Related-party transactions (RPTs), occur when two parties (persons) with a pre-existing relationship engage in a business transaction. These transactions in the everyday business world can occur between individuals, companies or subsidiaries of the same parent company.

Our Company Law defines these transactions as transactions in which the related (interested) party is a manager, a member of a management or supervisory board, shareholders holding more than 20% of the shares with voting rights or any person who has the authority to give mandatory instructions in the company. Although the law vaguely mentions only the loan,  pledge or guarantee, in a broader sense, for a transaction to be considered to have occurred with an interested party, it is necessary for that party to have an interest in performing the transaction.

These persons have obligation to inform the management of the company about all companies in which they alone or together with related persons have 20% or more of the shares, i.e. shares with voting rights, or have any management functions, for all of current or future possible transactions, in which they may appear as an interested party.

The interest in such a transaction is recognized if that person, his/her representative, or a person close to him such as a spouse, parent, child, brother/sister, etc., (1) is a party to such a transaction, its beneficiary, representative or intermediary; (2) individually or jointly own 20% or more of the shares in the company that is a party to the transaction, its beneficiary, representative or intermediary; (3) is a member of the management or supervisory board of the company that is a party to the transaction, its beneficiary or representative in such a transaction, or is a managing person of that legal entity, or (4) if so is determined with the corporate acts of the company.

It should be taken into account that it will not be a question of related-party transaction if it is a company founded by one person who is manager the company at the same time, as well as if all the founders of the company have an interest in the realization of the relevant transaction.

Though these transactions are common in many industries, they can also present significant risks to businesses. Without careful management, these transactions can create conflicts of interest, disrupt financial performance and undermine the confidence of potential investors. Such transactions present a risk of “self-representation” of personal interests and may lead to conflicts of interest. For example, one company may transfer assets to another company at an artificially low price, which will benefit end-users in the other company but harm other investors of the parent company.

Considering these risks, it is necessary for any company to properly manage these risks during transactions with related parties, so as to ensure the implementation of the foreseen legal obligations for the approval of these transactions.

Namely, according to our Company Law, any related-party transaction is subject to prior approval by the company, respecting the minimum number of votes determined by the law when adopting such a decisions. Any related-party  transaction that is conducted without approval or contrary to the law and the company’s corporate acts is null and void and can be annulled, and the interested party can be held responsible for any damage caused.

The conclusion is that the management of related-party transaction is crucial to protecting against conflicts of interest and promoting transparent financial reporting. By implementing appropriate internal policies, procedures and training programs, companies can reduce the risks of these transactions and maintain trust and reputation with the shareholders and the society.

Note: The above does not constitute legal advice and in no way can be accepted or understood as an instruction to act in a specific case. Each legal situation has its own characteristics that should be reviewed at separately, and for that reason we recommend that you contact a professional – a lawyer – for legal advice.