Related-Party Transactions
Business dealings between entities with a pre-existing relationship, requiring disclosure due to potential conflicts of interest.
What is Related-Party Transactions?
Related-party transactions are business dealings between entities with a pre-existing relationship — such as a parent company and its subsidiary, a company and its executives, or a firm and its major shareholders. Because these transactions may not reflect arm's-length market pricing, GAAP and securities regulations require full disclosure so investors and auditors can assess whether they harm minority shareholders.
Example
If a CEO leases office space to the company they manage at above-market rates, this is a related-party transaction. Auditors and shareholders scrutinize it for potential self-dealing, and it must be disclosed in annual filings with the SEC.