Related-party transaction
Financial Accounting glossary · Financial Accounting
Definition
Transaction between a company and an affiliated party (director, officer, related entity); requires footnote disclosure of nature, amount, and terms.
Related-party transaction in plain English
A related-party transaction is a deal a company makes with someone on the "inside" — a top boss, a board member, or another business it's tied to — rather than with an ordinary outside customer. These deserve extra scrutiny because the two sides aren't strangers bargaining fairly; the CEO could, say, rent the company a building he personally owns at a sweetheart price. It's like a referee whose own kid is playing in the game — maybe everything's honest, but everyone wants it out in the open. That's why the rules force the company to spell out these deals in the footnotes: who, how much, and on what terms.
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