What is an affiliate company

The concept of affiliates

In Russian law, the term “affiliacy” appeared in 1995. Affiliates are persons connected in property relations and able to exert influence over each other. They include members of the board of directors, the council or other management body.

A necessary attribute of an affiliate is the relationship of dependency between a jurist and an affiliate. They may be property, contractual or related.

In Russian legislation, it is forbidden to transfer to affiliates procurement documents, which ensures transparency of procurement and fair competition.

Affiliates may sometimes be individuals who influence the actions of the company, formally and legally without such authority.

The concept and signs of affiliated companies

The term “affiliated companies” was borrowed from foreign law and has been distributed since 1992. But in Russia, this concept is applied in a somewhat different way from the Western meaning. According to FZ 948-1, the key sign of affiliation is the opportunity to influence economic and economic activities of third parties and entrepreneurs.

If in Europe affiliated companies – dependent on other firms, in Russian legislation – the term applies to dependent and dominant persons.

Difficulties in interpreting affiliates relate to a broad interpretation of the concept. In a narrow sense, an affiliate is called a company in which the other has a minority interest (it owns less than 50% of the shares). Affiliates are linked in property and organizational terms.

In a narrow interpretation, an affiliate is a company in which the other has a minority interest, i.e. in its ownership – less than 50% of the voting shares. The company, which has more than 50% of shares of another, is called – the parent. A company with a minority of shares is a subsidiary or subsidiary company. Subsidiary company is always an affiliate, but the term subsidiary is preferred when there is control over most shares of the company in question.

TNCs in regions far from the parent company often resort to the establishment of affiliated companies.

The company may act as a subsidiary of the parent company, and it participates in the management of the affairs of the affiliate based on the contract. Therefore, the branch and regional network are referred to as an affiliate network.

The affiliated company, although carrying out its own economic activities, but in fact fully supports the policy of the parent firm and depends on its decisions. Often, affiliations are used to artificially crushing business in order to optimize the tax base.

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