Arm’s length price
Arm’s length price
The price at which a willing buyer and a willing unrelated seller would freely agree to transact or a trade between related parties that is conducted as if they were unrelated, so that there is no conflict of interest in the transaction.
An arm's length transaction refers to a business deal in which buyers and sellers act independently without one party influencing the other. Arm's length transactions assert that both parties act in their own self-interest and are not subject to pressure from the other party. They also assure others that there is no collusion between the buyer and seller. In the interest of fairness, both parties usually have equal access to information related to the deal.
An arm’s length transaction, also known as the arm’s length principle (ALP), indicates a transaction between two independent parties in which both parties are acting in their own self-interest. Both buyer and seller are independent, possess equal bargaining power, are not under pressure or duress from the opposing party, and are acting in their own self-interest to attain the most beneficial deal.
Campbell R. H.(2018).Arm’s length price.Retrieved from https://www.nasdaq.com/glossary/a/arms-length-price
By the Investopedia team.(2023,August 30).What Is an Arm's Length Transaction? Its Importance, With Examples.Retrieved from https://www.investopedia.com/terms/a/armslength.asp
Written by CFI Team.What is an Arm’s Length Transaction? Retrieved from https://corporatefinanceinstitute.com/resources/valuation/arms-length-transaction/