Section 188 of the Companies Act, 2013 prescribes the related party transactions of the companies. A company, in the course of conduct of its business, enters into various transactions with different parties, which also include its related parties.
Companies also carry on their business activities through their subsidiary companies and associate companies. Accordingly, related party transactions are a normal feature of business. Due to this relationship, related parties may enter various transactions that unrelated parties may not.
Every transaction with a related party may not be a ‘related party transaction’ although every ‘related party transaction’ is necessarily a transaction that is done with a related party.
Section 2 (76) of the companies act, 2013 defines a “related party”, concerning a company, means—
(i) a director or his relative;
(ii) key managerial personnel or his relative;
(iii) a firm, in which a director, manager, or relative is a partner;
(iv) a private company in which a director or manager 1[or his relative] is a member or director;
(v) a public company in which a director or manager is a director 2[and holds] along with his relatives, more than two percent of its paid-up share capital;
(vi) anybody corporate whose Board of Directors, managing director or manager is accustomed to act by the advice, directions, or instructions of a director or manager;
(vii) any person on whose advice, directions, or instructions a director or manager is accustomed to act:
Provided that nothing in sub-clauses (vi) and (vii) shall apply to the advice, directions, or instructions given in a professional capacity;
(viii) anybody corporate which is—
(A) a holding, subsidiary, or an associate company of such company;
(B) a subsidiary of a holding company to which it is also a subsidiary; or
(C) an investing company or the venturer of the company;”
Contract or Arrangement with a Related Party
No company shall enter the below-mentioned contract or arrangement with a related party except with the consent of the board of directors given by a resolution at a meeting and subject to such conditions as may be prescribed
- sale, purchase, or supply of any goods or materials;
- selling or otherwise disposing of, or purchasing, any type of property;
- leasing of property of any kind;
- availing or rendering of any services;
- appointing an agent to purchase or sell products, materials, services, or real estate;
- 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 of the company’s securities or derivatives.
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Posted by:
CS Neetu Saini
AKGVG & Associates