Related party transactions: Chapter 2E and the ACNC

Transactions between an entity and parties connected to it carry a higher risk of conflict, because those who govern the entity may also stand to benefit. Australian law and regulation respond to this in different ways depending on the entity. For public companies, Chapter 2E of the Corporations Act sets a member-approval rule. For registered charities, the Australian Charities and Not-for-profits Commission requires related-party transactions to be reported. This guide explains both. It is general information rather than legal advice.

The Chapter 2E rule for public companies

Section 208 provides that, for a public company to give a financial benefit to a related party, the company must obtain member approval and then give the benefit within a set time, unless an exception applies. The purpose is to protect members by requiring transparency and approval where value flows from the company to a related party. A financial benefit is read broadly, and related parties include directors and entities they control, among others. The rule does not prohibit such benefits; it requires that, absent an exception, members are informed and approve them.

Exceptions, including arm's length terms

Chapter 2E contains exceptions, the best known of which is in section 210. Under that exception, member approval is not needed if the financial benefit is given on terms that would be reasonable in the circumstances if the company and the related party were dealing at arm's length, or on terms less favourable to the related party. Other exceptions exist for particular situations. Relying on an exception requires the facts to genuinely fit it, so boards should document the basis for concluding, for example, that terms are arm's length. Where there is doubt, legal advice on the specific transaction is prudent.

How charities report related party transactions

Registered charities operate under the ACNC framework rather than Chapter 2E for this purpose. The ACNC requires charities to report related-party transactions, and this is reflected in the Annual Information Statement. Medium and large charities also reflect related-party transactions in their financial statements. The aim is similar to Chapter 2E in spirit: transparency about value flowing between the charity and people connected to it. Charities therefore need to identify their related parties and record transactions throughout the year so the information is ready at reporting time.

Identifying related parties

Both pathways depend on first identifying who the related parties are. This commonly includes directors or responsible persons, their close family members, and entities controlled by them, though the precise scope depends on the rules that apply to the entity. Boards sometimes define related parties too narrowly and miss, for example, a company owned by a director's spouse. A clear and regularly reviewed understanding of related parties is the foundation for both member approval under Chapter 2E and reporting to the ACNC.

Keeping a register and managing the process

A related party register, maintained throughout the year, makes both pathways manageable. It records each related party and each transaction, whether the terms were arm's length and the basis for that view, any approval obtained, and how the transaction will be reported. With a live register, a public company can identify when a proposed benefit needs member approval, and a charity can answer the Annual Information Statement questions from a complete record. The board should also handle the conflict of interest that a related party transaction usually involves, for example by recording disclosures and managing voting by interested parties.

How Quorum helps

Cohiva Quorum keeps your related party register alongside the board's decisions, linking each transaction to any member approval, exception relied on, or conflict-of-interest disclosure. It helps a public company track the Chapter 2E approval pathway and helps a charity assemble what it needs for Annual Information Statement reporting from one maintained record. Quorum helps you comply and supports your obligations; the entity and its officers remain responsible for compliance.

Part of the Cohiva platform

Cohiva Quorum is part of the Cohiva platform at https://www.cohiva.com. When a related party agreement or approval needs executing, you can send it through Cohiva Sign for e-signatures so the signed document flows back into the minute book against the register entry.