Legislation

Search OpenLegislation Statutes
This entry was published on 2017-06-02
The selection dates indicate all change milestones for the entire volume, not just the location being viewed. Specifying a milestone date will retrieve the most recent version of the location before that date.
SECTION 715
Related party transactions
Not-for-Profit Corporation (NPC) CHAPTER 35, ARTICLE 7
§ 715. Related party transactions.

(a) No corporation shall enter into any related party transaction
unless the transaction is determined by the board, or an authorized
committee thereof, to be fair, reasonable and in the corporation's best
interest at the time of such determination. Any director, officer or key
person who has an interest in a related party transaction shall disclose
in good faith to the board, or an authorized committee thereof, the
material facts concerning such interest.

(b) With respect to any related party transaction involving a
charitable corporation and in which a related party has a substantial
financial interest, the board of such corporation, or an authorized
committee thereof, shall:

(1) Prior to entering into the transaction, consider alternative
transactions to the extent available;

(2) Approve the transaction by not less than a majority vote of the
directors or committee members present at the meeting; and

(3) Contemporaneously document in writing the basis for the board or
authorized committee's approval, including its consideration of any
alternative transactions.

(c) The certificate of incorporation, by-laws or any policy adopted by
the board may contain additional restrictions on related party
transactions and additional procedures necessary for the review and
approval of such transactions, or provide that any transaction in
violation of such restrictions shall be void or voidable.

(d) Unless otherwise provided in the certificate of incorporation or
the by-laws, the board shall have authority to fix the compensation of
directors for services in any capacity.

(e) The fixing of compensation of officers, if not done in or pursuant
to the by-laws, shall require the affirmative vote of a majority of the
entire board unless a higher proportion is set by the certificate of
incorporation or by-laws.

(f) The attorney general may bring an action to enjoin, void or
rescind any related party transaction or proposed related party
transaction that violates any provision of this chapter or was otherwise
not reasonable or in the best interests of the corporation at the time
the transaction was approved, or to seek restitution, and the removal of
directors or officers, or seek to require any person or entity to:

(1) Account for any profits made from such transaction, and pay them
to the corporation;

(2) Pay the corporation the value of the use of any of its property or
other assets used in such transaction;

(3) Return or replace any property or other assets lost to the
corporation as a result of such transaction, together with any income or
appreciation lost to the corporation by reason of such transaction, or
account for any proceeds of sale of such property, and pay the proceeds
to the corporation together with interest at the legal rate; and

(4) Pay, in the case of willful and intentional conduct, an amount up
to double the amount of any benefit improperly obtained.

(g) The powers of the attorney general provided in this section are in
addition to all other powers the attorney general may have under this
chapter or any other law.

(h) No related party may participate in deliberations or voting
relating to a related party transaction in which he or she has an
interest; provided that nothing in this section shall prohibit the board
or authorized committee from requesting that a related party present
information as background or answer questions concerning a related party
transaction at a board or committee meeting prior to the commencement of
deliberations or voting relating thereto.

(i) In an action by any person or entity other than the attorney
general, it shall be a defense to a claim of violation of any provisions
of this section that a transaction was fair, reasonable and in the
corporation's best interest at the time the corporation approved the
transaction.

(j) In an action by the attorney general with respect to a related
party transaction not approved in accordance with paragraphs (a) or (b)
of this section at the time it was entered into, whichever is
applicable, it shall be a defense to a claim of violation of any
provisions of this section that (1) the transaction was fair, reasonable
and in the corporation's best interest at the time the corporation
approved the transaction and (2) prior to receipt of any request for
information by the attorney general regarding the transaction, the board
has: (A) ratified the transaction by finding in good faith that it was
fair, reasonable and in the corporation's best interest at the time the
corporation approved the transaction; and, with respect to any related
party transaction involving a charitable corporation and in which a
related party has a substantial financial interest, considered
alternative transactions to the extent available, approving the
transaction by not less than a majority vote of the directors or
committee members present at the meeting; (B) documented in writing the
nature of the violation and the basis for the board's or committee's
ratification of the transaction; and (C) put into place procedures to
ensure that the corporation complies with paragraphs (a) and (b) of this
section as to related party transactions in the future.