Related party transaction (RPT): meaning, approvals and disclosure
A related party transaction is a deal between a company and a related party such as a director. Section 188 sets board and shareholder approvals.
Short answer
A related party transaction (RPT) is a contract or arrangement between a company and a related party, such as a director, a director's relative, a firm or company in which a director is interested, or a holding, subsidiary or associate company. Section 188 of the Companies Act, 2013 requires board approval, and shareholder approval above set thresholds, for specified transactions.
- Governed by
- Section 188, Companies Act 2013, and rule 15
- Related party defined
- Section 2(76)
- Disclosure
- Form AOC-2 with the board's report
- Register
- Form MBP-4
Which transactions are covered
Section 188 applies to these categories of contracts and arrangements with related parties. The thresholds for shareholder approval are set in rule 15 of the Companies (Meetings of Board and its Powers) Rules, 2014.
- Sale, purchase or supply of goods or materials
- Selling, buying or leasing property of any kind
- Availing or rendering services, including agency
- Appointment of a related party to an office or place of profit
- Underwriting subscription of securities
Approvals and exemptions
Covered transactions need approval by a board resolution at a meeting, with interested directors abstaining. If they exceed rule 15 thresholds, a shareholders' resolution is also needed. Transactions in the ordinary course of business and on an arm's length basis are exempt from these approvals, although they must still be disclosed in the financial statements under the accounting standards. Private companies enjoy some relaxations under the June 2015 exemption notification, including on voting by related party members. Loans to directors are governed separately by section 185.
Why it matters for startups
Founders often have other businesses, family members on payroll or a holding company charging fees, and each of these can be a related party transaction. Document the arm's length basis, take board approval and record the contract in Form MBP-4. Investors and acquirers scrutinise RPTs closely, and unapproved transactions can be voidable at the board's option.
Related services
Sources
Written by the Refogo Editorial Team from the official sources above and checked on 2026-10-31. Laws, rates and due dates change, and authorities often extend deadlines, so confirm your own case with a qualified professional. This is general information, not legal or tax advice. Read our editorial policy or report an error to support@refogo.com.
Common questions
Who is a related party of a private company?
Directors, key managerial personnel and their relatives, firms and private companies in which they are partners, members or directors, and holding, subsidiary and associate companies, among others.
Are arm's length transactions exempt from section 188?
Yes, if they are also in the ordinary course of business. They still need disclosure in the financial statements.
Is an RPT the same for income-tax purposes?
No. The income-tax law has its own definitions for related person payments and transfer pricing, which may apply separately.