Nonprofit Director Conflict Transaction Approval Rules in Iowa
At a glance
| Governing act and covered transactions | Revised Iowa Nonprofit Corporation Act; corporation transaction involving director (§ 504.833(1)) |
|---|---|
| Interest and related-person trigger | Direct/indirect interest; material-interest/general-partner entity or entity where director is director, officer, trustee (§ 504.833(1), (3)) |
| Disclosure and knowledge | Material transaction and director-interest facts disclosed or known to board/committee or members (§ 504.833(2)) |
| Board or committee approval | Majority of directors without direct/indirect interest on board/committee; single director insufficient (§ 504.833(2)(a), (4)) |
| Member approval and vote | Informed member action; majority of eligible votes; interested director and specified entity-controlled votes excluded; eligible-vote majority quorum (§ 504.833(2)(b), (5)) |
| Fairness route and time | Fair to corporation when transaction entered into is independent protection (§ 504.833(1)) |
| Interested participation and quorum | Disinterested board majority supplies conflict-action quorum; interested presence or vote does not invalidate otherwise approved board action (§ 504.833(4)) |
| Burden, effect, and separate authorization | Not voidable by corporation on director-interest basis; excluded member votes may count for approval elsewhere in chapter (§ 504.833(1), (5)) |
| Special coverage and later changes | Articles, bylaws, or board resolution may impose additional conflict requirements (§ 504.833(6)) |
Requirements one by one
Covered interest and effect
Section 504.833(1) defines a director conflict transaction by a direct or indirect interest. Under subsection (3), an indirect interest includes another party entity in which the director has a material interest or is a general partner, and an entity of which the director is a director, officer, or trustee. The section protects a qualifying transaction from voidability by the corporation on the basis of the director's interest; it does not state blanket immunity for other grounds.
Board, member, and fairness routes
For § 504.833(2)(a), material facts about the transaction and interest must be disclosed or known to the board or committee before it authorizes, approves, or ratifies. Subsection (4) requires an affirmative majority of directors without direct or indirect interest and forbids a single-director conflict approval. For the member route, subsections (2)(b) and (5) require informed member action by a majority of votes entitled to be counted, excluding votes cast or controlled by the interested director or an entity described in subsection (3)(a). Independently, subsection (1) protects a transaction that was fair to the corporation when entered into.
What trips people up
Section 504.833(4) supplies a conflict-action board quorum when a majority of disinterested board members votes for the transaction, and interested presence or votes do not invalidate otherwise approved board action. Under subsection (5), excluded member votes can still count for transaction approval under other sections of the chapter. Articles, bylaws, or a board resolution may impose further requirements under subsection (6).
Common questions
Are all members counted for the conflict vote?
No. Section 504.833(5) excludes the specified interested-director and entity-controlled votes from that tally and sets its quorum at a majority of the voting power entitled to be counted, whether present or not.
Does an approval vote have to precede the transaction?
Section 504.833(2) permits the board, committee, or members to authorize, approve, or ratify under its stated conditions. The independent fairness test in subsection (1) looks to entry into the transaction.
Statutes and sources
- Iowa Code § 504.833(1)-(6): director interest, protection, approval routes, votes, and additional requirements. Current official section, accessed 2026-10-02.
Source links
Every statute quoted above, linked, with the date we checked it.
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