Conflicts of interest abound in today's corporate culture.  Public companies and large businesses are more acutely aware of potential problems that can arise if these conflicts are not addressed. Many smaller and closely held businesses, though, are not aware that laws pertaining to conflicts of interest apply to them, as well.

If, for example, a corporation approves a business deal with another company in which one of its directors also holds an ownership interest, this would at least give rise to a potential conflict of interest.  Such a conflict might be a basis for a subsequent lawsuit to set aside the transaction and/or hold the director liable under various legal theories, including breach of fiduciary duty.  Under egregious circumstances, criminal prosecution may even be a possibility.

However, Washington law provides that the transaction may still be valid so long as there is full disclosure with respect to the conflict.  More specifically, RCW 23B.08.700, et seq., provides that any corporate action may still be valid notwithstanding that conflicting interests may exist so long as there is required disclosure of (a) the existence and nature of the director’s conflicting interest, and (b) all facts known to the director respecting the subject matter of the transaction that an ordinarily prudent person would reasonably believe to be material to a judgment about whether or not to proceed with the transaction, and/or that the transaction or contemplated transaction would be fair to the corporation.

It is extremely important to document such full disclosure by keeping appropriate corporate minutes and otherwise to maintain corporate formalities.