Nonprofit Director Conflict Transaction Approval Rules in Delaware
At a glance
| Governing act and covered transactions | DGCL § 144(a) as adapted by § 114; corporation/subsidiary act or transaction involving director/officer or connected organization (§§ 114(a), 144(a)) |
|---|---|
| Interest and related-person trigger | Director/officer party or other-entity role/financial interest; disinterested director lacks material interest or material relationship (§ 144(a), (e)(4), (7)–(8)) |
| Disclosure and knowledge | Relationship/interest, act/transaction, and initiation/negotiation/approval involvement disclosed or known to all board/committee members (§ 144(a)(1)) |
| Board or committee approval | Good-faith, no-gross-negligence majority of serving disinterested directors; if board majority interested, board-designated committee of at least two disinterested directors (§ 144(a)(1)) |
| Member approval and vote | Nonprofit nonstock corporations are expressly excluded from § 144(a)(2) stockholder/member approval safe harbor (§ 114(c)(2)) |
| Fairness route and time | Alternative: act or transaction fair to corporation and members under § 114 nonstock mapping; § 144(a)(3) sets no specific time |
| Interested participation and quorum | Interested directors count toward board/committee quorum; § 144(a) addresses their presence, participation, and counted votes without replacing disinterested approval threshold (§ 144(a), (d)(1)) |
| Burden, effect, and separate authorization | Specified interest-based equitable relief/damages against director/officer barred on a qualifying route; challenges for missing ordinary authorization expressly preserved (§ 144(a), (d)(6)) |
| Special coverage and later changes | 2025 amendment effective March 25, 2025, with stated earlier-action/demand exception; § 114 excludes member vote route for nonprofit nonstock (§ 114(c)(2); 85 Del. Laws ch. 6, § 3) |
Requirements one by one
Nonstock scope and board route
Section 114(a) applies the General Corporation Law to nonstock corporations, treating references to stockholders as members and to directors as governing-body members. Section 144(a) reaches specified director or officer dealings with the corporation or subsidiaries, and dealings with another organization connected through a director or officer's role or financial interest. A “disinterested director” lacks the section's defined material interest or material relationship (§ 144(e)(4), (7)–(8)).
For the board route, all board or committee members must know, or receive disclosure of, material facts about the relationship or interest, the transaction, and involvement in initiating, negotiating, or approving it. A good-faith vote without gross negligence by a majority of serving disinterested directors qualifies even below quorum. If a majority of the full board are interested, the vote or recommendation must come from a board-designated committee of at least two disinterested directors (§ 144(a)(1)).
What trips people up
Section 114(c)(2) expressly removes § 144(a)(2), the disinterested stockholder vote route, for a nonprofit nonstock corporation. Section 144(a)(3) retains a fairness alternative: fairness to the corporation and, through § 114(a)'s mapping, its members. Interested directors may count toward a board or committee quorum (§ 144(d)(1)).
The statute bars the specified interest-based equitable relief or damages against a director or officer when a § 144(a) condition holds. It expressly preserves challenges based on failure to obtain other authorization required by the chapter, certificate, bylaws, or listed external obligations (§ 144(d)(6)). The 2025 amendment took effect March 25, 2025; its session-law application clause preserves the stated actions, proceedings, and demands completed or pending by February 17, 2025 (85 Del. Laws ch. 6, § 3).
Common questions
Can members approve an interested transaction under § 144(a)(2)?
That safe harbor does not apply to a nonprofit nonstock corporation because § 114(c)(2) specifically excludes it. Other ordinary authorization requirements remain a separate question.
Can one disinterested director approve when the board majority is interested?
No. Section 144(a)(1) requires a designated committee of at least two disinterested directors in that circumstance.
Statutes and sources
- 8 Del. C. § 144(a), (d), (e): interested transactions, routes, effect, quorum, and definitions. Official subchapter, accessed 2026-10-02.
- 8 Del. C. § 114(a), (c), (d): nonstock mapping and nonprofit exclusions. Official subchapter, accessed 2026-10-02.
- 85 Del. Laws ch. 6, § 3: 2025 amendment's application and effective date. Official session law, accessed 2026-10-02.
Source links
Every statute quoted above, linked, with the date we checked it.
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