💼🔗 Decoding Related Party Transactions (RPTs) under Indian Company Law: An 80/20 Rule Approach 💼🔗 Hello, #LinkedInCommunity! Today, we’re exploring #RelatedPartyTransactions (#RPTs) as outlined under Indian #CompanyLaw. Here are the most significant 20% of points that encapsulate approximately 80% of this important topic.
1️⃣ Understanding RPTs 🎭🔗:
RPTs are transactions between a company and its related parties based on their relationship. These can include sales, purchases, leasing, transfer of resources, or any other financial transactions.
2️⃣ Who are the “Related Parties”? 👥👥:
As per Section 2(76) of the Companies Act, 2013, related parties can be the company’s directors, key managerial personnel (KMP), a relative of a director or KMP, firms or companies where a director or KMP is a partner or director.
3️⃣ Disclosure & Approval of RPTs 📃✅:
According to Section 188, all RPTs must be disclosed in the Board’s report, and they must be approved by the Board and, in some cases, by shareholders through a special resolution.
4️⃣ Role of Audit Committee 📋🔍:
The Audit Committee plays a significant role in scrutinizing RPTs. It reviews and provides approval for all RPTs, ensuring they’re conducted at arm’s length and in the company’s best interest.
5️⃣ Arm’s Length Principle 📏🤝:
RPTs should adhere to the “Arm’s Length” principle, meaning transactions between related parties should be conducted as if they were unrelated, ensuring market-level dealings.
By understanding these critical aspects, you’ll gain a robust understanding of RPTs under Indian Company Law. Let’s continue learning and sharing. Drop your thoughts or questions below!
