Nonprofit Director Conflict Transaction Approval Rules in Tennessee

At a glance

Requirements one by one

Covered interests and disclosure

Section 48-58-701(2) reaches a transaction of the corporation or an entity it controls when, at the relevant time, a director or officer is a party, knows of a material financial interest, or knows a related person is a party or has such an interest. Subsection (9) calls for disclosure of the interest's existence and nature and known transaction facts a conflict-free director or officer would reasonably consider material.

Qualified director action

Under § 48-58-703(a), a majority of the qualified directors who vote, and at least two, must authorize after required or permitted modified disclosure. Other directors cannot join their deliberation or vote. A committee must consist entirely of qualified directors and meet the section's selection rule. Under § 48-58-703(c), subsection (1) separately sets the conflict-route quorum at a majority, but at least two, of all qualified directors on the board or committee.

Qualified member action

Section 48-58-704(a) uses a majority of votes cast by holders of qualified memberships after transaction notice, pre-vote identification to the vote tabulator of nonqualified memberships, and communication of required disclosure to voting members. Memberships held by the conflicted director or officer or the defined related persons are generally excluded under subsection (c)(3). A majority of votes entitled to be cast by all qualified memberships supplies the conflict-route quorum under subsection (d).

Fairness and official approval

Section 48-58-702(b) also allows the interest-based protection when fairness to the corporation is established at the relevant time, or when the attorney general and reporter approves, or an equity court approves in an action joining that official. Section 48-58-701(3) measures fairness of the transaction as a whole with attention to dealings and an arm's-length comparison. Its “relevant time” is qualified board action or, without that action, when the corporation or controlled entity becomes legally obligated (§ 48-58-701(8)).

What trips people up

The conflict vote may leave ordinary authorization unfinished. Sections 48-58-703(c)(2) and 48-58-704(f) expressly require independent action if the qualified vote fails another quorum or voting requirement in law, the charter, or bylaws. Nonqualified directors or members may participate in that separate action.

The statutory effect is bounded. Section 48-58-702 prevents the specified equitable relief or damages and sanctions against the director or officer in the listed member or corporate proceedings on the ground of the interest. It does not declare that every transaction is otherwise authorized or immune from other claims.

Common questions

Does the director or officer part apply to an ordinary nonprofit?

Yes. The 2014 enactment added §§ 48-58-701–704 to Title 48, Chapter 58 as a new part. Its effective clause made it operative January 1, 2015.

Can a committee consist of one disinterested director?

No. Section 48-58-703(a) requires at least two qualified directors to vote for the conflict route, and subsection (c)(1) also requires at least two qualified directors for its quorum.

Statutes and sources

• Tenn. Code Ann. § 48-58-701, enacted by 2014 Pub. Ch. 899, § 54: conflicting transaction, related person, fairness, relevant time, and disclosure definitions. Official enrolled act, accessed 2026-10-02.
• Tenn. Code Ann. § 48-58-702, enacted by § 54: interest-based remedy limits and the four listed routes. Official enrolled act, accessed 2026-10-02.
• Tenn. Code Ann. § 48-58-703(a), (c), enacted by § 54: qualified director action, committee selection, quorum, and independent ordinary authorization. Official enrolled act, accessed 2026-10-02.
• Tenn. Code Ann. § 48-58-704, enacted by § 54: qualified memberships, notice, disclosure, quorum, and independent ordinary authorization. Official enrolled act, accessed 2026-10-02.
• 2014 Tenn. Pub. Ch. 899, § 97: “For all other purposes, this act shall take effect January 1, 2015.” Official enrolled act, accessed 2026-10-02.