Quick Summary
Related Party Transactions are deals or arrangements between a company and its related parties (directors, their relatives, holding/subsidiary companies) that require special approval.
Related Party Transactions are governed by Section 177 and 188 of the Companies Act, 2013. These are transactions between a company and its related parties which may create conflicts of interest and require special approval procedures.
Who are Related Parties
- Directors and their relatives
- Key Managerial Personnel (KMP) and their relatives
- Firms/companies where director is partner/director
- Holding company, subsidiary company, associate company
- Investing company or venturer of the company
Approval Requirements
- Audit Committee: All RPTs (for listed and certain public companies)
- Board: Approval for all RPTs
- Shareholders (Ordinary Resolution): If thresholds exceed prescribed limits
- Interested director cannot vote
Thresholds Requiring Shareholder Approval
- Sale/purchase/supply of goods/services: 10% or more of turnover
- Sale/purchase of property: 10% or more of net worth
- Lease of property: 10% or more of turnover or 10% of net worth
- Appointment to office: Monthly remuneration > ₹2.5 lakhs
- Remuneration for services: 10% or more of turnover
Exemptions
- Transactions in ordinary course of business at arm's length
- Transactions between holding and wholly-owned subsidiary
- Compensation to directors/KMP as per Schedule V
Compliance
- Maintain Register of Contracts with Related Parties (Form MBP-4)
- Disclose in Board's Report
- Disclose in financial statements
- File Form MGT-14 (if special resolution required)
Key Points
- Transactions with directors/related parties
- Audit Committee approval required
- Board approval mandatory
- Shareholder approval if thresholds exceed
- Arm's length price required