Affiliated entity definition

What is an Affiliated Entity?

An affiliated entity is an organization that directly or indirectly controls another entity, or is directly or indirectly controlled by another entity, or which is under common control alongside another entity. Thus, an affiliated entity could be a parent company or a subsidiary company. The concept of control is considered to imply that one has the ability to alter the direction of management policies. Such control is usually associated with the number of voting shares held, but control could also be associated with the terms of a contract.

Affiliated entities may be associated with each other in some way, but they still exist as separate legal entities. This means that, despite any connections they may have, they operate with separate organizational structures, management teams, and operational processes.

Examples of Affiliated Entities

Several examples of affiliated entities are noted below:

• Parent company. A business entity that owns a controlling interest (usually more than 50%) in another company, thus exercising control over its operations and decisions.

• Subsidiary company. A company that is controlled by a parent company through ownership of the majority of its voting stock.

• Sister companies. Two or more companies that are subsidiaries of the same parent company and are therefore under common control.

• Joint venture entity. A separate legal entity formed by two or more companies that share ownership, control, and profits, often considered affiliated due to shared governance and investment.

• Holding company. A company created to own shares in other companies, exerting control and managing affiliated businesses without necessarily engaging in its own operations.