Governance
Related Party Transactions in Group Companies: A Governance Guide
By ATTPL HOLDCO / ATTPL GROUP Editorial Team · · 2 min read
How group companies should handle related party transactions in India: what counts, Companies Act approvals, arm's length pricing and disclosures.
Why related party transactions need care
In a group, companies often buy from, sell to, lend to or share services with each other. These are related party transactions. They are normal and often efficient, but they must be fair, approved properly and disclosed, so that minority shareholders, lenders and tax authorities can trust the numbers.
Who is a related party
The Companies Act, 2013 and accounting standards define related parties. They typically include holding, subsidiary and associate companies, directors and key managerial personnel and their relatives, and firms or companies in which they have an interest. Keep an updated list of related parties.
Approvals
- Section 188 of the Companies Act covers specified transactions such as sale or purchase of goods, services, leasing of property and appointment of related persons
- Transactions in the ordinary course of business and at arm's length have relaxed approval requirements
- Others need board approval, and shareholder approval beyond prescribed thresholds
- Interested directors should not participate in the decision
Arm's length pricing
Price related party transactions as you would with an unrelated party. Keep evidence such as quotations, market rates or a cost-plus basis. Tax rules on transfer pricing may also apply to certain transactions.
Documentation and disclosure
Maintain a related party transactions policy, a register of contracts, board minutes and supporting documents. Disclose transactions in the financial statements as required by accounting standards.
Get support
ATTPL Legal and ATTPL Consultancy help group companies set up policies, agreements and compliance. Learn about our shared services approach.
Frequently asked questions
Are all transactions between group companies prohibited?
No. They are allowed, but they need proper approval, arm's length pricing and disclosure.
What does arm's length mean?
It means terms comparable to those agreed between unrelated parties in similar circumstances.
Do private companies need an RPT policy?
A written policy is good practice for any group, even where it is not strictly mandatory.
Sources and further reading
This article is general information, not legal or tax advice.
