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Companies Act Related Party

Understanding Related Party Definition under Companies Act, 2013

August 23, 2023 by Instabizfilings Team

Blog Details

Ever wondered who falls under the umbrella of a "Related Party" in the realm of businesses? ? Let's demystify this term to gain a comprehensive understanding:


To understand the definition of related party lets understand following characters:


1. Company 1 - Heaven Private Limited

2. Company 2 - Snow Private Limited

3. Director of Heaven Private Limited - Mr. Alien

4. KMP of Heaven Private Limited: CEO-Mr. Xmas ; MD - Mr. Yas; Manager - Mr. Zap; Co. Secretary - Ms. Pisa; Whole time Director - Ms. Zen; CFO - Ms. Qute

5. Partnership Firm - Messer PQR & Associates

6. Public Company - Inout Public Limited


Now lets understand Related Party in reference to a Heaven Private Limited:


? 1. Director of company or relative of the Director


Eg. It means Mr. Alien (Director of Heaven Private Limited) or Relative (defined below) of Mr. Alien


? Who Qualifies as a Relative of Mr. Alien?

The Companies Act, 2013 defines it clearly:


Members of a Hindu Undivided Family of Mr. Alien.

Mr. Alien's wife.

Mr. Alien's Father, including step-father.

Mr. Alien's Mother, including step-mother.

Mr. Alien's Son, including step-son.

Mr. Alien's Son's wife.

Mr. Alien's Daughter.

Mr. Alien's Daughter's husband.

Mr. Alien's Brother, including step-brother.

Mr. Alien's Sister, including step-sister.


?2. Key Managerial Personnel or relative of KMP:


Eg. It means 

1. CEO - Mr.Xmas, MD - Mr.Yas, Manager - Mr.Zap; 

2. Co. Secretary - Ms.Pisa; 

3. Whole time Director - Ms.Zen; 

4. CFO - Ms.Qute and

5. Relatives of all the above KMP as defined in point no. 1


?3. Firm with Director/Manager or relative of Director/Manager as Partner:


Eg: It means that if Mr. Alien/Mr. Yas/Mr. Zap or their relatives are the Partner of the Partnerhsip firm M/s PQR & Associates, then M/s PQR & Associates will be termed as related party of Heaven Private Limited.


?4. Private Company with Director/Manager or their relatives as Member/Director:


Eg. It means that if Mr Alien/Mr. Yas/Mr. Zap or his relatives are the Director or Members of Snow Private Limited, them Snow Private Limited will be termed as the related party of Heaven Private Limited.



?5. Public Company with Director/Manager is a Director and holds shares along with his relatives more than 2 % of Paid up capital of such public company:

Eg. It means Mr. Alien/Mr. Yas/Mr.Zap are the Director of Inout Public Limited and also hold shares more than 2% along with his relatives, then in such case Inout Public Limited will be termed as related party of Heaven Private Limited


?6. Body Corporate Acting on Director/Manager's Advice:

Eg. It means if, the Board of Director, MD or Manager of Snow Private Limited follows advice, directions, or instructions of Mr. Alien of Mr. Zap, then Snow Private Limited will be termed as related party of Heaven Private Limited



?7. Person Advising Director/Manager:

Eg. Any individual whose advice guides a Mr. Alien's or Mr. Zap's actions,then such individual is deemed a related party.


Understanding the concept of "Related Party" is pivotal for ethical business practices and governance. Stay informed and empowered in the corporate landscape! ??

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