IAI Actuarial Core Principles · Business Finance · Regulation of financial reporting of incorporated entities
A listed Indian company enters into a transaction with a related party. Which treatment is consistent with the SEBI Listing Regulations on related party transactions?
Every related party transaction needs prior approval from the audit committee, and material ones also need shareholder approval, with related parties barred from voting. Management's claim of market pricing is not enough. The transactions are allowed, but disclosure and independent scrutiny are required to protect minority shareholders.
- ATransactions with related parties need no approval if the price is stated to be market price by management
- BOnly the board chair needs to know about the transaction
- CAll material related party transactions require prior approval of shareholders, with related parties abstaining from voting, while all related party transactions need prior audit committee approvalCorrect
- DRelated party transactions are prohibited entirely for listed companies
- Disclosure is made only in the annual report and never to the exchanges
Explanation
All related party transactions require prior audit committee approval (only independent directors on the committee approve), and material ones also need shareholder approval by resolution, with related parties not voting. They are not banned, and exchange disclosures are also required.
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