An affiliate is a type of inter-company relationship in which one company owns less than a majority stake in the other company’s stock. Affiliations can also describe bank affiliates type of inter-company relationship in which at least two different companies are subsidiaries of a larger parent company. An affiliate is determined by the degree of ownership a parent company holds in another company. An affiliate and associate are used to describe a parent company that possesses a minority share of ownership in a company.
TINY Corporation, then MID Corporation and BIG Corporation have an affiliate relationship, and TINY Corporation is BIG Corp. A multinational company may set up affiliates to break into other countries’ markets while protecting the parent company’s name in case the affiliate fails or the parent company is not viewed favorably due to its foreign origin. Understanding the differences between affiliates and other company arrangements is important in covering debts and other legal obligations. For corporate securities and capital markets, an affiliate is a person or entity directly or indirectly controlling, being controlled by, or under common control with another person or entity. In finance, affiliation is defined in a loan agreement as an entity other than a subsidiary directly or indirectly controlling, being controlled by or under common control with an entity. For commerce, two parties are affiliated if either can control the other, or if a third party controls both.
For banking, affiliate banks are popular for underwriting securities and entering foreign markets. In electronic commerce, a firm selling other merchants’ products on its website is an affiliate of that company. Merchandise is ordered from the company’s website, but the sale is transacted at the principal’s site. The offers that appear in this table are from partnerships from which Investopedia receives compensation. An associate company is a corporation whose parent company possesses only a minority stake in the ownership of the corporation. A conglomerate is a company that owns a controlling stake in smaller companies of separate or similar industries, and which conduct business separately.