A connected person is defined in S.220 as a person that is connected to a director in the following ways (note for the purposes of disclosure of directors remuneration required by S.305 & S.306 the inclusion of the remuneration of connected persons remuneration is only required for periods beginning on or after 1 June 2015):-
- a director’s spouse, civil partner, parent, brother, sister or child;
- a person acting in his or her capacity as the trustee of any trust, the principal;
- beneficiaries of which are that director, the spouse (or civil partner) or any;
- children of that director;
- or any corporate body which that director controls (50% or more of the equity whether directly or not or through a connected person whether control is exercised or not); or
- in partnership with that director.
- Connected persons however are not just “persons” as companies may be deemed to be connected persons also if a body corporate is controlled by the director or controlled by another body corporate that is controlled by the director. Control in this instance is defined as the director and other directors of the company or persons connected with the director.
- are interested in 50% or more of the shares of the body; or
- are entitled to exercise one-half or more of the voting power at a general meeting of the body
- On this basis in considering the evidential provisions we now also need to consider loans to group which are not 100% owned within the group and connected companies.
- S.221 Shadow Directors (who are individuals) – persons giving instructions to the director are related parties and should be considered
- S.222 De-Facto Directors – carrying out the duties of director although not formally appointed a director should be considered a director for disclosure purposes.
- Note Section 33 of FRS 102 would expand the definition of related parties and would include mother/father in laws.
Examples of connected parties in the context of directors transactions/remuneration etc.
Example 1: Mr X who is a director owns 50% of Company A and 100% of Company B
Company B is a connected person of Company B and vice versa. Therefore all transactions with this entity must be disclosed. Any non-trade debtor balances in Company B that relates to Company A comes within the remit of S.239 Companies Act 2014.
Example 2: Mr X a director gets paid €100k from Company A. Company A also employs his adult son, Mr Y a pays him €25,000
Disclosures in the Financial Statements with regard to directors remuneration should disclose the €125k (can put a disclosure note to state that included within the amount is amounts paid to the directors children and specify the amount if preferred).
(Note for the purposes of disclosure of directors remuneration required by S.305 & S.306 the inclusion of the remuneration of connected persons remuneration is only required for periods beginning on or after 1 June 2015)
Any transaction other than wages with Mr Y should also be disclosed.
Example 3: Mr X, is a director of Parent A and also a director of Subsidiary B which is 100% owned by Parent A. Does transactions with this company need to be disclosed?
No as Schedule 3 paragraph 67(3) confirms that transactions with wholly owned group companies are not required to be disclosed. If this were a 99% subsidiary then transactions would need to be disclosed.
Example 4: Mr X a director of Parent A and subsidiary B which is 100% owned. During the year Sub B paid Mr X for his services to Parent A but did not recharge this. Disclosure should be made in the parent Financial Statements of the fact that Mr X has a contract of service with Sub B and the costs are not recharged by Sub B to Parent A, disclosure should also be given of the wage paid to Mr X for his services to Parent A.
Example 5: Mr X owns 100% of Company A which in turn owns 100% Company B. Company A has Mr X on the books as an employee and pays €100,000 for his services to both companies. €20,000 of this relates to services provided for Company B which is recharged to Company B.
In Company A’s Financial Statements it should disclose directors remuneration as €80,000.
In Company B, it should disclose directors’ remuneration of €20,000 and detail the fact that the contract of service is with a related company and costs are recharged.
If Co. B was only 95% owned by Co. A then the same disclosure would be required but in addition all transactions with Co. B would also have to be disclosed.
If we take this example and this time assume that a management charge is made but the wage element could not be determined this fact would need to be disclosed in Co. B as well as disclosing the total management charge recharged.
Example 6: Mr X owns 100% of Co. A. Mr X also runs a business as a sole trader which is a completely different business than the business of the company. Co. A loans money to the sole trader business.
The transaction with Co. A is a related party transaction as effectively the sole trader business is Mr X.
Therefore disclosure required in the Financial Statements in relation to this loan and disclosure requirements of S.307. Disclosure would also be required if this was a loan to Co. A under S.309.
Also comes within remit of S.239 CA 2014 and depending on its level may be in breach of S.239. Disclosure required of normal trade transactions also if these were entered into between both parties.
If the transaction with Co. A and the sole trader business was carried out in the ordinary course of business then may not come within the remit of S.239/S.240 under S.245 CA 2014.
Example 7: Mr X and Mr Y is in partnership and runs a business. Mr X owns 100% of Co. A. The business ran in partnership is completely different than the business carried out in the Co.
Any transactions with these two entities must be disclosed is the financial statements. Funds advanced to the partnership will come within the remit of S.239.