Related-Party Transaction

Loading the player...

What is a 'Related-Party Transaction'

A related-party transaction is a business deal or arrangement between two parties who are joined by a special relationship prior to the deal. For example, a business transaction between a major shareholder and the corporation, such as a contract for the shareholder's company to perform renovations to the corporation's offices, would be deemed a related-party transaction.

BREAKING DOWN 'Related-Party Transaction'

American public companies are required to disclose all transactions with related parties such as executives, associates and their family members in their annual 10-K report. While the great majority of related-party transactions are perfectly normal, the special relationship inherent between the involved parties creates potential conflicts of interest which can result in actions which benefit the people involved as opposed to the shareholders. For example, in the infamous Enron scandal, related-party transactions with "special-purpose entities" were used to help the company misreport their accounting numbers.

RELATED TERMS
  1. Transaction Identifier

    A unique identifier assigned by a business to each transaction ...
  2. Third-Party Transaction

    A third-party transaction is a business deal involving a buyer, ...
  3. Inverse Transaction

    A transaction that can cancel out a forward contract that has ...
  4. Credit Checking

    A check performed on the financial backing of the counterparties ...
  5. Cash and Carry Transaction

    A type of transaction in the futures market in which the cash ...
  6. Third Party

    An individual or entity that is involved in a transaction but ...
Related Articles
  1. Investing Basics

    Understanding Related-Party Transactions

    In business, a related-party transaction refers to a transaction where parties on both sides have a common interest or relationship.
  2. Investing

    Arm's Length Transaction

    An arm’s length transaction describes business deals in which the buyer and seller act independently and with no interest in the other’s benefit.
  3. Investing Basics

    What Are Transaction Costs?

    Transaction costs are expenses incurred from buying or selling securities.
  4. Options & Futures

    Variable Prepaid Forward Contract: Scam Or Safety Net?

    Top executives can benefit from this kind of contract, but is it at the expense of the shareholders?
  5. Professionals

    Acquire A Career In Mergers

    This exciting sector demands a lot from its advisors. Are you up for it?
  6. Investing Basics

    Principal Trading and Agency Trading

    Ever wonder what happens behind the scenes when you buy or sell a stock? Read on and find out!
  7. Bonds & Fixed Income

    8 Reasons M&A Deals Fall Through

    Mergers and acquisitions can mean big success. But what about all the deals that fall through?
  8. Mutual Funds & ETFs

    The Buy-Side Of The M&A Process

    With almost $2 trillion in sales yearly, find out how these mergers and acquisitions take place.
  9. Forex Fundamentals

    Bitcoin Transactions Vs. Credit Card Transactions

    We provide an overview of the differences between bitcoin and credit card transactions, and the advantages of using one over the other.
  10. Options & Futures

    Mergers and Acquisitions: Introduction

    By Ben McClure Mergers and acquisitions (M&A) and corporate restructuring are a big part of the corporate finance world. Every day, Wall Street investment bankers arrange M&A transactions, ...
RELATED FAQS
  1. How are arm's-length transactions determined by law?

    Determine if transactions are conducted at arm's length by checking if the parties to a contract are independent and transact ... Read Answer >>
  2. Are any arm's-length transactions disadvantageous to both parties?

    Find out why arm's-length transactions are disadvantageous when the interests of the two parties coincide and they wish to ... Read Answer >>
  3. Who is responsible for protecting and managing shareholders' interests?

    The average shareholder, who is typically not involved in the day-to-day operations of the company, relies on several parties ... Read Answer >>
  4. Given a good bookkeeping system, would financial accounting be necessary?

    Bookkeeping and financial accounting may seem like they are new creations, but variations have been around for millennia. ... Read Answer >>
  5. How do a corporation's shareholders influence its Board of Directors?

    Find out how shareholders can influence the activity of the members of the board of directors and even change official corporate ... Read Answer >>
  6. When does vertical integration reduce transaction costs?

    Trading is not just based on supply and demand, but negotiations between companies. Vertical integration can eliminate this ... Read Answer >>
Hot Definitions
  1. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  2. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  3. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  4. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  5. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  6. Sharing Economy

    An economic model in which individuals are able to borrow or rent assets owned by someone else.
Trading Center