Related-Party Transactions and Founder Conflicts Policy
For Informational Purposes Only
A private-company governance package for identifying, disclosing, reviewing, approving, monitoring, and recording founder, director, officer, investor, family, affiliate, and other related-party transactions without importing public-company thresholds mechanically.
Why You Need This
Every startup has related-party transactions. The founder who leases office space from a family member, the CEO who hires a former co-founder as a consultant, the board member who invests in a vendor, the investor who sources a deal through an affiliated fund — these transactions happen constantly and are not inherently problematic. The problem is when they happen without disclosure, without review, and without documentation. Delaware’s entire fairness doctrine, fiduciary duty law, and investor rights agreements all create legal exposure for undisclosed conflicts. More practically, undisclosed related-party dealings are one of the top due-diligence findings that kill or reprice M&A deals and later-stage financings.
What Is in the Package
The template establishes a complete governance framework sized for private companies. It defines who is a “related party” (founders, directors, officers, significant stockholders, investors, their immediate family members, and entities they control), what constitutes a “related-party transaction” (including the indirect transactions most founders miss), the disclosure obligation and annual questionnaire process, the review and approval procedure (distinguishing board-level conflicts from officer-level conflicts), approval standards (including the “entirely fair” and “disinterested approval” frameworks), ongoing monitoring of approved transactions, record-keeping requirements, and the annual certification that creates the governance evidence investors and acquirers expect to see.
Key Provisions Explained
Private-Company Calibration
Most related-party transaction policies are written for public companies and mechanically import SEC and stock-exchange thresholds (like the $120,000 materiality threshold in Item 404 of Regulation S-K). Those thresholds are too high for early-stage companies where a $50,000 consulting arrangement with a founder’s spouse is absolutely material. This template uses a proportionate approach: the review threshold scales with the company’s size and stage, and the policy explicitly addresses the founder-specific conflicts that dominate private-company governance — founder compensation, founder-controlled entities, founder family employment, and founder side projects.
Disclosure and Questionnaire
The template requires annual disclosure questionnaires from all covered persons — not just directors, but officers, founders, and significant stockholders. The questionnaire asks about financial interests, outside positions, family relationships, affiliated entities, and pending or proposed transactions. This proactive identification process catches conflicts before they become problems, rather than relying on ad hoc self-reporting that consistently misses indirect interests.
Review and Approval Process
The policy routes transactions through a structured approval process. Transactions involving a director or significant stockholder require approval by disinterested directors (or, if there are too few, by disinterested stockholders). Officer-level transactions may be approved by a designated committee or disinterested senior officer, depending on materiality. The conflicted person must recuse from the vote but may present information about the transaction. Every approval must document the terms, the comparable market evidence considered, the business rationale, the persons involved in the decision, and the conditions imposed.
Ongoing Monitoring
Approval is not the end of the process. The template requires periodic review of ongoing related-party arrangements — because a consulting fee that was reasonable in Year 1 may no longer be reasonable in Year 3, and a vendor relationship approved at one volume may look different at five times that volume. Material changes to approved transactions require re-review. This ongoing monitoring obligation is what transforms a conflicts policy from a checkbox exercise into an actual governance control.
Due Diligence and M&A Readiness
Related-party transactions are a standard due-diligence category in every financing and acquisition. The template creates the documentation trail that acquirers and investors expect: a policy, annual questionnaires, approval records with terms and rationale, and monitoring evidence. Companies that can produce this package in a data room close faster and at better valuations than companies that respond to the related-party diligence request with “we don’t have a formal policy.”
Included Schedules
Four schedules support the policy: an Annual Related-Party Disclosure Questionnaire for proactive conflict identification; a Transaction Review and Approval Record documenting terms, comparables, rationale, and conditions; a Ongoing Monitoring and Re-Review Log for tracking approved arrangements over time; and a Covered Persons Register listing all individuals subject to the policy with their positions, relationships, and disclosure status.
When to Use This Template
Every private company with outside investors, a board of directors, or multiple founders should adopt a related-party transactions policy. It becomes especially important at Series A and beyond, when investor rights agreements typically require related-party transaction approval rights. But the right time to adopt it is before the first related-party transaction occurs — which, for most startups, means at or shortly after incorporation.
Important Limitations
This is a drafting master. You must set review thresholds appropriate to your company’s size and stage, identify all covered persons, implement the questionnaire process, and train your board on the approval procedure. The policy should be reviewed against your certificate of incorporation, bylaws, stockholders’ agreement, and investor rights agreement to ensure consistency. Delaware fiduciary duty standards apply to Delaware corporations; companies organized in other states should verify their governing law.
Need help customizing this template for your business? Contact Montague Law to schedule a consultation and get this document reviewed by our team.
This template is provided by Montague Law for informational and educational purposes only and does not constitute legal advice. Consult a qualified attorney licensed in your jurisdiction before using any legal document.