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LSDefine
Simple English definitions for legal terms
arm's-length transaction
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A quick definition of arm's-length transaction:
Arm's-Length Transaction: This means a fair and honest deal between two people or companies who are not related to each other. It's like when you trade your toy with a friend's toy, and you both agree that it's a fair trade. In business, it's important to have arm's-length transactions to make sure that everyone is treated fairly and no one is taking advantage of anyone else.
A more thorough explanation:
An arm's-length transaction is a transaction between two parties who are independent and have no relationship with each other. In this type of transaction, both parties act in their own self-interest and try to get the best deal possible.
For example, if you want to sell your car to a friend, it would not be considered an arm's-length transaction because you have a relationship with your friend. However, if you sell your car to a stranger, it would be considered an arm's-length transaction because you have no relationship with the stranger.
Another example of an arm's-length transaction is when a company buys goods or services from another company. The two companies have no relationship with each other and are only interested in getting the best deal possible.
These examples illustrate the definition of an arm's-length transaction because in both cases, the parties involved are independent and have no relationship with each other. They are only interested in getting the best deal possible and acting in their own self-interest.