Corporate Interested-Director Transaction Requirements in Texas

At a glance

Requirements one by one

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

Tex. Bus. Orgs. Code § 21.002(5) identifies the Chapter 21 corporation as a domestic for-profit corporation. Tex. Bus. Orgs. Code § 21.418(a) covers its contracts or transactions with directors or officers and their affiliates or associates. It also reaches another entity or organization in which one of those people is a managerial official or has a financial interest.

Tex. Bus. Orgs. Code § 1.002(1), (2), (52) makes those relationship terms substantial. An affiliate has a control relationship; an associate can include a 10% voting owner, a substantial trust or estate beneficiary or fiduciary, a co-resident spouse or relative, and specified entity officials. A managerial official is an officer or governing person. Section 21.418 does not separately define the financial interest or state a materiality threshold for coverage.

Disclosure and the disinterested board or committee route

The material facts about the covered relationship or interest and the contract or transaction must be disclosed to or known by the board or committee. The body then authorizes in good faith through approval by a majority of the disinterested directors or committee members. Section 21.418(b)(1)(A) expressly says that this majority can act even when those disinterested voters do not constitute a quorum.

This conflict-procedure vote is not necessarily the transaction's only required authorization. Governing documents, class rights, another Code section, or the transaction itself can require separate action.

The shareholder route does not exclude interested shares

Section 21.418(b)(1)(B) requires disclosure to or knowledge by the shareholders entitled to vote, followed by their specific good-faith approval. Unlike many conflict statutes, its text does not exclude shares held by interested directors or officers from this route.

Tex. Bus. Orgs. Code §§ 21.358 and 21.363(a) supply the ordinary meeting defaults: a majority of shares entitled to vote, present or represented, forms the quorum; the act is approved by a majority of entitled shares that voted for, voted against, or expressly abstained. The certificate or bylaws can set a different lawful threshold, and another transaction statute can require more.

Fairness is a separate statutory route

Section 21.418(b)(2) independently applies when the contract or transaction is fair to the corporation at the time the board, committee, or shareholders authorize, approve, or ratify it. Section 21.418 does not define fairness or assign the proof burden for an ordinary private corporation that has not elected § 21.419. This cell therefore does not decide fairness or import a standard from the listed-or-electing corporation branch.

Presence, participation, voting, consent, and quorum

Section 21.418(c)-(d) permits a covered person to attend or participate and, if a director or committee member, vote at the authorizing meeting or sign a unanimous written consent. Common and interested directors may also count toward quorum. Those permissions do not transform the interested vote into the disinterested-majority approval required by subsection (b)(1)(A).

Tex. Bus. Orgs. Code § 21.415(b) makes ordinary written board action unanimous unless the certificate or bylaws provide otherwise. A signed consent can document action, but it does not by itself prove full disclosure, good faith, fairness, authority, or satisfaction of the disinterested-majority route.

Listed and affirmatively electing corporations

An ordinary private corporation uses § 21.418(a)-(e), but it may put a statement in its governing documents affirmatively electing Tex. Bus. Orgs. Code § 21.419(a)-(e). That section also automatically covers a corporation with voting shares listed on a national securities exchange. It supplies good-faith, informed-basis, corporate-interest, and legal-compliance presumptions and a claimant's rebuttal-and-proof framework; those rules cannot be applied to a nonelecting private corporation merely because they appear in the same chapter.

For a listed or electing corporation, Tex. Bus. Orgs. Code § 21.416(g) also lets the board authorize an independent-and-disinterested committee for transactions involving the corporation or a subsidiary and a controlling shareholder, director, or officer. The statute's separate court procedure and actual independence determination are outside this ordinary approval cell.

Statutory effect and boundaries

For an otherwise valid and enforceable deal, satisfying one § 21.418(b) condition makes the covered transaction valid, enforceable, and not void or voidable notwithstanding the relationship or interest. Subsection (e) also bars a breach-of-duty cause of action by the corporation or its shareholders merely because the person had that relationship or interest or used a participation method allowed by subsection (d).

That wording preserves important limits: the deal must otherwise be valid and enforceable, and the stated effect is tied to the interest and permitted participation. Section 21.418(f) routes a listed or electing corporation's claim analysis through § 21.419. None of these provisions lets this cell decide authority, disclosure completeness, disinterestedness, fairness, fiduciary compliance, securities duties, or litigation outcomes.

What trips people up

The shareholder and board routes use different voter screens. Board approval must come from a majority of disinterested directors or committee members; the shareholder paragraph instead says shareholders entitled to vote and does not exclude interested shares.

Participation permission is also not a fairness finding. Texas expressly lets the interested director participate and vote, but subsection (b) still requires one of its approval or fairness conditions before the stated protection follows.

Common questions

Does the disinterested board group need to constitute a quorum?

No. Section 21.418(b)(1)(A) expressly says its majority approval can work regardless of whether the disinterested directors or committee members constitute a quorum. Separate transaction authorization requirements still apply.

Can an interested officer be covered even if the officer is not a director?

Yes. Section 21.418(a) expressly names officers and their affiliates and associates, subject to the transaction and relationship conditions in that subsection.

Does every private Texas corporation use § 21.419?

No. A private corporation without listed voting shares uses that section only if its governing documents affirmatively elect it.

Statutes and sources

• Tex. Bus. Orgs. Code §§ 1.002 and 21.002 — relationship terms, managerial official, and domestic for-profit corporation. Official Chapter 1 and official Chapter 21, accessed September 4, 2026.
• Tex. Bus. Orgs. Code §§ 21.358, 21.363, and 21.415 — shareholder quorum/vote and board written consent. Official Chapter 21, accessed September 4, 2026.
• Tex. Bus. Orgs. Code § 21.418 — covered transactions, disclosure, approval and fairness routes, participation, and effect. Official Chapter 21, accessed September 4, 2026.
• Tex. Bus. Orgs. Code §§ 21.416(g) and 21.419 — listed-or-electing corporation branches. Official Chapter 21, accessed September 4, 2026.