Affiliated Companies: Definition, Criteria, and Examples

What is an affiliated company?

Affiliated companies (or affiliates) are businesses that are related because one company holds a minority ownership stake in another or because both are controlled by the same third party. Typically, the parent owns less than 50% of the affiliate, which preserves separate operations and limits the parent’s liability.

How affiliation occurs

Common ways companies become affiliated:
* Minority investment: A parent acquires a significant but noncontrolling stake.
* Spin-off: A parent separates part of its operations into a distinct company and retains a minority interest.
* Common control: Two companies are affiliated because a third party controls both.

Affiliates are often used to enter foreign markets, preserve local branding, or limit exposure while maintaining strategic ties.

Affiliates vs. subsidiaries

Key differences:
* Ownership: Affiliate — parent owns less than 50%; Subsidiary — parent owns more than 50%.
* Control: Subsidiaries are majority-controlled and often consolidated into the parent’s financial statements; affiliates remain separate with independent management.
* Liability and governance: Both are separate legal entities, but a subsidiary’s parent usually has greater voting power and influence.

Note: In e-commerce and marketing, “affiliate” commonly refers to a website or partner that promotes another company’s products for a commission (affiliate marketing). This usage is distinct from corporate ownership relationships.

Regulatory considerations

Rules and definitions for affiliates vary by jurisdiction and regulator. Examples of regulatory concerns include:
* Securities regulations: Rules can restrict affiliated parties from trading or soliciting trades in securities during distribution periods and may impose disclosure or recordkeeping requirements.
* Consumer privacy and disclosures: Firms may need to inform consumers before sharing information with nonaffiliated third parties, while interactions with affiliates often follow different rules.
* Recordkeeping: Broker-dealers and other regulated entities must track affiliates whose activities materially affect their finances or operations.

Because definitions and obligations differ across agencies (e.g., IRS vs. SEC) and countries, legal and compliance review is essential when evaluating affiliation.

Tax consequences

Tax treatment of affiliated groups varies by jurisdiction. Common themes:
* Limits on which members can claim certain tax credits or deductions.
* Aggregation or ceiling rules that restrict tax benefits across affiliated entities.
* Determination of affiliate status for tax purposes often requires detailed, case-specific analysis.

Consult a tax advisor to assess how affiliation affects tax liabilities and benefits.

Why companies use affiliates

Companies form or use affiliates to:
* Enter new or foreign markets while limiting exposure.
* Maintain separate brand identities or local management.
* Raise capital without consolidating risk on the parent’s balance sheet.
* Pursue tax or regulatory advantages available to separate entities.

Practical example

A parent company may buy a 30% stake in a local firm to gain market access while leaving control with local management. That local firm is an affiliate, not a subsidiary, because the parent lacks majority ownership.

Key takeaways

• Affiliates are companies linked by minority ownership or common control, typically with parent ownership below 50%.
• Affiliates preserve legal and operational separation from parents, unlike majority-owned subsidiaries.
• Regulatory, disclosure, and tax rules for affiliates vary widely and require professional review.
• The term “affiliate” also has a separate meaning in online marketing (affiliate marketing).

Frequently asked questions

Q: Is an affiliate always less than 50% owned?
A: Generally yes—an affiliate implies a minority stake—but definitions can vary by regulator and jurisdiction.

Q: Do affiliates appear on the parent’s financial statements?
A: Affiliates are usually not consolidated; however, equity accounting may be used if the parent has significant influence.

Q: Are affiliates treated the same as subsidiaries for tax purposes?
A: Not necessarily. Tax rules vary and often treat affiliates differently from subsidiaries; consult local tax guidance.