Related Party Transactions in Private Limited Company

Accounting Standard 18 of ICAI deals with “Related Party Disclosures”,  Related Party means the “ Parties that are considered to be related during the reporting period and one party has the ability to control the other party or to exercise significant influence over the other in making financial/operating decisions” related party transactions means “a transfer of resources or obligations between related parties,  regardless of whether or not a price is charged. The objective of this Standard Related Party Disclosures is thus to establish the requirements for disclosure of:

• related party relationships for a private limited company; and
• transactions between a reporting enterprise and its related parties.

The following are the related parties as per AS- 18

• Holding Companies, subsidiaries, and fellow subsidiaries
• Associates and joint ventures
• Individuals ( incl . their relatives ) – having the voting power giving them control or significant influence
• The key management personnel including their relatives
• The enterprises were controlling individual or the key managerial personnel has significant influence

However, the disclosure is mandatory for the following categories of the companies:

Companies which are listed or they are in process of listing

• The banks and the financial institutions and the insurance companies
• Enterprises who have a turnover of less than Rs 50 Cr
• Enterprises who have a turnover of less than Rs 10 Cr
• The holding/subsidiary company of any of the above

Thus if a private limited company does not fall in any of these categories, then after having been applicable earlier, it shall continue to apply unless it is not covered in any of the categories for 2 consecutive years. AS-18 also makes it mandatory to disclose the transaction with the key management personnel.

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