Related-party transactions are legitimate and common. What creates liability is their occurrence without disclosure and disinterested approval.

Definition. The policy should define a conflict broadly — direct or indirect financial interest, family relationships, outside positions, and opportunities that could be the company’s.

Annual disclosure. A questionnaire completed by directors, officers and key employees, with an obligation to update on change.

Transaction approval. Disclosure of all material facts to a disinterested body, recusal from deliberation and vote, a determination that the terms are fair and comparable to arm’s length, and minutes recording the alternatives considered and the basis for the conclusion.

Documentation of fairness. Comparable quotes, a market study, or an independent appraisal for significant transactions. The record of how fairness was established is what distinguishes an approved transaction from a defended one.

Statutory safe harbors in corporate and LLC statutes protect interested transactions approved by disinterested directors or shareholders after disclosure, or shown to be fair. Meeting the statutory conditions precisely is worth the effort.

Ongoing arrangements — leases of property owned by an owner, services from an affiliate, compensation — should be reviewed periodically rather than approved once and forgotten, because their fairness changes with the market.