What’s an affiliate?
Affiliate usually means a business partnership when one company owns less than a majority stake in the other’s stock. Affiliations refer to a connection when two or more companies are subsidiaries of a bigger parent company.
Retailers use affiliates, too. One company affiliates with another to market its products or services and receive a commission. Affiliate agreements, where the affiliate channels internet traffic and e-sales, are now common.
There are various business, securities, and capital market meanings of affiliate.
First, an affiliate is a linked company. The subordinate usually holds a minority ownership (less than 50%) in the affiliate. A third corporation may own an affiliate. The degree of parent firm ownership in another determines an affiliate.
If BIG Corporation holds 40% of MID Corporation’s common stock and 75% of TINY Corporation, MID and BIG are affiliates, and TINY is BIG’s subsidiary. MID and TINY may be affiliates.
For consolidated tax returns, IRS regulations require a parent business to own at least 80% of a firm’s voting stock to be related.
Affiliate companies offer other merchants’ products for commission in retail and e-commerce. Products are ordered from the main company but sold on the affiliate’s site. E-commerce affiliates include Amazon and eBay.
A multinational firm can use affiliates to enter worldwide markets while preserving its name if the affiliate fails or the parent company is seen negatively due to its foreign origin. Learning the differences between affiliates and other company configurations helps cover debts and legal obligations.
Another Affiliate Type
Affiliates are everywhere in business. Affiliates are executive officials, directors, big owners, subsidiaries, parent entities, and sister firms in corporate securities and capital markets. Two companies that own less than a majority of voting stock can be affiliates. Merrill Lynch is one of many Bank of America affiliates worldwide.
Financial loan agreements define affiliation as an entity other than a subsidiary governing, controlled by, or under shared control with an entity.
Two parties are connected in commerce if one controls the other or a third party controls both. Affiliate insider trading laws are stricter than those of other companies.
- Affiliate networks are companies that sell complementary or comparable items and share leads. They may offer cross-promotional incentives to encourage customers to use an affiliate’s services.
- Affiliate banks often underwrite securities and penetrate overseas markets where other banks cannot.
Associate vs. Subsidiary
A subsidiary’s majority shareholder is the parent corporation, unlike an affiliate. The parent firm controls the subsidiary as the primary shareholder. Thus, the parent has significant control over the subsidiary and can hire and fire executives and nominate board directors.
- A larger corporation owns a minority ownership in an affiliate.
- In retail, one company partners with another to sell goods and services.
- Across industries, affiliate partnerships take numerous forms.