely of qualified directors and include either all qualified directors on the board or directors appointed by their majority. A qualified-director majority, with the same two-person floor, forms the special quorum.
Conflict approval does not replace ordinary authorization
The conflict procedure and transaction authorization are separate. When the qualified-director action does not satisfy a charter, bylaw, or statutory authorization quorum or vote, the board or committee must take an independent action. Nonqualified directors may participate in that separate action.
The shareholder provision has the same separation. If its conflict vote does not satisfy the independently applicable authorization requirement, the shareholders must take another action in which nonqualified shares may participate.
Qualified-share approval splits the vote and quorum denominators
Tenn. Code Ann. § 48-18-704 requires a majority of votes cast by holders of qualified shares, while quorum requires a majority of all votes entitled to be cast by qualified shares. “Holder” includes record and beneficial shareholders.
Qualified shares exclude those held by the conflicted director or officer and most related persons, but the related-person employer branch is expressly excluded from that disqualification. Before the vote, the conflicted person must give the secretary or tabulator a written statement identifying the number and holders of known unqualified shares.
If the vote fails only because of that statement duty, the court has discretion when the director or officer establishes that the failure neither intended to influence nor actually determined the outcome. That is not an automatic cure.
Fairness has statutory content and a defined time
The fairness route requires the transaction as a whole to be beneficial to the corporation, taking appropriate account of fair director-or-officer dealings and comparison with an arm's-length transaction given the consideration paid or received. It is judged at the defined relevant time.
Tenn. Code Ann. § 48-18-702 says fairness must be established but does not expressly name the party carrying that burden. This cell reports the statutory elements and does not decide whether they are met.
Written consent permits recorded abstentions
Tenn. Code Ann. § 48-18-202 requires every director to sign and deliver the no-meeting consent, but each signer records a vote or abstention. If all consent to acting without a meeting, the meeting-level affirmative-vote number acts for the board. That structure must still be reconciled with § 48-18-703's qualified- director deliberation, vote, and nonparticipation rules.
For shareholders, § 48-17-104 similarly permits every entitled holder to sign and record a vote or abstention, or permits the meeting-minimum consent route if the charter authorizes it. The conflict procedure's qualified-share count and disclosures remain necessary.
Compensation is a separate power
Tenn. Code Ann. § 48-18-111 generally lets the board fix director compensation unless the charter or bylaws provide otherwise. The current Part 7 does not create a controlling-stockholder, going-private, corporate-opportunity, loan, or public-company branch.
The effect and records rules are specific
A non-conflict transaction cannot be the subject of equitable relief or support damages or other sanctions against a director or officer merely because that person has an interest. A conflict transaction receives the same interest-based limitation after compliant director action, shareholder action, or established fairness.
The statute does not declare universal validity, authorization, enforceability, or freedom from another claim. Tenn. Code Ann. § 48-26-101 requires permanent meeting, no-meeting, and delegated-committee action records; those records do not alone establish a conflict trigger, disclosure, qualification, vote count, fairness, or other compliance.
What trips people up
Tennessee expressly separates the conflict procedure from ordinary transaction authorization. A qualified-director or qualified-share vote may produce the conflict statute's limited effect while a separate charter, bylaw, or statutory authorization vote remains necessary.
The shareholder vote and quorum also use different measures: a majority of qualified votes cast approves, but a majority of all qualified-share voting power must constitute quorum.
Common questions
Does the statute cover officers who are not directors?
Yes. Sections 48-18-701 through 48-18-704 expressly refer to a director's or officer's conflicting-interest transaction.
May interested directors participate in the qualified-director decision?
No. Section 48-18-703 requires the qualified directors to deliberate and vote without any other director. Nonqualified directors may participate only in the separate action needed to satisfy an independent authorization requirement.
Does compliance eliminate every remedy?
No. Section 48-18-702 limits equitable relief, damages, or other sanctions against a director or officer on the ground of that person's interest. It does not eliminate another authorization, governing-document, fiduciary, securities, or remedy ground.
Statutes and sources
- Tenn. Code Ann. §§ 48-18-701 through 48-18-704 — definitions, judicial effect, qualified-director action, qualified-share action, fairness, and separate authorization. Official 2012 Public Chapter 1051, accessed September 4, 2026; current public-domain Title 48 compilation, cross-checked September 4, 2026.
- Tenn. Code Ann. §§ 48-17-104 and 48-18-202 — shareholder and board action without a meeting. Official 2012 Public Chapter 1051, accessed September 4, 2026.
- Tenn. Code Ann. §§ 48-18-111 and 48-26-101 — director compensation and permanent corporate action records. Current public-domain Title 48 compilation, accessed and amendment-swept September 4, 2026.
Source links
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