What are Related Party Transactions?

Related party transactions are transactions that a company does with parties related to it. For example, let’s say Mr. X is promoter of Company ABC and Company DEF. if Company ABC buys goods and services from Company DEF then such a deal is qualified as Related Party Transaction.

The Clause 49 of the Equity Listing Agreement of SEBI deals with the regulation of Related Party Transactions.

related party transactions

Who are related parties in Related Party Transactions?

The Companies Act 2013 has outlined the related parties as:

  • A Director or his/her relative.
  • Key managerial personnel or his/her relative.
  • A company in which a director, manager or his relative is a partner.
  • A public firm in which a director or manager is a director or holds along with his relative more than two per cent of his paid-up share capital.
  • A private firm in which a director or manager is a member or director.
  • Any corporate whose board of directors, managing director or manager is accustomed to Companies act: In accordance with the advice, directions of a director or manager.
  • Any person on whose advice, instructions a director or manager is customary to companies act.
  • Any firm which is a holding, subsidiary or an associate company of such firm.
  • A director or critical managerial staff of the holding, subsidiary or associate firm of such company or his relative.
  • Any company which a subsidiary of a holding firm to which it is also the subsidiary.
  • Any person appointed by senior management in the company or its holding, subsidiary or associate company that is the personnel of the company or its holding, subsidiary or associate company who is core management team excluding the board of directors comprising all members of management one level below the executive directors, including functional heads.

What transactions are termed as Related Party Transactions?

Following transactions are termed as Related Party Transactions:

  • sale, purchase or supply of any goods or materials
  • selling or otherwise disposing of, or buying, property of any kind;
  • leasing of property of any kind;
  • availing or rendering of any services;
  • appointment of any agent for purchase or sale of goods, materials, services or property;
  • such related party’s appointment to any office or place of profit in the company, its subsidiary company or associate company; and
  • underwriting the subscription of any securities or derivatives thereof, of the company

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