Related party financial benefits

When a corporation gives an asset or money to a person or group with a close relationship to the corporation, this is called a related party financial benefit.  

Unless it is exempt under the CATSI Act, only the corporation members can approve giving related party financial benefits.

Related parties

A related party can be:

• an individual  
• an entity – for example, a body corporate, a partnership, an unincorporated body, a trustee or a natural person.

Related individuals include:

• directors of the corporation
• directors of an entity that controls the corporation
• people making up the controlling entity (for corporations controlled by an entity that is not a body corporate)
• a member or group of members of the corporation
• spouses, including de facto relationships of the people above
• parents and children of the people above.

Related entities include:

• an entity that controls the corporation
• an entity controlled by people who are related parties – unless the entity is also controlled by the corporation
• any entity that was a related party of the corporation at any time in the 6 months prior
• one that believes, or has reasonable grounds to believe, it will become a related party of the corporation in the future
• an entity that works together with a related party of the corporation on the understanding that if the corporation gives the entity a financial benefit the related party will get one too.

Financial benefits

A financial benefit is an advantage, profit, reward or gain that has a monetary value. For example:

• money  
• goods
• services
• discounts
• business contracts
• jobs  
• loans.

Examples of a corporation giving a financial benefit include:

• giving a director goods, such as money, a car, fuel or food
• giving a director or a director’s family a corporation house without asking for rent or below market value rent
• buying a building from, or selling a building to, an organisation that controls the corporation
• buying land from or selling corporation land to a director
• loaning money to a director without asking for interest payments or if loans are not available to other members
• loaning money to a director’s daughter without asking for interest payments
• giving a contract to provide professional advice, such as financial management, or services, such as repairing houses, to an organisation that is controlled by one of the directors
• giving a job to the wife or husband of a director
• not requiring payment of a debt owed to the corporation by an organisation that one of the director’s controls. 

Approval to give related party financial benefits

Corporations must conduct business in an open, transparent manner and for the best interests of the members. That’s why you must get members’ approval to give a related party financial benefit.

This is because the corporation and the receiver have a close relationship. There is a risk that the transaction:  

• is not in the best interests of the corporation – for example, the corporation may not have negotiated the best deal
• may create a conflict of interest.

Getting member approval

Members must pass a resolution to give approval. You can do this:

• at a general meeting  
• by a circulating a resolution and getting it signed by all members.

The corporation must lodge certain documents, like a proposed notice of meeting, an explanatory statement and any further document proposed to accompany the notice, with the Registrar at least 14 days before the notice convening the relevant meeting is given to members. Failure to lodge these documents is an offence under the CATSI Act. 

The Registrar may give written comments on the documents to the corporation, which must be provided to each member of the corporation.

A related party, or an associate of a related party, can’t vote on a proposed resolution to approve giving a financial benefit to that related party.  

Learn more about members’ decision-making.

Approval at meetings

You can seek member approval at:

• a general meeting  
• an annual general meeting.  

Members’ approval can also be sought by a circulating resolution signed by all the members (in which case a meeting does not have to be held).

Regular and quick financial benefits

If you think the corporation may need to regularly or quickly give financial benefits to related parties, set up a process to manage this.  

You might seek member approval for an internal process giving a staff member or the chair the ability to approve financial benefits up to an amount in emergencies without full member approval.

When you don’t need member approval

You don’t need to seek member approval when the financial benefit is:

• reasonable remuneration (salary) for the corporation’s officers or employees
• paying a reasonable expenses of an officer or employee of the corporation
• given to a member of the corporation when all members are eligible for that same benefit
• given to meet a native title obligation
• given under a court order.

Getting an exemption

Sometimes the corporation can apply to the Registrar for an exemption from the CATSI Act rules about related party transactions.

Learn more about exemptions.

Writing the explanatory statement

The explanatory statement for the proposed resolution should say:

• what the proposed financial benefit is  
• why the corporation should give it.  

The statement must be in writing and set out:

• the related parties who the proposed resolution says would get the financial benefit
• a description of what the financial benefit is.

For each director of the corporation, it should say one of the following:

• a recommendation to members about the proposed resolution and the director’s reasons for it  
• the reasons why not, if the director doesn’t want to make a recommendation
• what the director’s interest is, if they have an interest in the proposed resolution.

The statement should also included all information that is:

• reasonably required by members to decide whether it is or isn’t in the corporation’s interests to pass the proposed resolution
• known to the corporation or any of its directors.

An example of ‘all other information’ includes providing the true potential costs and detriments of giving the financial benefit, such as:

• opportunity costs (what other things the corporation might do with the benefit if it isn’t given to the related party)
• tax consequences (for instance, liability to pay fringe benefits tax)
• benefits given up by whoever gives the financial benefit (this is what the corporation would be giving up).

This description is based on section 290–10 of the CATSI Act.

Breaking the rules

Giving a related party financial benefit is not an offence under the CATSI Act for the corporation.  

A person who is involved in doing so could:

• face a civil penalty of up to $200,000.00  
• be ordered to pay money (compensation) to the corporation if found guilty by a court.

A person found to have acted dishonestly in breaking the rules can be fined up to 2000 penalty units, sent to prison for 5 years, or both.

More information  

For more information on member approval for related party financial benefits see the policy statement PS-09 Member approval for related party benefits. 

NOTE: This fact sheet is not a substitute for legal advice. It is intended as a quick overview of the topic. For more detail see the CATSI Act and your rule book.

© Commonwealth of Australia 2008, 2012, 2016. ISBN 978-1-925054-50-7 (print) ISBN 978-1-925054-51-4 (online) Produced by ORIC March 2016 (15_0019)

Published March 2016