If you run more than one company, have a family trust that holds shares, or your partner sits on the board of a related company, you’re likely dealing with “related entities” under Australia’s Corporations Act 2001 (Cth).
Understanding when entities are “related” isn’t just a technical legal point. It affects how you structure your group, the contracts you use between companies, whether you need approvals for certain transactions, what goes into your financial statements and how you manage conflicts of interest.
In this guide, we unpack what “related entity” means under the Corporations Act (in plain English), why it matters to small businesses, and how to manage related-entity dealings properly so you stay compliant and protect your business.
The Corporations Act uses “entity” in a broad sense. It can include a company, individual, trust, partnership or other body. A “related entity” is essentially an entity that has a specified relationship with another entity. The legislation sets out several ways that relationship can exist.
High-level summary (in plain English)
Two entities are “related” when, for example:
- One controls the other (directly or indirectly), or both are controlled by the same person or entity.
- They are “related bodies corporate” (for example, a holding company and its subsidiary, or two subsidiaries of the same holding company).
- They are connected through directors, members (shareholders) and their relatives, where those people also control another entity.
Control is a key concept here. It often involves the ability to determine the composition of a company’s board or to cast or control more than half the votes. If you want to dive into the legal meaning, it’s worth revisiting how control under the Corporations Act works in practice.
“Related bodies corporate” is a specific subset of related entities. It covers parent-subsidiary relationships and “sister” companies with the same parent. If you have a parent company and trading subsidiaries, they’re related bodies corporate by definition. You can read more on how Holding Companies and Subsidiary Companies fit together.
By contrast, “related entity” is wider. It can capture individuals and their controlled entities, family relationships tied to control, and entities connected through members or directors. This broader definition is why the concept shows up across governance, disclosure and transaction rules.
Another term you may encounter is “associated entity.” It appears in areas like workplace relations and funding disclosures and has its own definition in different laws. It’s not the same as “related entity,” but they both deal with influence and control. If you need to compare them, see our guide on what an Associated Entity is in Australian business law.
If two entities are related, it can change the way you must manage certain transactions and relationships. Key impacts include:
- Governance and conflicts: Directors’ duties still apply where there are related-party interests. You may need to manage conflicts, step out of decisions, or record specific approvals.
- Related-party transactions: Loans, service fees, asset transfers, guarantees and IP licences between related entities should be on arm’s length terms and documented. Public companies have strict rules under Chapter 2E (related party benefits). Even for proprietary companies, sloppy or undocumented related-party dealings can create risk.
- Financial reporting and disclosure: Your accountant may require additional related-party disclosures in financial statements (AASB standards refer to related parties and control). Accurate records make this straightforward.
- Solvency and asset protection: Intercompany loans and guarantees can affect solvency and creditor positions. Poorly documented arrangements can be challenged if things go wrong.
- Tax and transfer pricing: While your accountant handles tax, it’s easier to justify pricing between related entities when you have clear, written agreements.
The practical takeaway: if you have a group, family-owned structure or people wearing multiple hats across entities, assume you have related entities and put formal arrangements in place.
It helps to start by mapping your corporate relationships. Ask:
- Is one company the holding company of another (direct or indirect)? If so, they are related bodies corporate.
- Do two companies share the same holding company? They are also related bodies corporate.
- Does an individual or trust effectively control both companies (for example, through voting power or board appointment rights)? They are likely related entities through control.
In many small business groups, you’ll see a holding entity that owns your trading company, an IP company that holds the brand, and maybe a separate services company for payroll or contractors. That means multiple related bodies corporate, each with its own purpose. A quick structure chart makes it easy to identify where formal contracts and approvals are needed.
1) Intercompany loans and cashflows
It’s common to fund one company from another (or from a director). Don’t rely on emails and “we’ll square it up later.” Put a simple loan agreement in place and consider registering a security interest on the Personal Property Securities Register (PPSR) so the lender has priority if something goes wrong. If this is new to you, our explainer on what the PPSR is will help you understand why it matters.
2) Service or management fees within a group
Where one company provides admin, marketing or management services to another, use a written services agreement that sets out scope, fees, confidentiality, IP and termination. Clearly defining the commercial terms helps demonstrate arm’s length dealing and avoids disputes later.
3) Sharing or licensing IP between entities
Many groups separate brand ownership from trading to protect assets. If your IP sits in a holding company and your trading company uses it, put a licence in place. An Intercompany IP Licence documents the rights, territory, quality control and fees so it’s clear and enforceable.
4) Guarantees and cross-collateralisation
Banks and landlords often ask directors or related companies to guarantee obligations. Understand the risk before signing. Guarantees should be properly drafted, and the underlying agreements (like leases or facility agreements) should be reviewed together so you’re not accepting uncapped or unexpected liabilities.
Whether you’re moving equipment, customer contracts or a domain name, document the transfer price and terms. This is important for accounting, tax, and to prevent disputes if ownership is later questioned.
6) Founders wearing multiple hats
Where a founder is a director of more than one related entity, conflicts can arise. Good governance means recording interests, stepping out of decisions where appropriate, and ensuring the company benefiting from a decision is front of mind (consistent with directors’ duties).
You don’t need to overcomplicate it. A practical, papered approach works well for most SMEs.
Step 1: Map your group and control
Draw a simple organisation chart showing each entity, who owns the shares, who controls voting power and who sits on each board. Be clear about control, not just nominal ownership. If in doubt, revisit the legal meaning of control under the Corporations Act.
List out loans, services, shared staff or resources, IP use, asset transfers and guarantees. Assume that anything informal should be formalised.
Step 3: Put written agreements in place
Use straightforward, tailored contracts: loan agreements, services agreements, IP licences and assignment documents. Set commercial terms that make sense and that you can justify as arm’s length. If you expect ongoing work, avoid ad hoc emails and use a master services agreement with statements of work.
Step 4: Get the right internal approvals
Record board resolutions approving material related-party transactions and any conflicts. Keep minutes, consents and, where necessary, shareholder approvals. Your governance documents (for example, a Company Constitution or Shareholders Agreement) should set out decision-making rules-follow them in practice.
Step 5: Register securities and maintain records
If one entity lends to another and takes security, register it on the PPSR promptly to preserve priority. Keep agreements, invoices and board minutes organised so your accountant can handle related-party disclosures without a scramble at year-end.
Step 6: Review pricing and terms periodically
Circumstances change. Review fees and interest rates, check that services align with scope, and update agreements as your group evolves. If you restructure (for example, add a new IP company or holding vehicle), update your documents and registers accordingly.
Every group is different, but most small businesses dealing with related entities should consider the following documents.
- Intercompany Loan Agreement: Sets out principal, interest, repayment, events of default and any security for loans between related entities (or directors and the company).
- General Security Agreement (GSA): If a lender takes security over company assets, document it and register it on the PPSR to protect priority.
- Services Agreement: Covers internal management, consulting or back-office services with scope, deliverables, fees, IP ownership, confidentiality and termination.
- IP Licence or Assignment: If one entity owns the brand and another uses it, use an IP licence; if you’re moving ownership, execute an assignment. An Intercompany IP Licence is common where an IP company holds the brand for asset protection.
- Asset Sale Agreement: For transfers of equipment, customer agreements or other assets between related entities-clarifies purchase price, warranties and risk transfer.
- Guarantee & Indemnity (where required): If a related entity or director guarantees obligations, ensure the guarantee is clear, capped where possible, and consistent with the primary contract.
- Board and Shareholder Resolutions: Written resolutions approving material related-party transactions and noting any conflicts or abstentions.
- Governing Documents: A current Company Constitution and a Shareholders Agreement to set out decision-making, related-party approvals, dividend policy and dispute mechanisms.
If your group includes a parent and multiple subsidiaries, ensure your structure and governance match how you actually run the business. For context on common structures, explore how Holding Companies and Subsidiary Companies typically operate in Australia.
Practical Tips To Stay Compliant (And Avoid Headaches)
- Keep things at arm’s length: Where possible, set commercial terms that resemble what you’d agree with a third party. If you choose different terms for commercial reasons, note why in your board paper.
- Separate decision-makers where needed: If a director is conflicted, have them disclose the interest and step out of the decision consistent with your constitution and the Corporations Act.
- Paper first, money second: Aim to sign the agreement and put approvals in place before moving cash or assets.
- Register security interests: For intercompany loans or retention of title arrangements, register on the PPSR promptly.
- Use consistent pricing: Management fees, royalty rates and interest should be coherent across your group and defensible if questioned.
- Review annually: Include related-party arrangements in your year-end governance checklist so your agreements, registers and disclosures stay up to date.
FAQs: Quick Answers For Busy Owners
Chapter 2E (related party benefits) applies to public companies and the entities they control. Most small proprietary companies won’t be directly caught by those provisions, but you still need to manage conflicts, directors’ duties and proper documentation. Banks, auditors and investors will also expect arm’s length documentation.
It can be, depending on control and who is a director or member. If the trustee or beneficiaries effectively control the company (or vice versa), the entities may be related. In practice, formalise any dealings (loans, service fees, IP licences) either way.
We share a brand across two companies-what should we do?
Confirm who owns the IP (usually one entity), then put a written licence in place with scope, quality control, royalties (if any) and termination. An Intercompany IP Licence is the standard approach.
They’re defined in different laws for different purposes. “Related entity” is a Corporations Act concept that captures control, related bodies corporate and certain director/member relationships. “Associated entity” is used in other contexts and has its own tests-see our guide on Associated Entity for a comparison.
Key Takeaways
- Under the Corporations Act, entities can be “related” through control, director/member relationships or being related bodies corporate within the same group.
- Related entity status affects governance, conflicts, related-party transactions, financial disclosure and risk-so it’s worth getting right.
- Map your group, identify intercompany dealings and put simple written agreements in place (loans, services, IP licences, asset transfers and any guarantees).
- Record approvals, manage conflicts and register security interests on the PPSR where relevant to protect priority.
- Keep your governance documents up to date with a robust Shareholders Agreement and Company Constitution, and revisit your arrangements annually.
- If you’re unsure whether entities are related, revisit how control under the Corporations Act works, and seek tailored advice before proceeding with any material transaction.
If you’d like a consultation about managing related entity arrangements under the Corporations Act, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.
