An affiliate is kind of business relationship in which one company has less than a majority stake in the other company’s stock. Affiliations can also be a relationship between two different companies who are part of a larger parent company group. Overall, an affiliate is determined by the degree of ownership a parent company holds in another company. Keep in mind that affiliates are part of separate companies that operate independently of one another for the most part with their own cultures and corporate structures.
So does that mean that the companies are just like totally BFF? Not quite.
Here’s what the government has to say about it: The Securities Act Rule 144 and Rule 405 defines an affiliate as an individual who controls, is controlled by, or is under common control with another person. Which sounds like bad news. Rule 144 generally includes executive officers, directors and 10% stockholders in addition to relatives (e.g., spouses) and specified companies, trusts and other entities that meet the definition. Occasionally, a 5% or greater ownership is deemed an affiliate.
One way affiliates are used is precisely to protect a larger parent company. By breaking off into smaller companies, there is less pressure of failure on the larger company if the affiliate company goes under.
When it comes to online shopping, affiliates are a big deal because that’s how a lot of companies get their goods to more people. Amazon is a great example of this. Amazon affiliates post their items on Amazon so that they can reach a lot of people shopping on the website. In many cases, Amazon facilitates the packaging and shipping of the item as well, taking a percentage of the sales as a fee for its services.
I often feel like I’m in an affiliate relationship with my wife. She says we split everything 50/50 but then I end up curled up on a quarter of the bed at night and that doesn’t seem so true anymore.