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Affiliate

An affiliation is a connection between two firms where one company has a small stake in the other company.

What Is an Affiliate?

An entity that is "officially attached" to another is known as an affiliate. Official attachment denotes the existence of some sort of agreement or contract as well as a public declaration of the relationship between the two companies. Common ownership, shared management, and the presence of a contract are the three criteria used to determine if a firm is an affiliate of another.

The term "affiliate" in broad commercial usage refers to the recognized relationship between two corporate organizations. In other words, a contract governs how one brand, person or group of people can act. The entities must have a contract in place that allows one party access to the other's services, even if they are not publicly connected.

In business, the term "affiliate" is mostly used for two distinct purposes:

  • An affiliate is a corporation that is connected to another firm through a subordinate position in terms of corporate law and taxation.

  • An affiliate in online retail is a person or business tasked with assisting another brand in the direct or indirect sale of goods and services.

Difference Between Affiliate and Subsidiary

An affiliate is a business that is connected to another firm, typically through operating in the same industry or holding shares in the latter. A firm that is owned or managed by another corporation is referred to as a subsidiary. The parent business holds a majority of the shares in the subsidiary. An affiliate is independent of the parent firm and has its own management team and board of directors.

A subsidiary is a division of the parent firm that is usually run by managers from the parent company.

Affiliate as an Independent Contractor

An affiliate often does not work for the firm it is affiliated with. It is a different business and an independent contractor. Even while a corporation may be affiliated with another through ownership, ownership does not imply complete control.

An example is affiliate marketing, which is a contract between a seller and another firm that pays the affiliate a sales commission in exchange for promoting a product or product line for the other business.