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HomeCorporations CodeCh. 2Art. 3§ 12373 Director Conflict Transactions

§ 12373 Director Conflict Transactions

Corporations Code·California
AI Summary·Official Text·Key Terms·Related Statutes·References
AI SummaryVerified

§ 12373 Director Conflict Transactions

This law says a company can make deals with its directors or other companies they're involved in, as long as everyone knows about it and agrees it's fair.

Key Takeaways

  • •Deals between a company and its directors are okay if everyone knows about it and agrees it's fair.
  • •The director involved can't vote on the deal.
  • •If the deal wasn't approved properly, someone has to prove it was still fair to the company.

Example

A company wants to buy supplies from another company where one of its directors works.

The deal is okay if the company's board knows about the director's other job and votes yes without counting the director's vote, or if the members agree it's fair.

AI-generated — May contain errors. Not legal advice. Always verify source.

Official Source
View on CA.gov

§ 12373 Director Conflict Transactions

(a) No contract or other transaction between a corporation and one or more of its directors, or between a corporation and any domestic or foreign corporation, firm or association in which one or more of its directors has a material financial interest, is either void or voidable because such director or directors or such other corporation, business corporation, firm or association are parties or because such director or directors are present at the meeting of the board or a committee thereof which authorizes, approves or ratifies the contract or transaction, if: (1) The material facts as to the transaction and as to such director’s interest are fully disclosed or known to the members and such contract or transaction is approved by the members (Section 12224) in good faith, with any membership owned by any interested director not being entitled to vote thereon; (2) The material facts as to the transaction and as to such director’s interest are fully disclosed or known to the board or committee, and the board or committee authorizes, approves or ratifies the contract or transaction in good faith by a vote sufficient without counting the vote of the interested director or directors and the contract or transaction is just and reasonable as to the corporation at the time it is authorized, approved or ratified; or (3) As to contracts or transactions not approved as provided in paragraph (1) or (2), the person asserting the validity of the contract or transaction sustains the burden of proving that the contract or transaction was just and reasonable as to the corporation at the time it was authorized, approved or ratified. Neither a mere common directorship nor a member-patron relationship on terms available to all members constitutes a material financial interest within the meaning of this subdivision. A director is not interested within the meaning of this subdivision in a resolution fixing the compensation of another director as a director, officer or employee of the corporation, notwithstanding the fact that the first director is also receiving compensation from the corporation. (b) No contract or other transaction between a corporation and any corporation, business corporation or association of which one or more of its directors are directors is either void or voidable because such director or directors are present at the meeting of the board or a committee thereof which authorizes, approves or ratifies the contract or transaction, if: (1) The material facts as to the transaction and as to such director’s other directorship are fully disclosed or known to the board or committee, and the board or committee authorizes, approves or ratifies the contract or transaction in good faith by a vote sufficient without counting the vote of the common director or directors or the contract or transaction is approved by the members in good faith; or (2) As to contracts or transactions not approved as provided in paragraph (1), the contract or transaction is just and reasonable as to the corporation at the time it is authorized, approved or ratified. This subdivision does not apply to contracts or transactions covered by subdivision (a). (Added by Stats. 1982, Ch. 1625, Sec. 3. Operative January 1, 1984.)

Last verified: January 10, 2026

Key Terms

material financial interestvoid or voidablegood faithjust and reasonable

Related Statutes

  • § 7233 Director Conflict Transactions
  • § 5234 Director Conflict Transactions
  • § 9244 Director Conflict Transactions
  • § 310 Director Conflict Of Interest Transactions
  • § 5235 Director Compensation Limits

References

  • Official text at leginfo.legislature.ca.gov
  • California Legislature. Corporations Code. Section 12373.
View Official Source