Related party transaction

In business, a related party transaction is a transaction which takes place between two parties who hold a pre-existing connection prior to the transaction. An example is how a dominant shareholder may benefit from making one of their companies trade to the other at advantageous prices.[1] Related party transactions can be a reason for a Type II agency relationship, as it is not necessarily in the best interest of minority share owners.[1]

In commercial law, special regulations may apply restricting related party transactions, such as Part 2E of the Australian Corporations Act 2001, which requires companies to seek approval from its members for such a transaction to take place.[2]

International Financial Reporting Standards require companies to disclose related party transactions in their financial statements.[3]

In the UK, there are restrictions and notification requirements in place regarding related party transactions entered into by Academy Trusts.[4] An online reporting process is in place.[5]

References
  1. Hillier, David; Ross, Stephen; Westerfield, Randolph; Jaffe, Jeffrey; Jordan, Bradford (2013). Corporate Finance (2nd European ed.). Berkshire: McGraw-Hill Education. pp. 34–35. ISBN 9780077139148.
  2. Corporations Act 2001 (Cth), Part 2E (Australia)
  3. "Related Party Disclosures". IFRScommunity.com. 26 February 2020. Retrieved 2020-08-07.
  4. Education and Skills Funding Agency, Declare or seek approval for related party transactions: summary guidance, updated 26 September 2019, accessed 27 December 2020
  5. Education and Skills Funding Agency, Academy trust financial returns, accessed 27 December 2020
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