What do "related party transactions" refer to?

"Related party transactions" refer specifically to transactions between a corporation and its directors or officers because these individuals often have the ability to influence the corporation's operations or decisions due to their positions. This category encompasses a wide range of dealings, such as loans, leases, purchase or sale of assets, and services provided, which can occur between the corporation and its related parties. Because of the potential for conflicts of interest or favoritism in these transactions, they are closely regulated and require transparency to protect the interests of shareholders and the corporation as a whole.

In contrast, transactions involving only external stakeholders are not considered related party transactions since they do not involve key internal figures. Similarly, transactions between a corporation and its subsidiaries can occur within a controlled group but are not categorized as related party transactions in the same way as dealings involving officers or directors. Transactions solely among shareholders do not qualify as related party transactions either, as they typically pertain to internal company operations rather than dealings where conflict of interest is a consideration.