1---2name: related-party-transaction-policy3description: Drafts a board-adoptable Related Party Transaction Policy for U.S. corporations governing identification, Audit Committee review, approval, and disclosure of related party transactions. Enforces SEC Item 404(a)/Regulation S-K compliance and stock exchange listing standards. Use when creating or updating RPT policies for public or private companies, or when drafting corporate governance documents addressing conflicts of interest.4---56# Related Party Transaction Policy78Drafts a Related Party Transaction Policy with Audit Committee governance, SEC-compliant disclosure, and fiduciary duty safeguards.910## Prerequisites11121. **Company profile** — legal name, state of incorporation, public/private status, exchange listing (NYSE/Nasdaq)132. **Governance documents** — certificate of incorporation, bylaws, Audit Committee charter, Code of Ethics143. **Existing RPTs** — current or anticipated related party relationships or transactions154. **Dollar threshold** — internal approval threshold (common: $120K, $250K, or $500K)1617## Quick Start18191. Collect prerequisites above202. Draft policy sections in order below213. Calibrate thresholds — SEC disclosure floor is $120K (Item 404(a) of Reg. S-K); set internal pre-approval trigger at or above that224. Cross-reference Audit Committee charter to avoid conflicting governance authority235. Format as 4–7 page board-adoptable document with signature lines2425## Policy Sections2627### 1. Header & Purpose2829- Title: `[Corporation Legal Name] Related Party Transaction Policy and Procedures`30- Purpose: transparency, conflict prevention, SEC compliance, shareholder protection31- Include effective date, version number, adoption authority (full Board)3233### 2. Definitions3435| Term | Definition |36|---|---|37| **Related Party** | Directors, executive officers, nominees, >5% beneficial owners of any voting class, and their immediate family members |38| **Immediate Family Member** | Spouse, parents, children, siblings, in-laws, household members (non-tenant/employee) |39| **Related Party Transaction** | Transaction where (a) aggregate amount exceeds threshold, (b) company/subsidiary is participant, (c) Related Party has direct/indirect material interest |40| **Material Interest** | Excludes: director/officer position at the company; <10% ownership of counterparty |4142Covered transaction examples: property/service sales, consulting/employment arrangements outside ordinary course, loans/guarantees, charitable contributions where Related Party is officer/director.4344### 3. Identification Procedures4546- **Individual duty**: Directors and executive officers must disclose potential RPTs to Audit Committee Chair and General Counsel before any binding commitment47- **Institutional controls**: Legal, Finance, and Internal Audit monitor vendor relationships, significant contracts, expense reports, investment activities, charitable contributions48- **Annual questionnaires**: All directors and executive officers disclose related party relationships4950### 4. Audit Committee Review & Approval5152- **Exclusive authority**: Audit Committee approves; interested parties recuse from deliberation and voting53- **Submission materials**: transaction terms, nature of interest, business purpose, arm's-length comparables, ordinary course analysis54- **Standard**: Committee determines in good faith the transaction is **fair and reasonable** and in the company's and shareholders' best interests55- **Ongoing RPTs**: Annual re-review required; Committee may set standing guidelines for recurring arrangements5657### 5. Pre-Approved Categories5859| Category | Condition |60|---|---|61| Executive compensation | Board or Compensation Committee approved |62| Director compensation | Full Board approved |63| Non-executive counterparty employee | Related Party holds <10% equity in counterparty |64| Broad-based benefit plans | Same terms for all employees |65| De minimis transactions | Below Audit Committee threshold |6667### 6. Disclosure Obligations (Public Companies)6869- Disclose RPTs meeting SEC thresholds per **Item 404 of Reg. S-K** in proxy statements, 10-K, 10-Q, 8-K70- General Counsel and CFO own accuracy, completeness, and timeliness71- Audit Committee reviews RPT disclosures before SEC filing inclusion72- Consider full Board reporting regardless of public disclosure requirement7374### 7. Administration & Enforcement7576| Topic | Provision |77|---|---|78| Administrator | Audit Committee |79| Annual review | Committee reassesses; recommends amendments to Board |80| Material amendments | Require Board approval; disclose per law and exchange rules |81| Non-compliance | Disciplinary action up to termination; rescission, modification, or ratification of unapproved transactions; disgorgement of profits |8283### 8. Formatting8485- Numbered sections with descriptive headings86- Page headers: company name + policy title; footers: page numbers87- Signature lines for Audit Committee Chair and Corporate Secretary88- Cross-references to Audit Committee charter, Code of Ethics, Corporate Governance Guidelines8990## Pitfalls & Checks9192- **Public vs. private**: SEC disclosure (Item 404, Reg. S-K) applies only to reporting companies; private companies tailor disclosure but still need substantive approval procedures93- **Exchange rules**: Nasdaq Rule 5630 and NYSE Manual §314 impose independent director approval — verify current rule numbers against exchange manuals94- **State law**: Delaware entire fairness standard may apply if approval procedures are not followed; most states impose similar fiduciary overlay95- **Definition scope**: Consider extending Related Party to entities where covered persons hold ≥10% equity or serve as executive officer/general partner96- **Ratification**: Address whether Audit Committee can ratify transactions entered without prior approval, and under what conditions97- **Charter consistency**: Policy terminology and authority must not conflict with existing Audit Committee charter
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