Nonprofit Director Conflict Transaction Approval Rules in Pennsylvania
At a glance
| Governing act and covered transactions | Nonprofit Corporation Law; contracts with directors/officers or associations in which they have roles or interests (§ 5728(a)) |
|---|---|
| Interest and related-person trigger | Director/officer party, governor or officer of other association, or financial or other interest there (§ 5728(a)) |
| Disclosure and knowledge | Relationship or interest and transaction facts disclosed or known to board or voting members for approval routes (§ 5728(a)(1)-(2)) |
| Board or committee approval | Board majority of disinterested directors, even below quorum; delegated committee power under § 5731(c) (§§ 5728(a)(1), 5731(c)) |
| Member approval and vote | Specific good-faith approval by members entitled to vote after disclosure or knowledge (§ 5728(a)(2)) |
| Fairness route and time | Fair to corporation when authorized, approved, or ratified by board or members (§ 5728(a)(3)) |
| Interested participation and quorum | Presence, participation, or vote alone does not void protected contract; interested directors count for quorum (§ 5728(a)-(b)) |
| Burden, effect, and separate authorization | Not void or voidable solely on listed interest or participation grounds; § 5728 requires an authorization, approval, or ratification route (§ 5728(a)) |
| Special coverage and later changes | Bylaws may restrict rule; special common-governor/officer paths for other associations (§ 5728(c)-(e)) |
Requirements one by one
Covered interest and transaction
Section 5728(a) covers a contract with the nonprofit's director or officer and a contract with another association in which its director or officer is a governor or officer or has a financial or other interest. The statute's effect is narrow: the contract is not void or voidable solely because of that connection, the person's participation, or the person's counted vote when a listed route applies.
Disclosure and board approval
For the board route, § 5728(a)(1) requires the material facts of both the relationship or interest and the contract to be disclosed or known. A majority of disinterested directors must vote for authorization, even if those directors are fewer than a board quorum. Section 5731(c) permits a committee to take corresponding board action only to the extent the board delegated that authority.
Voting members and fairness
Section 5728(a)(2) allows specific approval in good faith by members entitled to vote after the same material facts are disclosed or known. Section 5728(a)(3) provides an alternative if the transaction is fair to the corporation when the board or members authorize, approve, or ratify it.
What trips people up
Shared leadership with another association has its own rules in § 5728(d)-(e). If the association is not wholly owned or controlled by the nonprofit, the common governor or officer can use a general route or avoid personally and substantially negotiating for either side and avoid casting a vote necessary for either association's approval. If it is wholly owned or controlled, shared leadership alone does not make the contract voidable. These provisions address that ground alone; § 5728(c) also lets the bylaws restrict the section's protection.
Common questions
Can a committee approve the contract?
Yes, to the extent authority to act for the board was delegated to that committee under § 5731(c). The relevant § 5728 approval facts and vote still matter.
Does director compensation have a separate rule?
Yes. Section 5730(a) lets the board fix director compensation despite the directors' personal interest unless the bylaws restrict it. Under § 5730(b), compensation set that way by a corporation not incorporated for a charitable purpose is presumed fair to the corporation.
Statutes and sources
- 15 Pa.C.S. § 5728(a): “A contract or transaction between a nonprofit corporation and one or more of its directors or officers ... is not void or voidable solely for that reason ... if” one of the stated approval, fairness, or common-association conditions is met. Official Chapter 57 PDF, accessed 2026-10-02.
- 15 Pa.C.S. § 5728(b)-(c): “Common or interested directors may be counted in determining the presence of a quorum”; the section applies “except as otherwise restricted in the bylaws.” Official Chapter 57 PDF, accessed 2026-10-02.
- 15 Pa.C.S. § 5728(d)-(e): the statute gives distinct rules for a commonly governed association that is not wholly owned or controlled and one that is. Official Chapter 57 PDF, accessed 2026-10-02.
- 15 Pa.C.S. § 5731(c): “Any provision ... referring to action to be taken by the board of directors ... shall be satisfied by the taking of corresponding action by a committee” to the extent authority is delegated. Official Chapter 57 PDF, accessed 2026-10-02.
- 15 Pa.C.S. § 5730(a)-(b): the board may fix director compensation despite personal interest, and a noncharitable corporation's compliant action “is presumed to be fair to the corporation.” Official Chapter 57 PDF, accessed 2026-10-02.
Source links
Every statute quoted above, linked, with the date we checked it.
What does Pennsylvania law mean for your facts?
You just read the general rule. Ask your own question and see which parts of current Pennsylvania law apply to your situation, with citations you can check.
Opens in Ezel Pro.
- Starts from the statutes this survey is built on
- Cites every source it relies on, so you can verify it
- Chat, drafting and research in one workspace