Related-party transaction
Also called: related party transactions, RPT
A deal between a company and a party closely connected to it, such as a promoter, director, their relatives or a group company.
Related-party transactions are legal when properly approved and priced, and must be disclosed in the notes. They are also the most common route for value to move from minority shareholders to insiders, so investors check their size, trend, terms and approval.
Example
A company buying 15% of its materials from a firm owned by its promoter's family is a related-party transaction worth examining.
Learn more in these lessons
- Notes to the financial statementsWhat do the notes to the accounts tell you?
- Related-party transactionsWhen should related-party transactions worry a shareholder?
- Minority shareholders, holding companies and conglomeratesWhy do holding companies trade at a discount, and what risks do group structures pose?
- Evaluating management and governance in practiceHow can you judge a company's management without ever meeting them?
- Case study: an accounting fraud (Satyam, 2009)What can investors learn from the Satyam accounting fraud?
- Identifying red flags in practiceHow do you find warning signs in a company's filings and judge how serious they are?
Related terms
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