Investments and related party transactions

The term “Related Party” refers to any external parties that may be related to a particular company. Related parties could be promoters, holdings, subsidiaries, group companies and so on. Investments and related party transactions are not generally seen in the good light by investors and shareholders because these investments are usually carried forth by the decision of the board of directors. In other words, public share holders also have the fear of incurring losses because of these deals. However, the Companies Act 2013 does not place any restrictions on such investments except for a few rules that must be followed.

As per the guidelines of the CA2013, related party transactions and investments should be done at arm's length and can only happen once they have been certified by the authorised auditors. An adherence to market prices is another mandatory aspect that needs to be kept in mind. In order to make such investments or to enter into deals with related parties, the company also needs to receive the consent of the Board of Directors which can happen after a resolution that is passed at a meeting. The amendment rules about the same are elaborately stated under the formal document of the Act.