Introduction and meaning:
Related party transactions (RPTs) are an integral part of any business, as companies often engage in transactions with parties that have some sort of relationship with the company. The Companies Act 2013 in India defines related parties as directors, key managerial personnel, and their relatives, companies in which a director or key managerial personnel or their relatives have a substantial interest, and firms and other entities in which a director is a partner or a member. These transactions can be in the form of sales, purchases, services, loans, or any other type of agreement.
The Companies Act 2013 has laid down strict rules and regulations for related party transactions to ensure that they are conducted at arm’s length and are in the best interest of the company and its shareholders. The Act requires companies to disclose any related party transactions in their financial statements and to obtain prior approval from the Board of Directors and shareholders if required. This is to ensure that the transactions are fair, reasonable and in the best interests of the company and its shareholders. Read More…