A material transaction is any significant agreement, sale, or financial commitment that substantially affects a company's financial position, operations, or shareholder value, often requiring board approval, disclosure, or shareholder consent to ensure proper governance and transparency.
A Material Transaction is any agreement, sale, purchase, or financial commitment that is large or significant enough to have a substantial impact on your company's financial position, operations, or overall value. In governance terms, these deals go beyond everyday business activities and typically demand heightened scrutiny from the board of directors or even shareholders.
What makes a transaction "material" often depends on its size relative to your company's total assets, revenue, or market capitalisation. For instance, selling a key asset that represents 20% of your balance sheet would qualify, whilst routine supplier contracts would not. Irish companies must carefully identify these to comply with disclosure rules under the Companies Act.
Directors have a fiduciary duty to ensure material transactions are handled transparently to protect shareholder interests. This might involve obtaining independent valuations, shareholder votes, or public announcements, especially for listed or larger private firms preparing financial statements.
Thresholds for materiality vary but are often defined as deals exceeding 5-10% of a company's net assets, revenue, or profits. In practice, your company's constitution or shareholders' agreement may set specific triggers, such as any contract over €100,000 or involving related parties.
Related party transactions, like deals with directors or major shareholders, are almost always material due to conflict of interest risks. These require extra governance steps, including independent advice and shareholder approval excluding the interested party.
Ordinary course transactions are routine operations, such as buying inventory or paying salaries, that align with your standard business model. A material transaction, by contrast, is unusual or outsized, potentially altering your company's strategic direction, like a major acquisition or asset disposal.
The distinction matters for board approvals and disclosures. Routine deals might only need management sign-off, whilst material transactions often require full board review to mitigate risks to share capital or shareholder value.
Shareholder approval is typically needed for material transactions that fundamentally change the company, such as selling most assets, major share issuances, or mergers. Under Irish law, these often need a special resolution (75% vote) to protect minority interests.
Even without a statutory requirement, your articles of association might mandate votes for deals over certain thresholds. This ensures alignment with investor expectations during equity financing rounds.
For startups, examples include raising significant share capital, entering joint ventures, licensing core IP, or selling a business unit. These can trigger valuation adjustments and cap table updates.
Disclosure prevents insider dealing and ensures market fairness, especially for companies eyeing public markets. In private firms, it builds trust with investors reviewing financial statements or during exits.
Failure to disclose can lead to director liability, regulatory fines, or shareholder lawsuits, underscoring robust governance.
Assess by comparing the deal's value to metrics like assets, equity, or earnings. Seek board or advisor input for borderline cases to avoid governance lapses.
