Conflict of Interest
Every Company Needs a Documented Conflicts of Interest Policy
Sample Thinking for a Documented Conflicts of Interest Policy
- A Company recognizes that transactions with a “Related Person” could present a potential or actual conflict of interest. Therefore, companies need to adopt a policy which shall be followed in connection with any transaction between a “Related Person” and the Company.
- Under this type of Policy, any transaction between a “Related Person” and the Company shall be continued or entered into if, and only if, the Company Board of Directors ratifies or approves such transaction in accordance with the guidelines set forth in this policy.
Avoiding Conflicts of Interest – Sample Related Party Definitions
- An executive officer, director, or director nominee of the Company.
- A shareholder owning, directly or indirectly, more than one percent (1%) of the common stock of the Company.
- A person who is an immediate family member of an executive officer. For this purpose, an “immediate family member” includes any child, stepchild, parent, stepparent, spouse, domestic partner, sibling, mother-in-law, father-in-law, son-in- law, daughter-in-law, brother-in-law, and sister-in-law.
- A corporation, limited liability company (LLC), partnership, or other legal entity in which a person as described above, has a substantial ownership interest. For this purpose, a “substantial ownership interest” means that a person owns, controls or has beneficial ownership interest in more than 5% of the outstanding equity of such corporation, LLC, partnership, or other legal entity.
Avoiding Conflicts of Interest – Sample Exceptions to the Related Party Rules
This policy shall not be applicable to a transaction between the Company and a Related Person in the following situations:
- Transactions available to all shareholders or employees generally.
- Transactions involving an amount of less than $10,000.
- Compensation and benefits paid to a Related Person for services rendered as an employee or director.
Avoiding Conflicts of Interest – Sample Board Review/Related Party Transactions
The Board of Directors shall review the relevant facts of any Related Person transaction submitted for approval. In making its determination to approve or ratify, the Board of Directors may consider:
- The extent of the Related Person’s interest
- The availability of other sources of comparable products or services
- Whether the terms and conditions of the Related Person’s transaction are as favorable as what could be obtained in arms-length dealing with an unrelated party
- Whether the Related Person transaction could impair the independence of a director
- Whether the Related Person transaction would present an improper conflict of interest
Want to Know More?
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