Company Law Related-Party Approvals: Build the Transaction Register

A director-connected vendor supplies services under a recurring contract. The useful result is a working that explains the facts, the calculation or classification, and the evidence behind the conclusion. This guide shows how to prepare that working and where a reviewer should investigate before accepting the result.

Scope and applicable period

Indian company or LLP compliance, as identified in the article, with FY 2025–26 illustrative records. Use the current notified rules and relevant form for the actual reporting period.

Verification date: 11 October 2026. Figures and rates identified as assumptions are teaching examples; apply the stated conditions and the actual facts to a real assignment.

The key principle

Company-law related-party approval analysis and accounting-standard related-party disclosure serve different purposes. Start with the statutory relationship, transaction category and current approval rules. Ordinary-course and arm’s-length considerations require evidence, not a label added to an invoice. Board, member and audit-committee requirements should be evaluated for the particular company; do not use one blanket threshold for every transaction.

Worked example

The quotation range may support an arm’s-length assessment, but it does not prove that the service was actually received or that every approval exemption applies. Compile the relationship declaration, commercial rationale and approval chronology. Compare aggregate transactions with the applicable category-specific limits and the company’s facts. Prepare a separate accounting disclosure reconciliation so that an approval file and a financial-statement note do not become contradictory. Missing approval evidence is an open exception, not a reason to invent a retrospective minute.

A practical sequence

Maintain a relationship register and update it for changes in directors, ownership and connected entities. Map each material transaction to the relevant statutory category, amount and approval requirements.

Link the resolutions, supporting commercial analysis and contract to the transaction record. Reconcile accounting-standard disclosures independently.

Escalate missing approvals with the actual chronology; never produce invented review or approval records to fill a documentation gap.

Build one evidence file with separate legal conclusions

Corporate compliance often uses the same source records as the accounts, but each filing, approval and auditor-reporting requirement has its own purpose. Establish the entity type and applicable rules before selecting a form or threshold. Reconcile submitted figures to approved source records and retain the actual acknowledgement. Keep accounting recognition, statutory approval and filing status separate in the working. A completed form does not establish that the underlying transaction was properly authorised or correctly accounted for. Review changed ownership, contracts and business facts instead of carrying forward last year’s conclusion without support.

Evidence checklist

Keep the following records linked to the same entity, period and working version. Identify missing items explicitly; a checked box should mean the document was examined and supports the stated conclusion.

• Director and interest declarations
• Contract and transaction register
• Pricing and ordinary-course evidence
• Applicable board/member approvals
• Financial-note reconciliation

Common mistakes and how to avoid them

• Treating accounting disclosure as approval. Compare the conclusion with the director and interest declarations and resolve any conflicting facts.
• Assessing invoice by invoice without aggregation. Trace the affected item to the pricing and ordinary-course evidence before finalising the working.
• Assuming market pricing removes all governance requirements. Use the financial-note reconciliation to make the final position and remaining exceptions clear.

Before you finalise

Recheck the example’s assumptions against the actual assignment, resolve the identified exceptions and make the final figure or conclusion traceable to its source. Preserve the reviewed version and the reason for material changes. For this task, the financial-note reconciliation should agree with the conclusion presented to the client, reviewer or authority.

Frequently asked question

Can an unrelated vendor become a related party during the year? Yes. Track changes in relationships and evaluate transactions using the relevant dates and rules.

Sources and further reading

• Companies Act, 2013 — India Code
• ICAI AS 18 — Related Party Disclosures

Related guide: Related parties as18 associated enterprises transfer pricing.