Affiliate -- A condition of being united, allied, associated, or attached. An affiliate company is one effectively controlled by another.
Generally, one company is affiliated with another when both have less than a bulk share in the voting stock of the other or when both are subsidiary companies of a larger third entity, termed the Parent Company. The latter is defined to be one that possesses voting stock of a Subsidiary in excess of 50%. If there is no instance of a parent subsidiary partnership, the term affiliate is used for inter-corporate matters whether explicit or implied. The term subsidiary is usually employed in the presence of majority control.
The Banking Act of 1933 defined an affiliate as any entity of which a bank is either in ownership or in control, through stock holdings or direct ownership by the bankfs shareholders or coincidence of the bank directors and affiliate functionaries.
In the filing of consolidated tax returns, the IRS lays down the criterion that firms be reckoned as affiliates if the parent or another encompassing entity possesses a minimum of 80% of the voting shares.
Two definitions of affiliate are specified in the Interstate Commerce Commission, Account 706: 1. Firstly, an affiliate is an organization that is under the power of a single accounting firm either singly or in partnership by the terms of a common contract. Secondly, an affiliate is one that exercises control over an accounting company single-handedly or in concert with others according to an agreement.
By the Investment Company Act, if the outstanding voting stock of a firm is under direct or indirect ownership, then that firm is an affiliate.
About the author
Copyright © 2005 by Mark McCracken, All Rights Reserved. TeachMeFinance.com is an informational website, and should not be used as a substitute for professional financial or legal advice. TeachMeFinance.com and its owner recommend consultation with a professional financial advisor prior to any investment or financial decision. Please read our disclaimer.