Nonprofit Director Conflict Transaction Approval Rules in Arizona

At a glance

Requirements one by one

Which interests count

Section 10-3860(1) tests what the director knows at the time of commitment. It covers a director or related person who is a transaction party or has a financially significant link, and, for transactions of board-level character, specified links through another entity, controlling person, or the director's general partner, principal, or employer. Subsection (3) defines related persons through listed family, household, estate, trust, and fiduciary relationships. The definition reaches transactions by a subsidiary or another entity the corporation controls (§ 10-3860(2)).

Disclosure and qualified directors

“Required disclosure” under § 10-3860(4) includes the conflict's existence and nature and known transaction facts an ordinarily prudent person would regard as material. Section 10-3862(A) requires a majority, but at least two, of the qualified directors who vote on the transaction after disclosure or a specified confidentiality substitute. A committee works only if all members are qualified and it was populated through one of the statute's qualified-director routes. Qualification excludes a director with the conflict and one whose listed relationship to the conflicted director would reasonably influence judgment (§ 10-3862(D)).

Qualified-member vote

Section 10-3863(A) requires transaction notice, pre-vote information from the interested director to the vote tabulator about known controlled or beneficially owned interests, and required disclosure to voting members. Approval needs a majority of all votes entitled to be cast by qualified membership interests, not just a majority of votes cast at the meeting. Under subsection (E), known interests beneficially owned or vote-controlled by the conflicted director or a related person are excluded from that qualified pool.

Fairness and statutory effect

Section 10-3861(B)(3) permits a fairness route judged at the time of commitment. Section 10-3860(5) defines that time as consummation or, for a contract, when unilateral withdrawal would cause significant loss, liability, or damage. In the listed member or corporate proceedings, the qualifying routes prevent an injunction, setting aside, damages, or other sanctions because of the director's or an associate's interest (§ 10-3861(B)).

What trips people up

Section 10-3862(C) uses a majority, and at least two, of all qualified directors on the board or committee for its quorum; the approval measure in subsection A instead looks at qualified directors who voted. A nonqualified director's presence or vote does not defeat action that otherwise meets the section. The member quorum is a majority of all qualified votes (§ 10-3863(B)).

If a member vote fails solely because the director did not supply the ownership and control information required by § 10-3863(C), subsection D gives the court a fact-dependent option when the director establishes the omission neither determined nor was intended to influence the outcome. Do not treat that option as automatic validation.

Common questions

Who has the first proof burden in an interest-based challenge?

Under § 10-3861(C), the person seeking an injunction, setting aside, damages, or other sanctions must first prove by clear and convincing evidence that none of subsection B's protections applies.

Does a transaction with a director's interest always need a safe-harbor vote?

No. Section 10-3861(A) also bars the listed interest-based remedies for a transaction that is not a defined director's conflicting interest transaction, even though the director or an associated person has an interest.

Statutes and sources

• Ariz. Rev. Stat. § 10-3860: definitions of conflicting interest, related person, required disclosure, and time of commitment. Official section text, accessed 2026-10-02.
• Ariz. Rev. Stat. § 10-3861: interest-based remedy protection and the challenger's clear and convincing proof requirement. Official section text, accessed 2026-10-02.
• Ariz. Rev. Stat. § 10-3862: qualified director and committee action, quorum, and limited confidentiality substitute. Official section text, accessed 2026-10-02.
• Ariz. Rev. Stat. § 10-3863: member notice, qualified-interest vote, information disclosure, quorum, and court response to a narrow disclosure failure. Official section text, accessed 2026-10-02.