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.4license: Apache-2.05---67# Related Party Transaction Policy89Drafts a Related Party Transaction Policy with Audit Committee governance, SEC-compliant disclosure, and fiduciary duty safeguards.1011## Prerequisites12131. **Company profile** — legal name, state of incorporation, public/private status, exchange listing (NYSE/Nasdaq)142. **Governance documents** — certificate of incorporation, bylaws, Audit Committee charter, Code of Ethics153. **Existing RPTs** — current or anticipated related party relationships or transactions164. **Dollar threshold** — internal approval threshold (common: $120K, $250K, or $500K)1718## Quick Start19201. Collect prerequisites above212. Draft policy sections in order below223. Calibrate thresholds — SEC disclosure floor is $120K (Item 404(a) of Reg. S-K); set internal pre-approval trigger at or above that234. Cross-reference Audit Committee charter to avoid conflicting governance authority245. Format as 4–7 page board-adoptable document with signature lines2526## Policy Sections2728### 1. Header & Purpose2930- Title: `[Corporation Legal Name] Related Party Transaction Policy and Procedures`31- Purpose: transparency, conflict prevention, SEC compliance, shareholder protection32- Include effective date, version number, adoption authority (full Board)3334### 2. Definitions3536| Term | Definition |37|---|---|38| **Related Party** | Directors, executive officers, nominees, >5% beneficial owners of any voting class, and their immediate family members |39| **Immediate Family Member** | Spouse, parents, children, siblings, in-laws, household members (non-tenant/employee) |40| **Related Party Transaction** | Transaction where (a) aggregate amount exceeds threshold, (b) company/subsidiary is participant, (c) Related Party has direct/indirect material interest |41| **Material Interest** | Excludes: director/officer position at the company; <10% ownership of counterparty |4243Covered transaction examples: property/service sales, consulting/employment arrangements outside ordinary course, loans/guarantees, charitable contributions where Related Party is officer/director.4445### 3. Identification Procedures4647- **Individual duty**: Directors and executive officers must disclose potential RPTs to Audit Committee Chair and General Counsel before any binding commitment48- **Institutional controls**: Legal, Finance, and Internal Audit monitor vendor relationships, significant contracts, expense reports, investment activities, charitable contributions49- **Annual questionnaires**: All directors and executive officers disclose related party relationships5051### 4. Audit Committee Review & Approval5253- **Exclusive authority**: Audit Committee approves; interested parties recuse from deliberation and voting54- **Submission materials**: transaction terms, nature of interest, business purpose, arm's-length comparables, ordinary course analysis55- **Standard**: Committee determines in good faith the transaction is **fair and reasonable** and in the company's and shareholders' best interests56- **Ongoing RPTs**: Annual re-review required; Committee may set standing guidelines for recurring arrangements5758### 5. Pre-Approved Categories5960| Category | Condition |61|---|---|62| Executive compensation | Board or Compensation Committee approved |63| Director compensation | Full Board approved |64| Non-executive counterparty employee | Related Party holds <10% equity in counterparty |65| Broad-based benefit plans | Same terms for all employees |66| De minimis transactions | Below Audit Committee threshold |6768### 6. Disclosure Obligations (Public Companies)6970- Disclose RPTs meeting SEC thresholds per **Item 404 of Reg. S-K** in proxy statements, 10-K, 10-Q, 8-K71- General Counsel and CFO own accuracy, completeness, and timeliness72- Audit Committee reviews RPT disclosures before SEC filing inclusion73- Consider full Board reporting regardless of public disclosure requirement7475### 7. Administration & Enforcement7677| Topic | Provision |78|---|---|79| Administrator | Audit Committee |80| Annual review | Committee reassesses; recommends amendments to Board |81| Material amendments | Require Board approval; disclose per law and exchange rules |82| Non-compliance | Disciplinary action up to termination; rescission, modification, or ratification of unapproved transactions; disgorgement of profits |8384### 8. Formatting8586- Numbered sections with descriptive headings87- Page headers: company name + policy title; footers: page numbers88- Signature lines for Audit Committee Chair and Corporate Secretary89- Cross-references to Audit Committee charter, Code of Ethics, Corporate Governance Guidelines9091## Pitfalls & Checks9293- **Public vs. private**: SEC disclosure (Item 404, Reg. S-K) applies only to reporting companies; private companies tailor disclosure but still need substantive approval procedures94- **Exchange rules**: Nasdaq Rule 5630 and NYSE Manual §314 impose independent director approval — verify current rule numbers against exchange manuals95- **State law**: Delaware entire fairness standard may apply if approval procedures are not followed; most states impose similar fiduciary overlay96- **Definition scope**: Consider extending Related Party to entities where covered persons hold ≥10% equity or serve as executive officer/general partner97- **Ratification**: Address whether Audit Committee can ratify transactions entered without prior approval, and under what conditions98- **Charter consistency**: Policy terminology and authority must not conflict with existing Audit Committee charter
ThomasMoreAI