---
title: "What Is Related Party Approval?"
term: "Related Party Approval"
description: "Related party approval is board or stockholder sign-off required before a company enters a transaction with insiders, directors, major shareholders, or their affiliates — ensuring conflicts are disclosed and terms are fair to the company."
date: 2026-07-25T00:00:00.000Z
updated: 2026-07-25T00:00:00.000Z
topics: ["venture-capital"]
source: https://venturecapitaltracker.com/glossary/related-party-approval
---

# What Is Related Party Approval?

> Related party approval is board or stockholder sign-off required before a company enters a transaction with insiders, directors, major shareholders, or their affiliates — ensuring conflicts are disclosed and terms are fair to the company.

**Related party approval** is the formal governance step — usually disinterested directors or preferred holders — authorizing a transaction between the company and an insider or affiliated entity.

## How it works

Delaware law and venture charters require fairness review when officers, directors, or significant stockholders have a material interest. The board documents conflict disclosure, compares terms to market, and records recusal of interested parties. [/glossary/protective-provisions](/glossary/protective-provisions) may require preferred consent above dollar thresholds for [/glossary/related-party-transaction](/glossary/related-party-transaction)s.

Examples: consulting payments to a founder's other company, office lease from a VC-affiliated property, or sale of assets to a portfolio company with shared investors.

## Why it matters

- **Founders:** Structure related deals at arm's length before closing; retroactive approval looks like cover-up.
- **Investors:** Diligence lists all related-party flows; undisclosed deals retrade or kill rounds.
- **Counsel:** Minute books should show process, not just signatures.

## Common mistake

Skipping approval because "everyone already knows." Legal form matters; acquirers and auditors ask for paper trails.

## Related ideas

[/glossary/related-party-transaction](/glossary/related-party-transaction), [/glossary/board-consent](/glossary/board-consent), fiduciary duty, and fair dealing.

## FAQ

### What is related party approval in simple terms?

When the company wants to do business with someone closely tied to insiders — like renting office space from the CEO's spouse — independent directors or shareholders must review and approve it.

### Why does related party approval matter?

It protects minority investors from self-dealing. Missing approval can void deals, delay financings, and create liability in M&A diligence.


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Source: https://venturecapitaltracker.com/glossary/related-party-approval