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Conflicts of Interest and the Board

Board members are volunteers with big jobs and generally no compensation.  Part of a board member’s responsibility includes making decisions on behalf of the association.  Two duties are involved in every decision a board member makes: a duty of loyalty and a duty of care.
A conflict of interest exists when a board member has a direct or indirect interest in a transaction that prevents the member from making a decision with the association’s best interest in mind. These outside interest may be financial, business-related or personal. When a potential conflict arises, the board member involved should raise the issue to the rest of the board. The governing documents for the association may include a provision on handling conflicts.  Incorporated associations should also refer to the South Carolina Nonprofit Corporations Act (“Act”). S.C. Code Ann. § 33- 31-101.
According to the Act, board members are not required to recuse themselves from a vote involving a conflict of interest. However, the quorum and voting requirements are altered in this situation.  A quorum is present and a conflict of interest transaction is approved when a majority of board members who have no direct or indirect interest in the transaction vote to authorize it. The interested board member may be present during the vote, and may even vote herself, so long as a majority of uninterested members approve the transaction.  Bear in mind that an association’s CCRs or by-laws may have more stringent requirements.
This site and any information contained herein is for informational purposes only and should not be construed as legal advice.  Seek a competent attorney for advice on any legal matter.

Authors: Ryan McCabe

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