In a conflict of interest transaction, under what condition is the transaction not voidable due to the director's interest?

• A. If material facts are disclosed and the transaction is approved by a vote of disinterested directors, or by a unanimous vote of disinterested directors, with no counting of the interested director's vote
• B. If the interested director votes are counted
• C. If the transaction is approved by a majority of shareholders regardless of disclosure
• D. If the transaction is approved by a court

Answer: (A)

Disclosing material facts and obtaining approval from disinterested directors cures a conflict-of-interest issue in a transaction. When the director with the interest fully reveals all relevant information and the transaction is approved by a vote of directors who have no interest (or by a unanimous vote of those disinterested directors), and the interested director’s vote is not counted, the transaction is not voidable on the basis of the director’s conflict. Keeping the interested director’s vote out ensures that the decision is guided by unbiased judgment rather than self-interest.

The other scenarios don’t provide the same protection: counting the interested director’s vote could let self-interest steer the outcome; relying on shareholder approval without required disclosure or just any court involvement without the independent endorsement doesn’t ensure the same independent review and protection against self-dealing.