What defines an arm's-length relationship between two parties?

An arm's-length relationship between two parties is characterized by a level of independence and objectivity that allows them to engage in transactions without being influenced by personal connections or obligations. This type of relationship typically means that the parties do not have a close familial or friendly tie that could bias their business interactions. Instead, they operate as separate entities with no obligation to act in the interest of the other, which ensures fairness and prevents conflicts of interest.

In contrast to options that involve collaboration or shared responsibilities, an arm's-length relationship is marked by a clear separateness, allowing each party to protect their own interests. This structure is crucial, for instance, in business negotiations or legal agreements where the integrity of the transaction could be questioned if the parties were closely connected.

Mutual financial investments, while indicative of a partnership, would not apply here as they imply a level of commitment and obligation that conflicts with the concept of independence inherent in an arm's-length relationship.