Which of the following would be considered an arm's length transaction?

Which of the following would be considered an arm's length transaction?

• A. One where the buyer is related to the seller
• B. One in which the buyer and seller know one another
• C. One where the buyer is unaware of the seller's identity
• D. One in which the buyer and seller don't know one another

Answer: (D)

An arm's length transaction is defined as a deal in which the buyers and sellers act independently without any relationship or personal connection that could influence their decision-making. In this scenario, option D accurately describes such a situation because it involves a buyer and a seller who do not know each other, which minimizes potential biases or pressures that could arise from familiarity or personal ties. In contrast, the other options describe situations that imply some level of relationship or knowledge between the parties involved, which may lead to conflicts of interest or influence the negotiation process. In arm's length transactions, both parties are presumed to be acting in their own self-interest, which helps ensure a fair market value is established for the assets involved. Thus, this detachment is critical in determining the legitimacy and fairness of the transaction.

An arm's length transaction is defined as a deal in which the buyers and sellers act independently without any relationship or personal connection that could influence their decision-making. In this scenario, option D accurately describes such a situation because it involves a buyer and a seller who do not know each other, which minimizes potential biases or pressures that could arise from familiarity or personal ties.

In contrast, the other options describe situations that imply some level of relationship or knowledge between the parties involved, which may lead to conflicts of interest or influence the negotiation process. In arm's length transactions, both parties are presumed to be acting in their own self-interest, which helps ensure a fair market value is established for the assets involved. Thus, this detachment is critical in determining the legitimacy and fairness of the transaction.