Cleaning Up Related-Party Transactions Before They Become a Problem

Prepare a complete register of all related parties: promoter, promoter family members, entities owned or controlled by the promoter or family, and key management personnel. Include every entity in which any of these persons hold more than 2% equity.

Map every financial transaction between the company and any related party in the last 3 years: loans given or received, rent paid or received, service contracts, supply arrangements, guarantees, and asset transfers.

For each transaction, assess: was it at arm's length, was it approved by the board, and was it disclosed in the financial statements? Transactions that fail any of these tests need to be resolved before diligence.

Unwind transactions that cannot be justified at arm's length: repay promoter loans, terminate above-market service contracts, and transfer assets at fair value. Document every unwinding with board approval and a valuation certificate where required.

For transactions that are genuinely arm's length and commercially justified, obtain retrospective board approval, ensure they are disclosed in the next financial statements, and document the basis for the pricing.

Implement a going-forward RPT policy: all new related-party transactions require prior board approval, an arm's-length pricing certificate, and disclosure in the annual report. Assign the CS responsibility for maintaining the register.