Which mechanism is a valid method for approving self-dealing disclosures?

Which mechanism is a valid method for approving self-dealing disclosures?

• A. Disclosures are made by quorum and disinterested director vote.
• B. Disclosures must be approved by a simple majority of all shareholders.
• C. Disclosures are not required if the board approves.
• D. Disclosures require unanimous shareholder vote.

Answer: (A)

When a director has a potential conflict in a transaction, independent oversight is essential. The valid method to approve self-dealing disclosures is to have a quorum of directors who are disinterested in the transaction vote to approve. The conflicted director must be excluded from the vote, and the approval by a majority of the disinterested directors determines validity. This protects the corporation from biased decisions and reflects proper governance, since shareholders or the full board (including the conflicted director) aren’t the controlling body for these decisions. If there aren’t enough disinterested directors to form a quorum, an independent committee or similar mechanism steps in, but the core idea remains: approval by a quorum of disinterested directors.

When a director has a potential conflict in a transaction, independent oversight is essential. The valid method to approve self-dealing disclosures is to have a quorum of directors who are disinterested in the transaction vote to approve. The conflicted director must be excluded from the vote, and the approval by a majority of the disinterested directors determines validity. This protects the corporation from biased decisions and reflects proper governance, since shareholders or the full board (including the conflicted director) aren’t the controlling body for these decisions. If there aren’t enough disinterested directors to form a quorum, an independent committee or similar mechanism steps in, but the core idea remains: approval by a quorum of disinterested directors.