A related party transaction is a deal between the company and someone closely connected to it – a director, major shareholder, their family, or another firm they control. These deals aren’t automatically bad, but they are a high-risk zone for conflicts of interest.

Boards are expected to handle such transactions with extra care. Typical duties include:

• Ensuring full disclosure of the relationship and the terms of the deal,
  
• Getting independent directors or audit committee to review it,
  
• Checking that the price and conditions are arm’s length – similar to what you’d offer an outsider.
  

Shareholders, especially minority ones, worry about tunnelling of value – profits being shifted quietly from the company to the related party. That’s why many regulations insist on special approvals for large related party transactions, and detailed reporting in annual statements.

If a deal is found to be unfair or hidden, courts and regulators can:

• Set aside the transaction,
  
• Impose penalties on directors,
  
• Demand restitution to the company.
  

For honest promoters, the safest route is transparency: put everything on record, seek independent validation, and avoid even the appearance of self-dealing.