interlocking clause what it is how it works sample

What is an Interlocking Clause?

An interlocking clause, in a legal or contractual context, typically refers to a provision that addresses relationships between individuals who serve in multiple roles across different entities or organizations. This clause is commonly found in corporate governance or partnership agreements and aims to regulate potential conflicts of interest that may arise when an individual holds positions in more than one related entity.

Here's a general overview of how an interlocking clause works:

1. Inclusion in Agreements: The interlocking clause is included as a provision in the relevant legal documents, such as corporate bylaws, partnership agreements, or similar governance documents.

2. Identification of Parties: The clause typically identifies the individuals or positions to which it applies. This could include directors, officers, or key employees who may have roles in multiple affiliated entities.

3. Disclosure of Interlocking Relationships: Individuals covered by the interlocking clause are often required to disclose any positions they hold in other related entities. This disclosure is intended to provide transparency about potential conflicts of interest.

4. Management of Conflicts of Interest: The interlocking clause may outline specific procedures for managing conflicts of interest that may arise due to an individual's multiple roles. This could include recusal from certain decisions, approval processes, or other mechanisms to ensure fair and unbiased decision-making.

5. Approval Mechanisms: In some cases, the interlocking clause may require certain decisions or transactions to receive approval from a disinterested or independent board or committee to mitigate conflicts of interest.

Here's a simplified example of how an interlocking clause might be expressed:

"Interlocking Relationships: Any individual who holds a position as a director or officer in this entity and simultaneously holds a similar position in another affiliated entity must promptly disclose such interlocking relationships to the Board of Directors. In the event of a potential conflict of interest, the individual shall recuse themselves from related decision-making, and any affected transactions or decisions shall be subject to approval by a disinterested committee of the Board."

This example highlights the key elements:

• Identification of the covered individuals.

• Requirement for disclosure of interlocking relationships.

• Procedures for managing conflicts of interest.

• Potential involvement of a disinterested committee for approval in case of conflicts.

The specific language and requirements of an interlocking clause can vary based on the nature of the entities involved, their relationships, and the specific concerns or considerations of the parties drafting the agreement.