Related-Party Transaction

Related-Party Transaction

A transaction between two businesses that have a personal or other relationship. For example, a publicly-traded company may be inclined to hire a large, minority shareholder as a supplier. In small businesses, a company may hire the owner's brother-in-law to repair the driveway. Related-party transactions are legal, but create the potential for conflicts of interest. Thus, publicly-traded companies are required to report them on their 10-K forms.
References in periodicals archive ?
taxpayer who imports property into the United States in a related-party transaction cannot claim, for purposes of computing the property's basis or inventory cost, a cost greater than the amount declared to U.S.
The Code is enormously complex, due in no small part to the provisions that deal with related-party transactions. Any individual providing tax consulting services to a family business must be extremely well-versed in the family attribution and aggregation rules (which appear throughout the Code) and the related-party transaction rules, which prevent perceived abuses that a family acting as a unit might be able to accomplish.
Sec.6038C(b)(2) broadens these requirements to include such other information, as required by regulations, that pertains to any item not directly connected with a related-party transaction.
The Governance Rules ignore this sixty-day' time limit and provide that a shareholder who owns 5% or more of the company capital is entitled to challenge a related-party transaction. If, in such claim, it has been established that the transaction is unfair or involves a conflict of interest and incurs damage to the shareholders, the court may cancel the transaction and oblige the related party to reimburse the company for profits or benefits gained from this transaction and to compensate the company for any other damages.
An important aspect of the scalability of AS 18 is that the specific procedures to be applied to each related-party transaction, or selected transactions from an aggregate of similar transactions, are necessary only for related-party transactions that are required to be disclosed in the financial statements or that are determined to be a significant risk.
The country also enhanced minority investor protections by introducing additional approval requirements for related-party transactions and greater requirements for disclosure of such transactions to the stock exchange; by introducing a requirement that interested directors be held liable in a related-party transaction that is unfair or constitutes a conflict of interest; and by making it possible for shareholders to inspect the documents pertaining to a related-party transaction, appoint auditors to inspect the transaction and request a rescission of the transaction if it should prove to be unfair.
New Zealand and Singapore, which top the rankings on the index with 29 and 28 of 30 possible points, both require immediate enclosure of a related-party transaction and of the conflict of interest (table 7.1).
At its best, a related-party transaction is nothing more than the innocent outcome of unique economic circumstances.
"Protecting Minority Investors: The United Arab Emirates strengthened minority investor protections by introducing additional approval requirements for related-party transactions and greater requirements for disclosure of such transactions to the stock exchange; by introducing a requirement that interested directors be held liable in a related-party transaction that is unfair or constitutes a conflict of interest; and by making it possible for shareholders to inspect the documents pertaining to a related-party transaction, appoint auditors to inspect the transaction and request a rescission of the transaction if it should prove to be unfair," the World Bank report stated.
While the rental agreement does not qualify as a related-party transaction, Aker ASA's ownership interests in both ACL and Aker Solutions prompted Aker Solutions and Aker ASA to handle the transaction according to each company's internal guidelines for related-party transactions.
Leases of property to LLCs and other transactions in which a member retains ownership--such as a member's pledge of separately owned assets to obtain or secure LLC debt--are regarded as transactions between an LLC and a nonmember (subject, of course, to related-party transaction considerations); see Regs.
Aker Solutions has handled the rental agreement as a related-party transaction because of Aker ASA's ownership interests in Fornebuporten and Aker Solutions.