Board Resolution: Related Party Transaction (Section 188)
Approve a contract with a related party at a board meeting, recording the relationship, terms, value and whether it is at arm's length.
What it is
Section 188 of the Companies Act, 2013 requires the consent of the board, by a resolution at a meeting, for specified contracts with related parties, such as sale or purchase of goods, leasing of property, availing of services and appointment to an office of profit. Where the transaction exceeds the limits in Rule 15 of the Companies (Meetings of Board and its Powers) Rules, 2014, approval of members is also needed. Transactions in the ordinary course of business and at arm's length are exempt from these approvals but still disclosed.
When it is used
- A company buys from or sells to a firm in which a director is a partner.
- Renting premises from a director or relative.
- Appointing a relative of a director to a paid position.
What the template covers
- Company name, CIN and meeting details
- Related party name, relationship and address
- Nature and description of the transaction
- Estimated value and duration
- Whether at arm's length and in the ordinary course
- Authorisation and disclosure
Details you will need
The generator asks for the following. Fields marked with an asterisk in the form are required; the rest can be left blank and filled in later in Word.
Company Details
Company Name; CIN; Registered Office
Meeting
Board Meeting Date; Place of Meeting
Related Party
Related Party Name; Nature of Relationship; Related Party Address
Transaction Details
Nature of Transaction; Detailed Description; Estimated Value (₹); Transaction at Arm's Length?; Transaction Duration (months)
Authentication
Chairman Name; Chairman DIN
Stamp duty, registration and filing
An interested director must not participate in the discussion or vote. Where the company has an audit committee, its approval is also required under Section 177. Contracts are entered in the register in Form MBP-4 and disclosed in the board's report in Form AOC-2. A transaction entered without the required approval is voidable at the option of the board or members.
Generate the BR — Related Party Transaction
Fill in the form and download the draft as a Word file. It is a general template, not legal or professional advice; have it reviewed for your facts before you sign or rely on it.
Need this checked against your facts, or the registration or filing that follows (e.g. the related MCA e-form)? Contact SKAG and Associates
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Frequently asked questions
Do all related party transactions need board approval?
Transactions in the ordinary course of business and at arm's length are exempt from Section 188 approval, but are still disclosed.
When is shareholder approval required?
When the transaction exceeds the thresholds in Rule 15, by ordinary resolution in which related parties do not vote.
What is Form AOC-2?
The form in which contracts with related parties are disclosed in the board's report.
This page gives general information for reference only. Laws, stamp duty rates and filing requirements change and differ between States, so confirm the current position for your case. Related: all document templates · free tax calculators · compliance calendar and guides.