New York Multistate Bar (MBE) Practice Exam

Directors owe fiduciary duties to avoid self-dealing, so a loan to a director is scrutinized as a potential conflict. The rule is that a loan to a director is permissible only if it is in the corporation’s interest—meaning the loan serves the corporation, is fair to the corporation, and is typically approved by disinterested directors or shareholders if required. This ensures the transaction aligns with the corporation’s welfare rather than the director’s personal gain.

The other options relax or ignore these safeguards: unrestricted loans would invite self-dealing, disclosure to shareholders alone does not cure a self-interested transaction, and a blanket prohibition is too absolute since there can be circumstances where a loan is truly in the corporation’s interest.