Affiliate vs Subsidiary
Affiliate and subsidiary are two terms that are widely heard of in business terminology. When speaking of corporations and large scale companies, these two terms are used profusely, thereby sometimes confusing the laymen in terms of their definitions. As a result, one often ends up using the two terms interchangeably which is highly inaccurate to do so.
What is Affiliate?
Affiliate is a term often used in commerce to refer to a commercial entity with a relationship to a larger entity or a peer. In this scenario, the affiliate is a part of a larger company constantly in touch with it. However, an affiliate is not controlled by the larger company or the entity which gives the affiliate an independent standing. For example, a corporation can be referred to as an affiliate of another corporation or an entity when it is not strictly controlled by it or in order to avoid the appearance of control when desired. Affiliates are seen with companies that feel the need to avoid negative public opinion or restrictive laws on foreign ownership.
What is Subsidiary?
A subsidiary can be referred to as a daughter or sister company that is partly or wholly owned by another company or an entity. In order to call a commercial entity a subsidiary, the larger entity needs to own more than half of the subsidiary’s stock, which thereby allows the parent company to act as a holding corporation wholly controlling the policies and activities of the subsidiary. In certain cases, subsidiary can even be government or state-owned enterprises while most common subsidiaries are limited liability companies, corporations, and private companies.
There are two types of subsidiaries such as operating subsidiaries and non-operating subsidiaries. An operating subsidiary is an entity that operates with its own identity whereas a non-operating subsidiary would exist only on paper in the form of bonds, stocks etc., thereby using the identity of the parent company. It is a visible fact that all multinational organizations organize their operations in the form of subsidiaries and is thus a common feature of business in the world today.
What is the difference between an Affiliate and a Subsidiary?
Often heard of in the commercial world, it is quite easy to get confused between the two terms affiliate and subsidiary. While both forms of relationships allow a certain amount of influence to be exercised upon them by another entity, the difference lies in the amount to which this power is exercised.
• An affiliate merely maintains a relationship with a larger entity. It is not completely controlled by the larger entity. A subsidiary is operated under the control of the parent company.
• In order for a company to become a subsidiary, the parent company needs to own more than half of the subsidiary’s stocks. An affiliate has no such bond with another entity; it maybe a minor amount of stocks owned by another company.
• An affiliate operates more or less independently. The actions of a subsidiary are determined by its parent company.