Sure. For the first one, I would agree that in the non-arm's-length and arm's-length environments, thinking of that with regard to a third party, there's no requirement that the individual be active.
Thinking down your line, if a parent was still active in the business and the child was not active in the business, then they would fall afoul of certain rules such as tax on split income, etc., so there are various other provisions that would come into play in situations like that as well.