What is Related-Party Transactions?
344 reads · Last updated: December 5, 2024
Related-party transactions refer to transactions between companies or between different companies, where the two parties have specific relationships, such as affiliated companies, shareholders, executives, etc. Such transactions may involve issues such as interest transfer and information asymmetry, and require strengthened supervision and transparency.
Definition
Related party transactions refer to transactions between entities within a company or between different companies where the parties involved have a specific relationship, such as affiliated companies, shareholders, or executives. These transactions may involve conflicts of interest and information asymmetry, necessitating enhanced regulation and transparency.
Origin
The concept of related party transactions emerged with the development of corporate groups and multinational operations. In the late 20th century, as globalization and corporate mergers increased, the need for regulation of related party transactions also grew. Regulatory bodies worldwide began to establish rules to prevent conflicts of interest and protect minority shareholders.
Categories and Features
Related party transactions can be categorized into various types, including asset transfers, service provisions, loans, and equity transactions. Their features include the special relationship between the parties, transaction prices that may deviate from fair market value, and insufficient information disclosure. These transactions are typically used for reallocating internal resources or strategic partnerships.
Case Studies
A typical case is the transactions between Alibaba Group and its affiliate Ant Financial. Alibaba has used related party transactions to transfer certain businesses to Ant Financial for optimal resource allocation. Another case involves Vanke Group and its major shareholder Baoneng Group, which raised market concerns about conflicts of interest, eventually leading to regulatory investigation.
Common Issues
Common issues investors face with related party transactions include assessing the fairness of the transaction, obtaining sufficient information disclosure, and evaluating the impact on company value. It is generally recommended that investors pay attention to company announcements, audit reports, and opinions from independent directors to gain a comprehensive understanding.
