Affiliate and subsidiary companies can often be mistaken for one. They both have their differences. Some people believe they are the same. This is not true, as affiliated companies are companies that own less than 50% of a subsidiary company. And both companies are owned by the parent company. In this article, we will discuss the main differences and similarities between Affiliate vs Subsidiary, Affiliate vs Associate company, and how to easily tell their differences.
Affiliate vs Subsidiary
While most people often mistake the two for one. However, there is some key difference between an affiliate and a subsidiary company.
Two or many companies can affiliate with one another. Only when a company out of the companies has lesser than 50% proprietorship of the share capital.
Affiliate Company
As long as the shares are lower than 50%, the affiliate does not have control over the activity of the corporation.
An affiliate company may have little control in some areas of the business. An affiliate may also lose a higher percentage of power, if/when another controls more companies.
Most companies create or sign an affiliate partnership agreement with smaller companies/businesses for the growth of all associated companies.
Subsidiary
Another term for a subsidiary that is owned and controlled by the parent firm is a “daughter company.” A subsidiary company is also usually and commonly referred to as a parent company.
A subsidiary company is a company that partially/completely belongs to a parent company.
We can say, that in this regard, both an affiliate and a subsidiary company are similar. However, if another company owns up to or more than 50% shares of the subsidiary account. Then it becomes the parent company. And that helps the other company to have more power to control both the subsidiary and affiliate company.
What Qualifies a Company As a Subsidiary Company
The qualifications a company can have to become a subsidiary company is when it is operated and managed as a different organization by its parent company.
A parent company is a company that has more ownership of all the subsidiary shares. They are the majority shareholder.
What are the types of a subsidiary?
1.) Wholly Owned:
This type of subsidiary is when the parent company is the shareholder of 100% of the subsidiary company. They hold all the shares and control of the subsidiary company.
2.) Partly Owned:
This involves the parent company holding up to 20 to 50% of the ownership, shares, and control.
3.) Joint Venture:
A joint venture is a type of subsidiary company that is usually created and owned by two companies. Each company has 50% ownership.
Benefits of a Subsidiary Company:
#1. Risk Reduction:
A subsidiary company manages its business and tasks independently, so it is rare for a subsidiary company to experience losses. Whether financial or potential loss. A subsidiary hardly gets affected when things go south. Especially when there is a presence of a parent company; the parent company usually takes responsibility for its actions; automatically protects the interest of a subsidiary company.
#2. Tax Benefits
A subsidiary company comes with extra benefits in terms of tax. They receive tax reductions. They can only pay taxes within their country.
#3. Easy to manage
A subsidiary company is easy and undemanding to manage and establish.
#4. Brand recognition
One of the main advantages of a subsidiary company is gaining more popularity. In most cases, a subsidiary company increases and improves its performance, which leads to its brands gaining global attention.
Similarities Between an Affiliate(ed) vs Subsidiary Company
While they may have their differences, affiliate and subsidiary companies have some similarities. Some of these similarities are reasons why most people often mistake them for one.
Here Are a Few Similarities Between an Affiliate(ed) vs Subsidiary Company:
An affiliate and a subsidiary company usually have a parent account. Although not all subsidiary and affiliate companies have a parent company. But they are often controlled by the company with the majority shares.
Both affiliate and subsidiary are similar to a company that has a piece of its goods or property managed by another company.
They are also similar in the power control a parent company has as an owner(with over 50% of ownership) over another company and the interest they receive in a company.
Difference Between an Affiliate Company and a Subsidiary Company
An affiliate company is controlled based on the ownership a parent company has over the other company. An affiliate company can be defined as a company partly owned by another company. An example of this is Bal boa owned by kelvin martin and Todd pickup.
A subsidiary is a company owned by a parent company. A subsidiary company is usually added to a parent company, whether reported for financial purposes or could not establish, an example of this is Jamie Dimon who is a subsidiary of JP Morgan
Affiliate VS Associate Company
An affiliate and associate company is quite different from one another. However, An affiliate company owns voting shares of 20-50% in a parent company. The case is different with an associate company.
An associate company is a company where the parent company owns a minority shares of the associate company.
Differences and Similarities Between an Associate And(VS) An Affiliate Company
The main difference between an associate and affiliate company remains that a parent company owns the majority of shares in an affiliate company. The control a parent company has on an associate company is limited.
An associate company is a company, in which a part of it belongs to a parent company. The percentage of ownership a parent company has over an associate company is between (20 to 50%).
And that is the reason why an associate is similar to an affiliate company because in an affiliate the parent company is the majority shareholder of up to 50% or more ownership.
But with an associate account, the parent company is the minority shareholder of less than 30-50% ownership.
On some occasions, the words affiliate and associate are identical. They have similar meanings, but in a business sense, they have different meanings.
The difference between the two words is that affiliates signify a formal relationship. For example, partnership and ownership can be owned both privately or owned by the government. While the word associate can be used in informal and formal relationships, an associate company can only be a private company.
What is an Affiliate Company
An affiliate company is a company that owns 20-50%of a company. They are often under the control of a parent company.
An affiliated company is a correlation between another company with one of the companies owning the other as a minority shareholder.
A company becomes an affiliated company when it is taken over by another company that owns the majority share in a corporation. An agreement between an affiliated company is considered one that any kind of business can join. An affiliate agreement is an agreement between a company and another party.
There are different benefits between two companies becoming affiliated:
1.) Investment Opportunities:
One of the benefits of two companies becoming affiliated is the investment opportunities available. When two companies become affiliated, they both get advanced opportunities that will help their interests.
2.) Cost-effective:
When two or more companies become affiliated, there will be a reduction in high spending. instead, they will get wiser about the projects they both have to execute.
3.) Tax Benefits:
There are many tax benefits in owning an affiliate company, for example, tax reduction or reduction of tax liability.
4.) Brand Recognition:
When a company is affiliated with another consumers will quickly identify and recognize the brand, product, and services.
Is a Subsidiary Always an Affiliate?
A subsidiary company is oft considered an affiliate. A subsidiary is a company that belongs to a parent company that has more than 50% of all the subsidiary company shares.
In a subsidiary company, the parent company is usually the minority shareholder. That way it is considered an affiliate because two or more companies are affiliated with each other.
However, an affiliate company is not always considered a subsidiary company because an affiliate is often used to describe a company whose parent company possesses 20 to 50% ownership of the affiliated.
What Is Considered an Affiliate Company?
Here are a few examples of an affiliate company:
- Bank of America is a shareholder in Merrill Lynch.
- Hyundai Motor is a shareholder of KIA motors.
Is a Sister Company an Affiliate?
No. A sister company is not an affiliate company. Instead, they are the subsidiaries of a parent company.
What Is an Example of a Subsidiary Company?
An example of a subsidiary company is Google, Nest, and YouTube being owned by Alphabet Inc. Alphabet Inc is the parent company while Google, Nest, and YouTube are the subsidiaries.
Also, Facebook, WhatsApp, and Instagram are owned by Meta. Meta in this case is the parent company, while Facebook, WhatsApp, and Instagram are the subsidiaries.
Township, Garden scape, and Home Scape are owned by Playrix. Playrix is the parent company, while Township, Garden scape, and home scape are the subsidiaries.
Trust, LandSafe, Balboa, and Merrill Lynch are owned by Bank of America. Bank of America is the parent company, while Trust, LandSafe, Balboa, and Merrill Lynch are the subsidiaries.
Disney owns more than 50% of the shares in ESPN. Disney is the parent company, while ESPN is the subsidiary.
How Do You Become an Affiliated Company?
To become an affiliate company, one of the companies must be a minority shareholder of the other company, or the other company must be a minority shareholder of the company, that way the two companies will be affiliates.
In some cases, two companies can be affiliated when they decide to take over the other. In other cases, companies may be affiliates when they want to enter a new and foreign market either to save tax or for brand recognition.
To Wrap Up
The percentage of ownership separates an affiliated company from a subsidiary. 20 to 50% of an affiliate company’s ownership belongs to a parent company. An associate company is one that supports or owns another. Parent companies own up to 50% of another company’s shares.
I believe you can now easily tell the main differences and similarities between Affiliate vs Subsidiary, Affiliate vs Associate company, and how they work.
Affiliate vs Subsidiary FAQs
What is the difference between Affiliate vs Associate Company?
The main difference between an associate and(vs) affiliate company remains that a parent company owns the majority of shares in an affiliate company. The control a parent company has on an associate company is limited.
Related Articles
