Arm’s-Length

In an arm’s length transaction, both parties to a deal voluntarily enter into the transaction, they each act in their self-interest, and have equal bargaining power. Arm’s-length suggests that there is distance between the parties and they are not secretly trying to benefit one of the parties with a deal that only appears to have been made in good faith. The opposite of an arm’s length transaction are circumstances where a deal is designed to benefit one party at the expense of another. For example, if a corporation enters into a deal with one of its officers or directors so that the officer or director benefits from the transaction at the corporation’s expense, this would damage the shareholders (owners) of the corporation.