How does Colorado law treat a contract with a director’s company?

Section 7-128-501, applied to the executive board through § 38-33.3-310.5, does not ban such contracts. It provides that a conflicting-interest transaction is not void or voidable solely because of the conflict if the material facts are disclosed and a majority of disinterested directors approves in good faith, or the members approve, or the transaction is fair to the association. The association’s conflict policy sets disclosure and recusal procedure. Whether a specific contract meets these terms is a question for association counsel.

Must a conflicted director leave the room?

The statute does not say. Interested directors may count toward a quorum (§ 7-128-501(4)), and § 209.5(4)(a)(II) requires the association’s policy to state whether a board member must recuse from discussing or voting. What a particular policy requires is a document question for counsel.

Does the conflict rule apply to the community manager?

Section 310.5 defines “officer” to include a managing agent, attorney, or accountant to whom the board delegates responsibilities. In § 7-128-501, “officer” appears in the loan prohibition. How the definition applies to a specific manager arrangement is a counsel question.

What must a Colorado conflict-of-interest policy include?

Section 38-33.3-209.5(4)(a) lists the minimum elements: a definition or description of when a conflict exists; procedures for disclosure, including how and to whom, and whether the board member must recuse; and periodic review of the policy. Section 209.5(4)(b) requires the policy to be in accordance with § 310.5. Counsel typically reviews the policy’s wording.

How does this reach communities created before 1992?

Section 38-33.3-117(1.5)(c) and (k) list §§ 209.5 and 310.5 for communities created before July 1, 1992, for events on or after January 1, 2006. Small preexisting communities under § 119 are treated differently. Applicability to a specific community is a question for counsel.

Colorado Law · Governance · Director Duties

Director Conflicts of Interest in Colorado: § 38-33.3-310.5, § 7-128-501, and the Required Policy

Colorado does not give HOA boards a single conflict-of-interest checklist. It gives them a statutory safe harbor borrowed from the Nonprofit Act, and then requires each association to write its own policy deciding how conflicts are disclosed and whether conflicted directors step out. The statute supplies the floor; the policy supplies the procedure.

By the CIC-SC Editorial Team Updated November 8, 2026 Reading time: ~10 minutes Audience: Colorado Directors, Officers, Managers, Counsel

Educational notice. This information is educational in nature and should not be construed as legal advice. Statutory language is quoted from the Colorado Common Interest Ownership Act and the Colorado Revised Nonprofit Corporation Act as published by the Office of Legislative Legal Services at the time of writing. Consult qualified association counsel regarding legal interpretation specific to your jurisdiction.

Verified against the Colorado Revised Statutes 2024 (OLLS uncertified printout). Later amendments are possible.

The Bottom Line

Layer one: the statute. CCIOA § 38-33.3-310.5 provides that “Section 7-128-501, C.R.S., shall apply to members of the executive board,” with CCIOA definitions of “corporation,” “director,” and “officer.”
What § 7-128-501 does. It defines a “conflicting interest transaction,” bars loans to directors and officers, and provides that a conflicting-interest transaction is not void, voidable, enjoined, set aside, or a basis for damages solely because of the conflict if one of three conditions is met: disclosure plus good-faith approval by a majority of disinterested directors, disclosure plus good-faith approval by the members, or fairness to the association.
Layer two: the policy. Every association must adopt policies on “[h]andling of conflicts of interest involving board members” (§ 38-33.3-209.5(1)(b)(II)) that at minimum define conflicts, set disclosure and recusal procedures, and provide for periodic review (§ 209.5(4)(a)), in accordance with § 310.5 (§ 209.5(4)(b)).
The statute does not decide recusal. Section 7-128-501 lets interested directors count toward a quorum. Whether a conflicted director must also step out of discussion or the vote is a question the association’s policy must answer.
Reach. Section 117(1.5)(c) and (k) list §§ 209.5 and 310.5 for communities created before July 1, 1992, for events on or after January 1, 2006. Small communities under §§ 116 and 119 are subject to a narrower set of sections; confirm applicability with counsel.

The Colorado difference from Florida. The Florida guide describes a different statutory framework. Colorado’s statute prescribes neither a disclosure deadline nor a supermajority. It sets a safe-harbor test and leaves the procedure to a policy each association must adopt. A Colorado board that relies on a Florida-style checklist may be following rules Colorado never enacted while missing the policy Colorado does require.

The Statutory Text

Section 38-33.3-310.5

“(1) Section 7-128-501, C.R.S., shall apply to members of the executive board; except that, as used in that section: (a) ‘Corporation’ or ‘nonprofit corporation’ means the association. (b) ‘Director’ means a member of the association’s executive board. (c) ‘Officer’ means any person designated as an officer of the association and any person to whom the board delegates responsibilities under this article, including, without limitation, a managing agent, attorney, or accountant employed by the board.”

On its face, § 310.5 applies the rule to “members of the executive board” and defines “corporation” as the association, so the borrowed rule is framed around the CCIOA association rather than around its entity type. How that reads for an association organized as something other than a nonprofit corporation is a counsel question.

Section 7-128-501: What Counts as a Conflicting Interest Transaction

Subsection (1) defines a “conflicting interest transaction” as a contract, transaction, or other financial relationship between the corporation and:

a director;
a party related to a director; or
an entity in which a director is a director or officer or has a financial interest.

Subsection (5) defines “a party related to a director” as “a spouse, a descendent, an ancestor, a sibling, the spouse or descendent of a sibling, an estate or trust in which the director or a party related to a director has a beneficial interest, or an entity in which a party related to a director is a director, officer, or has a financial interest.”

This matters when the lowest landscaping bid comes from a company owned by a director’s sister’s husband, when a director’s adult child is an officer of the proposed roofing contractor, or when a director holds an ownership stake in the management company. Each is a kind of relationship the definitions list. Note what the list does not name: a spouse’s sibling, for example, is not among the listed relatives, though an association’s policy may reach further. Whether a specific relationship qualifies is a question for counsel.

The Safe Harbor: § 7-128-501(3)

A conflicting-interest transaction is not void or voidable, and may not be enjoined, set aside, or give rise to damages or other sanctions in a proceeding by a member or by or in the right of the corporation, solely because of the conflict, solely because the director attended or participated in the meeting that approved it, or solely because the director’s vote was counted, if:

“The material facts as to the director’s relationship or interest and as to the conflicting interest transaction are disclosed or are known to the board of directors or the committee, and the board of directors or committee in good faith authorizes, approves, or ratifies the conflicting interest transaction by the affirmative vote of a majority of the disinterested directors, even though the disinterested directors are less than a quorum”; or
the material facts are disclosed or known to the members entitled to vote, and the transaction is “specifically authorized, approved, or ratified in good faith by a vote of the members entitled to vote thereon”; or
“The conflicting interest transaction is fair as to the nonprofit corporation.”

Subsection (4) adds that “[c]ommon or interested directors may be counted in determining the presence of a quorum” at the meeting that authorizes, approves, or ratifies the transaction.

Two features shape board practice:

It is a safe harbor, not a prohibition. Colorado does not ban related-party contracts. It describes the conditions under which a conflict alone is not a basis to undo one.
“Solely” is doing work. By its words, the safe harbor addresses a challenge based on the conflict alone. It does not speak to challenges on other grounds, such as a contract outside the board’s authority.

The Loan Prohibition: § 7-128-501(2)

“No loans shall be made by a corporation to its directors or officers. Any director or officer who assents to or participates in the making of any such loan shall be liable to the corporation for the amount of such loan until the repayment thereof.”

Read with § 310.5’s definition of “officer,” the prohibition’s words reach a managing agent, attorney, or accountant to whom the board delegates responsibilities. Whether a particular arrangement with a manager (an advance against fees, for example) is a “loan” is a question for counsel. The Nonprofit Act also provides that articles limiting director liability cannot limit liability for acts specified in § 7-128-501(2) (§ 7-128-402(1)).

The Required Policy: § 38-33.3-209.5(1)(b)(II) and (4)

Conflict handling is one of the nine subjects on which § 209.5(1)(b) requires associations to adopt policies. Section 209.5(4)(a) sets the minimum content. The policy must:

“(I) Define or describe the circumstances under which a conflict of interest exists; (II) Set forth procedures to follow when a conflict of interest exists, including how, and to whom, the conflict of interest must be disclosed and whether a board member must recuse himself or herself from discussing or voting on the issue; and (III) Provide for the periodic review of the association’s conflict of interest policies, procedures, and rules and regulations.”

Section 209.5(4)(b) requires the policy to be “in accordance with section 38-33.3-310.5.”

What the Statute Supplies and What the Policy Must Supply

Question	Statute (§ 310.5 / § 7-128-501)	Association policy (§ 209.5(4))
What is a conflict?	Defines “conflicting interest transaction” and “party related to a director”	Must define or describe when a conflict exists; may reach beyond financial transactions
To whom is it disclosed, and how?	Safe harbor turns on material facts being disclosed or known to the board, committee, or members	Must state how, and to whom, disclosure is made
Does the conflicted director step out?	Interested directors may count toward quorum; approval counted among disinterested directors	Must state whether the director recuses from discussion or vote
Who approves?	Majority of disinterested directors, or members, or fairness	May add procedure, consistent with § 310.5
Loans	Prohibited to directors and officers	Restating the prohibition is common practice
Review	Silent	Must provide for periodic review

Related Rules That Shape Conflict Handling

Equal information. Every board member is entitled to all association information obtained by any other board member, including contracts and communications with the manager, attorney, or accountant (§ 38-33.3-303(1)(b)). Disinterested directors evaluating a related-party contract have a statutory right to the same information as the interested one.
Owner comment. Owners must be permitted to speak on an issue before the board votes, subject to reasonable limits (§ 38-33.3-308(2.5)).
Disclosure to owners. The responsible governance policies are among the items the association must make available to owners within 90 days after the end of each fiscal year (§ 38-33.3-209.4(2)(i)), and they are association records (§ 38-33.3-317(1)(f)). Current written contracts and contracts for work performed in the immediately preceding two years are also records (§ 317(1)(l)).
Liability limits. Articles may limit a director’s monetary liability, but not for listed exceptions that include breaches of the duty of loyalty, acts or omissions not in good faith, § 7-128-501(2) loans, and transactions from which the director derived an improper personal benefit (§ 7-128-402(1)). See Director Liability in Colorado.

Why This Matters

The boardroom version of this issue is rarely dramatic. It is a capable neighbor who runs a contracting business and offers a good price, or a director whose spouse works for the bank holding the reserves. The risk is not just legal; it is operational, because a contract that later looks like an inside deal costs the board the owners’ trust even if it was a fair price. A volunteer board member may experience disclosure as an accusation. The policy exists so that disclosure is routine rather than personal.

Best-Practice Guidance

These are practices boards commonly use. None is a legal requirement beyond what the statute says, and none is advice about a particular transaction.

1. The policy on the calendar.

Boards commonly check the written conflict policy against each § 209.5(4)(a) element and put the periodic review it requires on the annual calendar.

2. A standing annual disclosure.

Many associations ask each director once a year to list business interests, employment, and related parties, using the § 7-128-501(5) categories, so conflicts surface before a bid arrives.

3. Disclosure on the record.

Because the safe harbor turns on the material facts being disclosed or known, boards commonly record in the minutes what was disclosed, by whom, and to whom.

4. The disinterested vote counted separately.

Recording the vote so the number of disinterested directors approving is clear on the face of the minutes is common practice.

5. Recusal decided in the policy, not in the moment.

The statute leaves recusal to the policy. A policy that answers it in advance avoids a debate about one director’s motives at the meeting.

6. The manager relationship.

Section 310.5’s definition of “officer” reaches managing agents, attorneys, and accountants to whom the board delegates responsibilities. Many associations address the manager’s related-party vendors in the policy or the management agreement.

7. Counsel on significant transactions.

Large or unusual related-party contracts, and anything resembling a loan, are where counsel’s review is most often sought.

Common Mistakes & Pitfalls

Treating disclosure as optional because the price is fair. Fairness is one route under § 7-128-501(3)(c), but § 209.5(4)(a)(II) still requires the association’s policy to set a disclosure procedure.

Assuming the statute requires recusal. It does not say so; the policy must decide. Equally, assuming no recusal is needed ignores what the policy may require.

Overlooking related parties. Siblings, siblings’ spouses and descendants, and entities in which those persons have a financial interest are all within § 7-128-501(5).

Advancing money to a director or officer. Section 7-128-501(2) prohibits loans, and the participating directors and officers are liable for the amount until repaid.

Letting the policy go stale. Periodic review is a statutory element, not an option.

Frequently Asked Questions

How does Colorado law treat a contract with a director’s company?: Section 7-128-501, applied to the executive board through § 38-33.3-310.5, does not ban such contracts. It provides that a conflicting-interest transaction is not void or voidable solely because of the conflict if the material facts are disclosed and a majority of disinterested directors approves in good faith, or the members approve, or the transaction is fair to the association. The association’s conflict policy sets disclosure and recusal procedure. Whether a specific contract meets these terms is a question for association counsel.
Must a conflicted director leave the room?: The statute does not say. Interested directors may count toward a quorum (§ 7-128-501(4)), and § 209.5(4)(a)(II) requires the association’s policy to state whether a board member must recuse from discussing or voting. What a particular policy requires is a document question for counsel.
Does the conflict rule apply to the community manager?: Section 310.5 defines “officer” to include a managing agent, attorney, or accountant to whom the board delegates responsibilities. In § 7-128-501, “officer” appears in the loan prohibition. How the definition applies to a specific manager arrangement is a counsel question.
What must a Colorado conflict-of-interest policy include?: Section 38-33.3-209.5(4)(a) lists the minimum elements: a definition or description of when a conflict exists; procedures for disclosure, including how and to whom, and whether the board member must recuse; and periodic review of the policy. Section 209.5(4)(b) requires the policy to be in accordance with § 310.5. Counsel typically reviews the policy’s wording.
How does this reach communities created before 1992?: Section 38-33.3-117(1.5)(c) and (k) list §§ 209.5 and 310.5 for communities created before July 1, 1992, for events on or after January 1, 2006. Small preexisting communities under § 119 are treated differently. Applicability to a specific community is a question for counsel.

Actionable Takeaways

Colorado uses a borrowed safe harbor (§ 7-128-501 via § 310.5) plus a required association policy (§ 209.5(1)(b)(II), (4)).
The safe harbor protects a transaction from challenge based solely on the conflict, if disclosure-plus-disinterested-approval, member approval, or fairness is shown.
“Party related to a director” is a specific statutory list, commonly used in annual disclosure forms.
Loans to directors and officers are prohibited, and the definition of officer reaches delegated professionals.
Recusal, disclosure mechanics, and periodic review are the policy’s job.

References & Sources

C.R.S. § 38-33.3-310.5 — Executive board — conflicts of interest — definitions. Colorado Revised Statutes 2024, Title 38. content.leg.colorado.gov — crs2024-title-38.pdf
C.R.S. § 38-33.3-209.5(1)(b)(II), (4) — Responsible governance policies.
C.R.S. §§ 38-33.3-117(1.5), -209.4(2), -303(1)(b), -308(2.5), -317(1).
C.R.S. §§ 7-128-402, 7-128-501 — Colorado Revised Nonprofit Corporation Act. Colorado Revised Statutes 2024, Title 7. content.leg.colorado.gov — crs2024-title-07.pdf

Related CIC-SC Resources

Tags: Colorado director conflict of interest · C.R.S. 38-33.3-310.5 · C.R.S. 7-128-501 · conflicting interest transaction · party related to a director · 209.5 conflict policy · recusal · loans to directors · CCIOA · Colorado HOA governance

Disclaimer. This article is published by the Common Interest Community Standards Council for educational and informational purposes only. It is not legal advice and does not establish an attorney-client relationship. Statutory references and procedural frameworks are intended to support informed governance, not to substitute for advice from qualified Colorado legal counsel. Boards and managers should consult their association’s attorney about the application of any statute, governing-document provision, or governance decision to their specific circumstances. CIC-SC, its authors, and its members assume no liability for actions taken in reliance on this content.