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Related Party Transactions

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Legislative Requirements Identifying Party Transaction Acquiring Member Approval What Are The Exceptions?

Related Party Transactions

Our Gold Coast corporate lawyers are experts in advising on scenarios involving related party transactions and the legislative restrictions on transactions between listed entities and its associates. Related party transactions involve the requirement to obtain shareholder approval for acquisitions and disposals of substantial assets.

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Addressing Legislative Requirements

The Corporations Act 2001 (Cth) provides at Chapter 2E that public companies must disclose and seek member approval for transactions that involve related parties. Exactly what constitutes a related party pursuant to the legislation is defined broadly, and can even include spouses of company officers. For our publicly listed clients, our corporate lawyers are also adept at providing advise on the significance of Chapter 10 of the ASX Listing Rules.


The rationale behind the restrictions on related party transactions is that a public company should retain adequate resources for the purposes of making distributions to its creditors and as an added layer of protection for the members of the company. By mandating that any proposed related party transaction with potentially adverse implications is approved by shareholders, the appropriateness of the proposal can be vetted appropriately.

The Corporations Act 2001 (Cth) requires that any public company that seeks to financial benefit a related party must first obtain member approval under section 217 and 227. It is also a requirement that the benefit in question be bestowed within fifteen (15) months of obtaining approval. Alternatively, our Gold Coast corporate lawyers can advise on whether an exception applies as set out in sections 210 – 216.

Identify A Related Party Transaction

Our corporate lawyers regularly advise our corporate clients, whether directors or companies, on the nature of their transactions and whether they need to consider the related party transaction requirements. The most important considerations are firstly whether a financial benefit has been given, and secondly whether the benefit has been given a related party. Section 229 of the Corporations Act 2001 (Cth) stated that a financial benefit is to be given a broad interpretation that emphasises substance over form (i.e. does not necessarily need to involve the payment of money and can be a financial advantage, whether direct or indirect and can be a formal or informal or written or oral agreement).


Some common examples of financial benefits include providing related party finance or property, acquiring or disposing of assets to or from related parties, supplying or receiving services, issuing securities or options in a related party or agreeing to take on or release an obligation of the related party.

What amounts to a related party is to be determined by reference to section 228 and includes and entity that controls a public company, a director of the public company, a director of an entity that controls the public company or the persons that make up that entity. Related parties also include spouses and de facto spouses, parents and children. A related party may also include entities controlled by a related party, or an entity that was previously a related party (within the last six (6) months).

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The far-reaching definition of a related party also incorporates entities that believe or have reasonable grounds to believe that it is likely to become a related party in the future and an entity that acts in concert with a related party of the public company pursuant to an understanding that it will accrue a benefit in response.

Acquiring Member Approval

Our Gold Coast lawyers are experts in advising our corporate clients on the prospects of acquiring member approval for a particular contemplated transaction in accordance with the requirements contained in sections 217 – 227 of the Corporations Act 2001 (Cth). We can assist you in preparing an explanatory document, notice of the meeting and any material that your members may reasonably require in order to come to a conclusion on a particular proposed transaction.

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As a public company you will also need to complete and lodge an Australian Securities and Investments Commission (‘ASIC’) Form 5057A and pay the current lodgement fees. Public companies have additional disclosure requirements, including the duty to provide at least twenty-one (21) days’ notice of a members’ meeting (which increases to twenty-eight (28) days for a listed company), hold the meeting and record the ordinary resolution and lodge an ASIC Form 205 setting out the content of the resolution within fourteen (14) days of the resolution being passed.

What Are The Exceptions?

There are a series of exceptions to the disclosure and approval requirements that apply to related party transactions. For example, there is no need to acquire member approval to provide a financial benefit where the terms of the transaction contemplated are reasonable in the circumstances if the public company and the related entity in question were conducting the proposed transaction at arm’s length or are less favourable to the related party.


Additionally, if the benefit constitutes reasonable remuneration to the officers of the company or if the transactions are in satisfaction of expenses reasonably incurred. Similarly, if the related party transaction imparts a benefit that can be construed as “reasonable benefits” with respect to indemnities, exemptions or insurance premiums relating to officer liability, member approval can be avoided.

Any benefits provided to satisfy the reasonable payment of legal expenditure, advances of up to $2,000 (or more, as dictated by legislation) to a director or his or her spouse, a benefit given to or by a “closely held” subsidiary, a benefit given in one’s capacity as a shareholder or a benefit mandated by Court order are also all exceptions to the usual approval requirements.

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