Connected Person
/kəˈnɛktɪd ˈpɜːsən/
A connected person is someone treated as linked to another person or company for tax, company law, or anti-avoidance purposes.
A connected person is someone treated as linked to another person or company for tax, company law, or anti-avoidance purposes.
A connected person is an individual or entity treated as linked to another person or company for legal, tax, or regulatory purposes. The exact definition depends on the legislation being applied, but it commonly includes close family members, companies under common control, directors, shareholders, partners, trustees, and persons acting together.
The concept matters because transactions between connected persons may not be treated in the same way as transactions between independent parties. Tax law, company law, and anti-avoidance rules often look beyond the formal contract to ask whether the parties are related, whether control exists, and whether the terms are genuinely commercial.
For Irish founders, connected person rules appear in areas such as close company taxation, director loans, share transfers, asset sales, employment arrangements, relief claims, and corporation tax. They are especially important in founder-owned companies where personal, family, and company interests can overlap.
Connected person rules are designed to prevent artificial arrangements. If a founder sells an asset to a company they control, pays a family member through the business, lends money to a director, or transfers shares to a related party, the law may apply special rules. These rules can adjust tax outcomes, require approvals, restrict deductions, or impose disclosure obligations.
Control is a common theme. A person may be connected with a company if they control it directly or indirectly, alone or together with associates. Associates can include relatives, business partners, trustees, and companies controlled by those persons. The analysis can extend through group structures and nominee arrangements.
Connected person status does not mean a transaction is prohibited. Many connected party transactions are legitimate. The issue is that they need proper pricing, documentation, approval, and tax treatment. A transaction that would be straightforward between independent parties may require extra care when the parties are connected.
A founder and their company are often connected. If the founder transfers intellectual property into the company, charges rent for a home office, lends money to the company, or receives a benefit from the company, connected person rules may be relevant. The company should document the arrangement and ensure it is commercially reasonable.
Family relationships are another common source. Payments to spouses, civil partners, children, siblings, or parents may need to be justified by real work, market pay, and proper payroll treatment. Share transfers to family members can also trigger tax and company law consequences even if little or no cash changes hands.
Group companies can also be connected. Transactions between a trading company, holding company, subsidiary, or founder vehicle should be priced and documented properly. This matters for transfer pricing, VAT, interest, royalties, management charges, and intercompany loans.
The main risk is assuming that private arrangements will be ignored. Revenue, investors, auditors, and buyers may all review related party transactions. If pricing is not commercial, if approvals are missing, or if records are weak, the company may face tax adjustments, penalties, disclosure issues, or due diligence delays.
Connected person rules also protect the company and other shareholders. A director who contracts with a company they control has a potential conflict of interest. The board should consider whether the transaction is in the company's interests, whether the terms are fair, and whether any approvals are required under the Companies Act 2014.
For reliefs, connected person rules can decide eligibility. Tax reliefs may be restricted where assets are sold to connected persons, where shares are transferred within a family, or where arrangements are structured to obtain a tax advantage. Always check the rule for the specific relief rather than assuming one definition applies everywhere.
Identify connected parties before signing. Ask whether any director, shareholder, family member, group company, trust, or investor vehicle has an interest in the transaction. If yes, pause and check the approval and tax position.
Use market terms and written records. Connected party transactions should be documented as carefully as third-party transactions. Keep contracts, valuations, board approvals, invoices, payment records, and tax advice.
Finally, disclose early in fundraising or sale processes. Connected party issues are much easier to explain when they are documented and raised openly. Hidden related party arrangements can undermine trust during due diligence.
