Arms Length Transaction:
A term used in business and legal contexts to describe a transaction or agreement between two parties who are unrelated and have no personal or financial relationship with each other. In an arms length transaction, both parties act independently and in their own self-interest, without any undue influence or coercion from the other party. This type of transaction is considered fair and equitable, as it ensures that both parties have equal bargaining power and are able to negotiate the terms of the agreement freely. Arms length transactions are commonly used in the sale or purchase of goods, services, or property, and are often required to comply with legal and regulatory requirements, such as tax laws or antitrust regulations.
An arms length transaction is a legal term used to describe a transaction in which the parties involved are acting independently and without any special relationship or conflict of interest. In such a transaction, the parties are considered to be dealing with each other on equal terms and without any undue influence. This concept is important in various areas of law, including contract law, tax law, and corporate law, as it helps to ensure fairness and transparency in business dealings. In the context of tax law, for example, the IRS requires that transactions between related parties be conducted at arms length to prevent the manipulation of prices for tax avoidance purposes. Overall, arms length transactions are essential for maintaining the integrity of business dealings and legal agreements.
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This glossary post was last updated: 29th March 2024.
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