Nonprofit Director Conflict Transaction Approval Rules in Kentucky
At a glance
| Governing act and covered transactions | Kentucky nonprofit corporation law; corporation transaction involving interested director (§ 273.219(1)) |
|---|---|
| Interest and related-person trigger | Direct interest or indirect interest through financially interested or managed entity (§ 273.219(1)-(2)) |
| Disclosure and knowledge | Board/committee must know or receive material transaction and director-interest facts for approval route (§ 273.219(1)(a)) |
| Board or committee approval | Majority of directors without direct/indirect interest, even below quorum; at least two; higher governing-document vote applies (§ 273.219(3)) |
| Member approval and vote | No member-approval route in the conflict section (§ 273.219(1)(a)-(b)) |
| Fairness route and time | Fairness to corporation is alternate condition; section states no measurement date (§ 273.219(1)(b), (4)) |
| Interested participation and quorum | Qualified director majority may act below ordinary quorum; delegated committee cannot include interested director (§§ 273.219(3), 273.217(1)) |
| Burden, effect, and separate authorization | No equitable relief on interest ground if route met; interested director bears fairness burden; ordinary board authorization has separate quorum/vote rules (§§ 273.219(1), (4), 273.217(1), (3)) |
| Special coverage and later changes | Committee must meet § 273.221 and contain no interested appointee; current § 273.219 effective July 14, 2018 (§§ 273.219(3), 273.221(1)-(3)) |
Requirements one by one
Direct and indirect interests
Section 273.219(1) reaches a director's direct or indirect interest in a transaction with the corporation. Under subsection (2), an indirect interest includes a transaction with another entity in which the director has a material financial interest. It also includes a party entity where the director is a director, officer, general partner, manager, trustee, or similar person, if the transaction is or should be considered by the corporation's board.
Informed board or committee action
For § 273.219(1)(a), the board or a duly constituted committee must know or receive the material facts of both the transaction and the director's interest, then authorize, approve, or ratify it. Subsection (3) requires a majority of directors without a direct or indirect interest, permits that majority to be less than a quorum, and forbids approval by a single director. A higher vote required by the articles or bylaws still applies. Any delegated committee must contain no interested appointed director and operate within § 273.221's committee limits.
Fairness and legal effect
Under § 273.219(1)(b), fairness to the corporation is the alternate route. Subsection (4) places the burden of proving fairness on the interested director. The stated protection is against equitable relief on the ground of the director's interest; the section does not phrase it as blanket validation of every aspect of a transaction.
What trips people up
The below-quorum vote in § 273.219(3) is for the conflict-section action. Ordinary board business under § 273.217(1), (3) uses a board quorum and a majority of directors present unless another rule applies. A transaction may therefore need ordinary authorization as well as conflict-section treatment.
Common questions
Can the members approve under this conflict section?
Section 273.219(1) states an informed board or committee route and a fairness route. It does not set a member conflict-approval route.
Can one disinterested director approve?
No. Section 273.219(3) expressly bars authorization, approval, or ratification by a single director under this section.
Statutes and sources
- Ky. Rev. Stat. § 273.219(1)-(4): conflict definition, board route, fairness, and burden. Current official section, accessed 2026-10-02.
- Ky. Rev. Stat. § 273.217(1), (3): ordinary board quorum and vote. Current official section, accessed 2026-10-02.
- Ky. Rev. Stat. § 273.221(1)-(3): committee creation and powers. Current official section, accessed 2026-10-02.
Source links
Every statute quoted above, linked, with the date we checked it.
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