Nonprofit Director Conflict Transaction Approval Rules in Texas
At a glance
| Governing act and covered transactions | Business Organizations Code ch. 22; contracts or transactions with directors, officers, members, affiliates, associates, or related entities (§ 22.230(a)) |
|---|---|
| Interest and related-person trigger | Personal, affiliate or associate relationship; entity managerial role, membership, or financial interest (§ 22.230(a)) |
| Disclosure and knowledge | Material facts of relationship/interest and contract/transaction disclosed or known for approval route (§ 22.230(b)(1)) |
| Board or committee approval | Good faith and ordinary care; majority of disinterested directors or committee members, even without their ordinary quorum (§ 22.230(b)(1)(A)) |
| Member approval and vote | Disinterested-member majority under (b)(1)(A), or specific good-faith, ordinary-care vote of entitled members under (b)(1)(B) (§ 22.230(b)(1)) |
| Fairness route and time | Fair to corporation when board, committee, or members authorize, approve, or ratify (§ 22.230(b)(2)) |
| Interested participation and quorum | Interested directors or members count for quorum; interested person may participate, vote, or sign consent (§ 22.230(c)-(d)) |
| Burden, effect, and separate authorization | Otherwise valid/enforceable contract protected from interest-only voidability and specified duty claim when (b) is met (§ 22.230(b),(e)) |
| Special coverage and later changes | Express officer and member coverage; no tax or charitable-trust outcome decided (§ 22.230(a),(e)) |
Requirements one by one
Which relationships count
Section 22.230(a) reaches a transaction with a director, officer, member, or their affiliates or associates. It also reaches a transaction with another entity where one of those persons or their affiliates or associates is a managerial official or member, or has a financial interest. The statute does not require the cell to decide whether a real-world relationship fits one of those categories.
Disclosure and approval
Section 22.230(b)(1)(A) calls for the material facts about both the relationship or interest and the transaction to be disclosed to or known by the board, committee, or members. A majority of disinterested directors, committee members, or members may then act in good faith and with ordinary care, even if those disinterested people alone are fewer than a quorum. Subsection (b)(1)(B) separately permits specific good-faith, ordinary-care approval by members entitled to vote after the facts are disclosed to or known by them. Section 22.230(b)(2) offers the alternative of a transaction fair to the corporation when authorized, approved, or ratified.
Statutory effect
Section 22.230(b) starts with an otherwise valid and enforceable contract or transaction and protects it from being void or voidable because of the specified relationship or interest when one condition is met. Section 22.230(e) also bars the corporation and members from the specified breach-of-duty claim based on that relationship, interest, or the participation permitted by subsection (d) when a subsection (b) condition is met. Other validity questions remain separate.
What trips people up
A disinterested approval vote and an ordinary meeting quorum are different counts. Section 22.230(c) allows common or interested directors or members in the meeting quorum. Under § 22.230(d), an interested person may be present, participate, vote if eligible, or sign a written consent; those permissions do not themselves replace a subsection (b) condition.
Common questions
Does this rule cover an officer who is not a director? Yes. Section 22.230(a) expressly includes officers, and subsection (e) applies its stated protection to the covered persons.
Is disclosure the only path? No. Section 22.230(b)(2) separately asks whether the transaction was fair to the corporation at the specified decision time.
Statutes and sources
- Tex. Bus. Orgs. Code § 22.230 — “An otherwise valid and enforceable contract or transaction is valid and enforceable, and is not void or voidable, notwithstanding any relationship or interest described by Subsection (a), if any one of the following conditions is satisfied”. Texas Legislature. Accessed 2026-10-02.
Source links
Every statute quoted above, linked, with the date we checked it.
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