---
title: "What Is Related-Party Transaction?"
term: "Related-Party Transaction"
description: "A related-party transaction is any deal between a company and an insider — founder, executive, director, or controlling shareholder — or an entity they control, where conflicts of interest must be managed through disclosure and approval."
date: 2026-07-25T00:00:00.000Z
updated: 2026-07-25T00:00:00.000Z
topics: ["venture-capital"]
source: https://venturecapitaltracker.com/glossary/related-party-transaction
---

# What Is Related-Party Transaction?

> A related-party transaction is any deal between a company and an insider — founder, executive, director, or controlling shareholder — or an entity they control, where conflicts of interest must be managed through disclosure and approval.

A **related-party transaction** is a commercial arrangement between a company and a party with close ties to its management or control group — creating potential self-dealing.

## How it works

Transactions include loans to founders, shared services agreements, IP licenses from founder-owned entities, and customer contracts with VC portfolio affiliates. Companies disclose them in board materials, financial statement footnotes, and [/glossary/reps-and-warranties](/glossary/reps-and-warranties) schedules in financings. [/glossary/related-party-approval](/glossary/related-party-approval) from disinterested directors validates fairness.

Acquirers scrutinize related-party revenue — it may not recur post-sale. Cleanup often means terminating affiliate contracts and renegotiating at market rates before close.

## Why it matters

- **Founders:** Keep related-party deals minimal and documented; opacity kills trust faster than the dollars involved.
- **Investors:** Related-party noise signals governance immaturity or financial engineering.
- **Auditors:** Public readiness requires clean related-party policies and recurring disclosure.

## Common mistake

Routing personal expenses or friends' contracts through the company without disclosure. Diligence treats omission as integrity risk, not paperwork.

## Related ideas

[/glossary/related-party-approval](/glossary/related-party-approval), [/glossary/reps-and-warranties](/glossary/reps-and-warranties), conflict of interest, and disclosure schedules.

## FAQ

### What is a related-party transaction in simple terms?

The company pays or receives money from someone on the inside — or their other business — instead of an unrelated vendor or customer at market terms.

### Why do related-party transactions matter?

They can hide subsidies, drain cash, or inflate revenue. Investors require disclosure schedules and often clean them up before investment or exit.


---
Source: https://venturecapitaltracker.com/glossary/related-party-transaction