Nonprofit Director Conflict Transaction Approval Rules in Michigan
At a glance
| Governing act and covered transactions | Nonprofit Corporation Act; transaction in which director or officer is determined to have an interest (§ 450.2545a(1)) |
|---|---|
| Interest and related-person trigger | Director or officer determined to have an interest; section states no narrower transaction definition (§ 450.2545a(1)) |
| Disclosure and knowledge | Material transaction and director/officer-interest facts disclosed or known to board, executive committee, or voting shareholders/members (§ 450.2545a(1)(b)-(c)) |
| Board or committee approval | Majority of uninterested directors on board or executive committee, even below quorum (§ 450.2545a(2)) |
| Member approval and vote | Majority of uninterested shareholder/member votes cast; quorum is majority of uninterested votes held (§ 450.2545a(3)) |
| Fairness route and time | Fair to corporation when transaction was entered into (§ 450.2545a(1)(a)) |
| Interested participation and quorum | Interested director presence or vote does not defeat otherwise valid board-route action (§ 450.2545a(2)) |
| Burden, effect, and separate authorization | Interested person establishes route; interest-based injunction, setting aside, damages/sanctions barred, other claims preserved (§ 450.2545a(1), (4)) |
| Special coverage and later changes | Director compensation has separate reasonableness, vote, and document limits (§ 450.2545a(5)) |
Requirements one by one
Interest-based protection
Section 450.2545a(1) covers a transaction in which a director or officer is determined to have an interest. If the interested person establishes one listed condition, the transaction cannot be enjoined or set aside, or give rise to damages or other sanctions, because of that interest in the proceedings the section names. Fairness is judged when the transaction was entered into; the board and shareholder/member routes instead require disclosure or knowledge of both the transaction's and the person's material interest facts.
Board or executive committee vote
Under § 450.2545a(2), a majority of directors without an interest on the board or executive committee must vote affirmatively, even if those directors number fewer than a quorum. An interested director's presence or vote does not invalidate action that otherwise meets the disclosed board route.
Shareholder or member vote
Section 450.2545a(3) counts a majority of uninterested votes cast for approval, but uses a majority of uninterested votes held as the quorum. Those are different denominators.
What trips people up
Compliance with a conflict route does not erase every possible challenge. Section 450.2545a(4) expressly preserves other claims and directs that they be evaluated under principles applicable to a transaction without director or officer interest.
Common questions
Who must establish the fairness or approval condition?
Under § 450.2545a(1), the person interested in the transaction must establish one of the listed conditions to obtain the section's interest-based protection.
Is director compensation treated differently?
Yes. Section 450.2545a(5) allows a majority of directors in office to establish reasonable director compensation despite their interests, subject to articles, bylaws, and any required shareholder or member approval. It separately limits interest-based remedies unless unreasonableness or an excess over those documents' limits is shown.
Statutes and sources
- MCL § 450.2545a(1): interest-based remedies are barred if the interested person establishes fairness when the transaction was entered into or a disclosed approval route. Official section text, accessed 2026-10-02.
- MCL § 450.2545a(2)-(3): disinterested board or executive committee vote and uninterested shareholder/member vote and quorum rules. Official section text, accessed 2026-10-02.
- MCL § 450.2545a(4): “Satisfying the requirements of subsection (1) does not preclude other claims” concerning the transaction. Official section text, accessed 2026-10-02.
- MCL § 450.2545a(5): separate director-compensation authority and limitations. Official section text, accessed 2026-10-02.
Source links
Every statute quoted above, linked, with the date we checked it.
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