Practical Law Glossary Item 1-382-3221 (Approx. 3 pages)
Glossary
Affiliate
Generally, an affiliate is an entity that is related to another legal entity. The specific relationship between entities that are affiliates may differ based on the industry, legal requirements, type of transaction, or definition in a particular contract.
In the context of:
Bankruptcy, an entity owning or controlling the debtor, that is owned by the debtor, or that is owned by an entity owning or controlling the debtor. Ownership or control is determined by ownership of, control of, or the power to vote 20% or more of the debtor's outstanding voting securities. It excludes entities holding securities in a fiduciary or agency capacity or solely to secure debt. An affiliate is also an entity whose business or substantially all of whose property is operated under a lease or operating agreement by a debtor or an entity that operates the business or substantially all of the property of the debtor under a lease or operating agreement (§ 101(2), Bankruptcy Code).
Corporate, securities, and capital markets, a person or entity that directly or indirectly controls, is controlled by, or is under common control with another person or entity (Rule 405, Securities Act and Rule 12b-2, Exchange Act). Examples of affiliates include executive officers, directors, large stockholders, subsidiaries, parent entities, and sister companies. The determination of whether two entities are affiliated is a facts and circumstances test, and two entities may be affiliated when one owns less than a majority of the voting stock of the other.
Finance, typically defined in the loan agreement to mean any other entity (other than a subsidiary) that directly or indirectly is in control of, is controlled by, or is under common control with an entity. For this definition, a subsidiary is an entity that is more than 50% owned by another entity, and control of an entity means the power, directly or indirectly, to:
vote a certain percentage (typically 5% or 10%) or more of the securities having ordinary voting power for the election of directors of the entity; or
direct or cause the direction of the management and policies of the entity, whether by contract or otherwise.
Commercial transactions, an affiliate of a contracting party is typically defined as an entity that controls, is controlled by, or is under common control with, the contracting party. The definition of affiliate in a commercial transaction has potentially broad implications. For example, the definition of affiliate could impact assignability, indemnity, availability of certain pricing, or right to receive payment.