Related Party under Companies Act 2013

A company is an artificial judicial person having a separate legal entity. Hence, any transaction of a company with a related party must be identified, approved and disclosed, as per accounting standards in India. In this article, we look at the definition of a related party, as per the Companies Act, 2013.

A related party, with reference to a company means:

• Director or his/her relative;
• Key managerial personnel or his/her relative;
• A firm, in which a Director, Manager or his/her relative is a Partner;
• Private limited company in which a Director or Manager or his/her relative is a member or Director;
• Public limited company in which a Director or Manager is a Director and holds along with his/her relatives, more than 2% of its paid-up share capital;
• Body corporate whose Board of Directors, Managing Director or Manager is accustomed to act in accordance with the advice, directions or instructions of a Director or Manager;
• Person on whose advice, directions or instructions a Director or Manager is accustomed to act. (This section does not apply to persons acting in their professional capacity)
• Any company which is a holding, subsidiary or an associate company of such company;
• Any company which is a subsidiary of a holding company to which it is also a subsidiary;

Related Party to Director of Company

As per the definition of related party, a Director of a company or his/her relative is also a related party to the company. The following persons are defined as a relative to the Director as per Companies Act, 2013, if:

• they are members of a Hindu Undivided Family;
• if they are husband and wife;
• if the person is related as Father, including step-father;
• if the person is related as Mother, including step-mother;
• if the person is related as Son, including step-son;
• if the person is related as Daughter, including step-daughter;
• if the person is related as Son’s wife;
• if the person is related as Daughter’s husband;
• If the person is related as Brother, including step-brother(s);
• If the person is related as Sister, including step-sister(s);