What is meant by related party transactions?
Related party transactions are business transaction between two business entities which are already connected by means of a pre-existing special relationship. An example would be a contract awarded by the company to another company which is owned by a family member or other shareholder.
Why is it important to understand trading between related parties in the context of a transaction?
A potential buyer will need to assess whether any transactions that occur between related parties are on an arm’s length, commercial basis. If not, the potential buyer would need to assess that trading relationship as if it were arm’s length and commercial, in order to work out the financial impact on them. As a seller you must therefore be able to disclose all related parties transactions and the terms on which these are undertaken.