What is the Difference Between Affiliate and Subsidiary?
🆚 Go to Comparative Table 🆚The main difference between an affiliate and a subsidiary lies in the level of ownership and control that the parent company has in the company. Here are the key differences:
- Affiliate: An affiliate is a business with a parent company that possesses a minority stake (less than 50%) in the company. The parent company has little to no control over the affiliate's day-to-day business operations and management.
- Subsidiary: A subsidiary is a business whose parent company is a majority shareholder, meaning it owns 50% or more of the subsidiary company. The parent company has majority control over day-to-day business operations, and in general, their opinions are listened to.
Both affiliates and subsidiaries are separate legal entities from their parent companies, and they are liable for their own taxes, liabilities, and governance. They are often used by multinational corporations to expand their reach into new markets, protect the parent company's name, or to comply with foreign regulations.
Comparative Table: Affiliate vs Subsidiary
The main difference between an affiliate and a subsidiary lies in the level of ownership by the parent company. Here is a table summarizing the key differences between the two:
| Feature | Affiliate | Subsidiary |
|---|---|---|
| Level of Ownership | Parent company owns less than 50% of the shares in the business. | Parent company owns more than 50% of the shares in the business, making it a majority shareholder. |
| Control | Parent company has limited control over the affiliate's operations and decision-making. | Parent company has significant control over the subsidiary's operations and decision-making, as it is the majority shareholder. |
| Legal Status | Affiliates are separate legal entities from their parent companies, with their own liabilities, financial reporting, and taxation. | Subsidiaries are separate legal entities from their parent companies, with their own liabilities, financial reporting, and taxation. |
| Management | Affiliates generally keep separate management teams from their parent companies. | Subsidiaries may have management teams appointed by the parent company, depending on the level of control and involvement. |
Both affiliates and subsidiaries are created for the purpose of expanding market reach, entering new markets, or diversifying business operations. However, the level of ownership and control by the parent company distinguishes an affiliate from a subsidiary.
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