What are related party transactions?

Related party transactions refer specifically to dealings that occur between a corporation and individuals or entities that maintain a close relationship with the company. Such relationships can include, but are not limited to, transactions with major shareholders, executive officers, family members of those individuals, or entities in which these individuals have a significant influence or control.

These transactions raise potential concerns regarding transparency and conflicts of interest, as they may not occur under standard market conditions. Therefore, it is crucial for companies to disclose these transactions in financial statements, ensuring that stakeholders are aware of any possible implications that might affect the company’s performance or ethical standings.

Options that describe transactions between the corporation and its shareholders, or those that involve independent businesses, do not capture the full essence of related party transactions, which specifically necessitate the existence of a close relationship that could compromise objectivity. Additionally, transactions in foreign markets are unrelated to the concept of related party transactions and therefore do not reflect the specific definition correctly.