What is an Affiliate?
An affiliate is a term used to describe a company that is related to another, where one company owns a non-controlling stake in the other. An affiliation can also be a relationship between two different companies where they are both subsidiaries or associates of the same parent company. The terms “affiliate” and “associate” are often used interchangeably, and while all associates are affiliates, not all affiliates are associates.
Key Learning Points
- Equity method accounting is used when there is significant influence but not control
- An affiliate is an investment of between 20%-50% of equity stake in another company
Affiliates in a Group Structure
An affiliate is established by the level of ownership a parent company holds in another. The affiliate is usually subordinate to the other, and the parent has a minority stake in the affiliate.
Here’s an example. Topco Ltd owns 35% of Midico Ltd, and also 80% of Smallco Ltd. Topco and Midico are affiliates, and Midico is also an associate of Topco (see our blog on associates). Smallco is a subsidiary of Topco Ltd. Midico and Smallco would consider themselves affiliates with each other, as they both have an equity investment relationship with Topco.
Other Definitions of Affiliate in Business
There are several other definitions of affiliate in business, depending on the sector.
In the broadcasting industry in the US, a network affiliate is a local broadcaster that is not owned by the network, but instead a separate company, which carries some or all of the lineup of programmes offered by a particular network. This affiliate setup exists in both radio and television broadcasting. The alternative to a network affiliate is an “owned & operated”, or “O&O” station, which is owned and operated by the network.
A retail affiliate is a company that sells other suppliers merchandise for a commission. This is especially common in e-commerce, such as the Amazon Storefront programme.
An affiliate network (not to be confused with a network affiliate), is a group of associated, but not necessarily equity-related, companies that offer well-matched or complementary products. Examples of these might be preferred provider programmes, such as the vehicle insurance provider for your car having a preferred repair garage in your area that might offer reduced rates.
Affiliate marketing is a predominantly online type of performance-based marketing, where one company rewards another for steering traffic towards their website.