Companies are affiliated when one company is a minority shareholder of another. Two companies may also be affiliated if they are controlled by a separate, third party. In the business world, affiliated companies are often simply called affiliates. The term is sometimes used to refer company affiliations companies that are related to each other in some way.
For example, Bank of America has many different affiliated companies including Banc of America, US Trust, Landsafe, Balboa, and Merrill Lynch. Companies may be affiliated with one another to get into a new market, to maintain separate brand identities, to raise capital without affecting the parent or other companies, and to save on taxes. In most cases, affiliates are associates or associated companies, which describes an organization whose parent has a minority stake in it. There are several ways companies can become affiliated. A company may decide to buy out or take over another one, or it may decide to spin off a portion of its operations into a new affiliate altogether. In either case, the parent company will generally keep its operations separate from its affiliates.
Affiliates are a common way for parent businesses to enter foreign markets while keeping a minority interest in a business. This is especially important if the parent wants to shake off its majority stake in the affiliate. There is no single bright-line test to determine if one company is affiliated with another. In fact, the criteria for affiliation changes from country to country, state to state, and even between regulatory bodies. But subsidiaries remain separate legal entities from their parents, meaning they are liable for their own taxes, liabilities, and governance.
They are also responsible for following the laws and regulations where they are headquartered, especially if they operate in a different jurisdiction from the parent company. An example of a subsidiary is the relationship between the Walt Disney Corporation and sports network ESPN. ESPN, making it a majority shareholder. Two companies are affiliated when one is a minority shareholder of another. Parent businesses can use affiliates as a way to enter foreign markets. Affiliates are different than subsidiaries, which are majority-owned by the parent company.
In nearly all jurisdictions, there are important tax consequences for affiliated companies. In the United States, the Affordable Care Act contains provisions to the effect that certain affiliated employers with common ownership or part of a controlled group must aggregate their employees to determine their workforce size. Securities markets around the world have rules that concern affiliates of the businesses they regulate. Here again, these are complex rules that need to be analyzed by local experts on a case-by-case basis. Before disclosing nonpublic personal information about a consumer to a nonaffiliated third party, a broker-dealer must first give a consumer an opt-out notice and a reasonable opportunity to opt out of the disclosure. Broker-dealers must maintain and preserve certain information regarding those affiliates, subsidiaries, and holding companies whose business activities are reasonably likely to have a material impact on their own finances and operations. The offers that appear in this table are from partnerships from which Investopedia receives compensation.
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