The Risk Of Related Party Transactions

"Related party transaction" (RPT) means a transaction in which resource or liabilities are transferred between related parties. A PRT, could help enlarging the scale of a business, decreasing the uncertainty, lowering the cost, and realizing the whole strategic objectives of the Group. However, it might make some negative impacts, such as breaching the law of fair competition, transferring capital and profits between related parties, and thereby impair the interests of the company and shareholders. Therefore, RPTs are accepted as well as being stringently restricted by the law of all countries. In China, unfair RPTs widely exist in the business activities of listed companies, and the negative effects should not be disregarded. It is of great importance to reinforce the regulation of RPTs in order to protect the proper interests of the investors, improve the capital efficiency, and maintain the stability and prosperity of our country's economics.Based on comprehensive studies of the system of RPTs, this text finds that RPTs widely exist in the business activities of listed companies in our country, and unfair RPTs often happen. RPTs have extreme risk. For example, when the parent company purchase and sell goods to the listed company, the parent company can use assets to pay back debts which should be paid to the listed company, so the independence of them is weakened. The limited liability, the blurred separation between ownership and management, the lax supervision all result in the occurrence of the unfair RPTs.Considering the status quo ,the trend of RPTs in China and the legislative experience of overseas, this text put forward some suggestions: first, the internal control system of RPTs by companies should be established and improved; second, a legal...