Related Parties of a Company
Who are the Related Parties of a Company?
The related parties of a company are persons or other companies or associations who, on account of their position, are in an especially close relation to the company. The related parties of a company consist of following persons and entities:
the company’s parent company or a person that owns more than 50 percent of all the voting rights carried by shares or has control over the company as defined in the Accounting Act (or, where there is no shareholder with such ownership, the definition of a related party includes shareholders that own at least 20 percent of all the voting rights carried by shares or have significant influence over the company’s financial and operating policy decisions);
the members and deputy members of the company’s board of directors or the supervisory board as well as the company’s managing director and the deputy managing director;
a spouse or domestic partner of the person identified in sections 1 and 2, his/her child or a child of his/her spouse, grandchild, parent or grandparent;
a legal person in which a person identified in sections 1-3 is a member or a deputy member of the board of directors or the supervisory board or the managing director, deputy managing director or in a position of such influence;
a legal person in which a member of the company’s board of directors or other person identified in sections 1-3 alone or jointly has over 50 percent of all the voting rights carried by shares or has otherwise control over the company as defined in the Accounting Act;
a legal person in which a parent company identified in section 1 or other person that has control over the company has 20-50 percent of all the legal person’s voting rights carried by shares, or in which the parent company or other person exercising control has the ability to otherwise significantly influence the legal persons financial and operating policy decisions.
It should be noted that when calculating the voting rights, the voting rights of a shareholder of a company owned by a legal person under the shareholder’s control are also counted. Also when calculating the voting rights, the voting restriction in the law or the articles of association of the association, rules of the partnership agreement or any comparable rules is not taken into consideration, and when calculating the total number of voting rights of the company, the shares of the company or its subsidiary owned by the company are not taken into consideration.
The definition of a related party is applied to information in financial statements regarding related party loans and liabilities, acquisition of own shares for the company’s personnel and compensation of damages caused by related party transactions.
Related Parties of a Listed Company
The definition of a related party in listed companies is wider. It is equivalent to the international IAS 24 auditing standard and meant to be interpreted in accordance with it. In addition to the persons and entities listed above, the related parties of a listed company include the members of the management team of the company or its parent company, any child or person under the custody of a person within the definition of a related party, as well as legal persons in which the above mentioned persons alone or jointly have control over the company.
In listed companies, the definition of related parties is also applied with certain prerequisites to the company’s decision making. Related party actions can be defined as legal acts that are not a part of the company’s regular business activities or they’re not carried out in accordance with regular commercial terms. The board of directors of a listed company makes decisions on related party actions within its general competence. However, such decisions require a majority of the votes of those who are not a related party to the action in question. The board of directors may bring the decision regarding the related party action to be decided in the general meeting of the company. In such situations, the majority of the votes of the shareholders outside the related party scope is also required.