Is related party transaction illegal?

Not necessarily illegal. It is illegal for controlling shareholders, actual controllers, directors, supervisors and senior managers of the company to engage in related party transactions. Related party transactions are easy to become a way for major shareholders to empty listed companies, so regulators will pay special attention to them, but this does not mean that related party transactions are illegal. As long as they meet the voting procedures and information disclosure requirements in the Company Law, the Securities Law and the Trading Rules of Listed Companies in Shenzhen and Shanghai, they are legal and compliant.

Legal basis: Article 21 of the Company Law of People's Republic of China (PRC), the controlling shareholder, actual controller, directors, supervisors and senior management personnel of the company shall not use their relationship to harm the interests of the company.

Anyone who violates the provisions of the preceding paragraph and causes losses to the company shall be liable for compensation.

Provisions of the Supreme People's Court on the Application of Several Issues (V) Related party transactions harm the company's interests. The plaintiff company requests the controlling shareholder, actual controller, directors, supervisors and senior managers to compensate the losses caused by the provisions of Article 84 of the General Principles of the Civil Law and Article 21 of the Company Law, but the defendant only defends on the grounds that the transaction has fulfilled the procedures prescribed by law, and the people's court does not support the administrative regulations or the articles of association on information disclosure, shareholders' meeting or consent of shareholders' meeting.

If the company has not brought a lawsuit, shareholders who meet the conditions stipulated in the first paragraph of Article 151 of the Company Law may bring a lawsuit to the people's court in accordance with the provisions of the second and third paragraphs of Article 151 of the Company Law.