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What Is an Affiliated Company?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 13 July 2014
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    Conjecture Corporation
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Affiliated companies are any two business operations that have some sort of established and ongoing connection with one another. The term may be applied to situations where one company owns a minority interest in another business, or where two companies are subsidiaries of a parent company. In recent years, the concept of the affiliated company has also come to be applied to businesses that are affiliated with the same industry, and choose to forge an ongoing business relationship and sharing of resources to the mutual benefit of both entities.

The most common example of an affiliated company is when one business owns less than fifty percent of the shares of stock issued by a different company, but still such a significant amount that it is able to exude a great deal of influence on the activities of the company. For example, a business may own a 49% interest in another company, while the company retains 51% of the interest. In this scenario, the business holding the minority interest may not be involved in the day to day operations of the company, but will often have some input into the general direction pursued by the company, as well as influence any major decisions made by the company’s officers.

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Another example of an affiliated company is sometimes referred to as the sister company. Here, two business entities are owned by a parent company. The connection through the parent allows the two sisters to interact on projects of common interest, such as launching joint marketing campaigns, or sharing resources such as retail facilities as means of maximizing exposure and profits while minimizing operating expenses. For example, two fast food restaurants that are owned by the same conglomerate may choose to co-locate in the same building, thus drawing in groups of consumers because of the wider selection of food items they can enjoy at the single location. Sister companies may also share employees as well as facilities, which also helps to improve the bottom line for both entities.

An affiliated company may also refer to a business that has entered into an ongoing partnership with another company, with the goal of combining some resources as a means of increasing market share. The sharing may take the form of jointly funding advertising by relating products produced by each company with the other. One common example is the creation of a campaign that pairs a particular soft drink with a specific snack, such as a cola and small packets of peanuts. This type of cross promotion can be ended at any time the two affiliates choose, if they find that their joint efforts do not produce the results they had hoped to achieve. In this scenario, the affiliated company relationship is usually governed by a contract that establishes the policies and procedures that both parties will follow for the duration of the relationship.

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