Also known as: required disclosure · mandatory disclosures
Written by attorneys · grounded in primary & secondary sources — see below
A statutory obligation that requires a director or officer with a conflicting interest to reveal to qualified directors or the corporation all material facts about a transaction that are not already known to the decision-makers.
Rebecca Ross serves on the board of Redwood Bank and owns a controlling stake in a real estate firm that wants to sell property to the bank. Before the qualified directors vote on the purchase, Ross supplies them with the purchase price, appraisal details, and her ownership percentage that they did not already know. The qualified directors then deliberate separately and approve the transaction by majority vote.
Raymond Ramos, an officer of Raven Logistics, learns of a lucrative trucking route that the company could pursue. Before committing to the route personally, Ramos tells the board all material facts about the opportunity, including projected profits and his potential involvement. The shareholders later disclaim the corporation's interest after receiving the same information through compliant procedures.
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The director must reveal all material facts about the transaction or opportunity that the qualified directors or corporation do not already know. This includes financial interests, terms, and any other details that could affect the decision. Partial or oral statements may fall short if they omit key facts.
Yes, but the director need not disclose if doing so would violate a legal duty, confidentiality obligation, or ethics rule. The director must still disclose the existence of the conflict and the reason for limited disclosure to the qualified directors.
For opportunities the director must make prior disclosure of all known material facts before becoming obligated, rather than the precise required disclosure defined for transactions. The procedures for board or shareholder action otherwise track those used for conflicting interest transactions.