Typically, most companies involve some amount of Recurrent Related Party Transactions (RRPT) for their day-to-day operations, mainly, for the purchases of raw materials and supplies. Generally, listed companies will seek their shareholders' approval for their RRPT for the following rationale and benefits.
Rationale
- Recurrent Related Party Transactions (RRPT) reflect the long term commercial relationship between parties.
- To reduce substantial administrative costs by avoiding the necessity of convene separate general meetings from time to time to seek shareholders' approval when the RRPT occur.
- Allow human resources and time to be channelled towards attaining its other corporate objectives and business opportunities.
- To enhance the Group's ability to pursue and to explore beneficial business opportunities which are time-sensitive in nature in a more expeditious manner.
- To achieve synergistic benefits e.g. to obtain more competitive products and services, and to minimise capital expenditure.
Benefits
- Cost savings - to improve the allocation and utilisation of resources
- Synergy - to create an effective network that support the companies' operational needs that include marketing, distribution, and/or manufacturing functions.
- Management - To have consistent supply of raw materials and constant availability of skilled personnel; to ensure timely delivery and provision of services, commitment and reliability of quality services; subsequently, to smooth the day-to-day business operation.
Personally, I think the only drawback of this RRPT practice is some "bad" companies may abuse the trust that given by their shareholders to do something selfish and illegal. Thus, we should always get rid of those "bad" companies or companies that managed by selfish people. That's all for today. More fascinating articles and sharing will be updated weekly in Xaivier Blog. So, you are welcome to subscribe our feed to receive our weekly updates
Written by: Xaivier Chia
P/S: The above sharing is solely based on personal insight and information that believed to be reliable. Your valuable feedback are very welcome.
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