Alter Ego Definition and Legal Meaning
On this page, you'll find the legal definition and meaning of Alter Ego, written in plain English, along with examples of how it is used.
What is Alter Ego?
adj. the term is used for transactions, pricing or deals agreed upon by wo such parties, in a manner that does not take into consideration any kind of relation the two parties might share say for example, previous financial agreements, blood relation, etc. The dealing is without any affiliation towards each other and is strictly as business deal, it is called arm’s length transaction. for example, agreements between two relatives might be loose on some points and give one party some unfair advantage, of course with the knowledge of other party; but such a business is said to be not an arm’s length transaction. This comes from the phrase “to keep at an arm’s length” which means to maintain sufficient distance from someone so as to to exclude any intimacy or feelings towards the other person/party. The main implication of not having an arm’s length deal could be additional taxes by the taxation authorities if they find an unfair business being conducted at a lower price thereby resulting in loss in state’s tax collection. Also such dealings are common in government’s affairs with other bodies, such as the judiciary, the press, public bodies, private sector, etc. so as to give the later their freedom of operation.
History and Meaning of Arm's Length Transaction
An arm's length transaction is a transaction between two parties who have no relationship or connection to one another, and who are each acting in their own self-interest. The term comes from the idea that the parties are keeping each other at an "arm's length" so as to avoid any undue influence or bias towards one another. This type of transaction is commonly used in business and legal contexts, particularly in the context of taxation.
The purpose of an arm's length transaction is to ensure that each party is negotiating on an equal footing and that the terms of the transaction are fair and reasonable. This helps to protect against any potential conflicts of interest or bias that might arise if the parties had a pre-existing relationship or connection. For example, if two siblings were conducting a business transaction, it might be difficult for them to negotiate on an equal footing, and there might be concerns about one sibling taking advantage of the other.
Examples of Arm's Length Transactions
A company selling assets to an unrelated third party to ensure that a fair price is paid, and that there is no collusion or insider dealing involved.
A landlord renting out property to a tenant who is not a family member or friend, in order to ensure that the terms of the lease are fair, and that there is no preferential treatment or special arrangements.
A government agency contracting with a private company to provide goods or services, to ensure that the government receives the best possible value for money, and that the company is selected on a competitive basis, rather than being selected because of a pre-existing relationship or connection with government officials.
Legal Terms Similar to Arm's Length Transactions
Fiduciary duty - the duty owed by one party to act in the best interests of another party.
Conflict of interest - a situation in which a person or organization is involved in multiple interests, one of which could possibly corrupt the motivation for an act in another.
Insider dealing - the illegal practice of trading on the stock exchange to one's own advantage through having access to confidential information.