The subjects of many concepts in business language are familiar to us. Only for the time being we are not aware that they are also designated by this kind of term. An example of this is affiliated companies. Let's figure out what is hidden behind this phrase.
Definition of the term
More broad concept there will be affiliates. This is the name for objects (people, organizations) that can significantly affect the activities of a company or individual entrepreneur. Hence, affiliated companies are organizations, enterprises, firms, institutions that can influence the fate of an individual or legal entity engaged in business.
One more definition. An affiliated company is a company that owns a stake in the main enterprise in an amount less than the controlling one. It can act as its branch, representative office, subsidiary organization. In this case, the parent company takes part in the affairs of the affiliate on the basis of an appropriate agreement. This kind of interdependent companies are created when business expands to areas remote from the head office, or when branches of transnational corporations open.
Thus, an affiliated company is controlled by a larger, parent company. For the Russian language, the variant branch, subsidiary organization is more familiar. The concept of “affiliation” came to us from foreign law in 1992.
It must be said that Russian terminology here is less strict than foreign ones. In foreign business language, affiliated companies are precisely controlled ones. In Russia, their list is wider - these are both “subsidiaries” and parent corporations. The concept itself is enshrined in the Tax Code of the Russian Federation:
- Art. 20;
- clause 1, art. 105;
- clause 2, art. 105.
However, the legislation calls affiliated companies interdependent.
Now let's look at more specific examples, concerning two groups of businessmen.
Affiliated entities of the legal entity
Let's consider who is an affiliated company, a person in relation to a legal entity:
Affiliated persons of individual entrepreneurs
For individual entrepreneurs, the list consists of only two items. So, a group of affiliated companies, individual entrepreneurs:
- A company, enterprise, 20% of the shares or authorized capital of which is owned by this individual entrepreneur.
- Objects belonging to the same group of persons as the entrepreneur.
Let's look at another concept that is often found in explanations.
Group of persons - what is it?
With regard to the list of affiliated companies, the term is explained in the Federal Law “On Protection of Competition”.
The group of individual entrepreneurs includes:
- parents;
- children;
- spouse;
- sisters and brothers.
Here are the signs that someone is part of a group of legal entities:
- Individually manages a legal entity.
- Has the authority to give instructions to the company, which the latter is obliged to carry out.
- Controls more than 1/2 of the votes attributable to shares or authorized capital.
- It was at the suggestion of this person that the head of the legal entity was elected.
- The executive (directorate or board) and supervisory (foundation board, directors) boards contain the same individuals.
- At the proposal of this person, more than half of the members of the supervisory/executive board were elected.
Features of affiliated companies
Let us present the particularly important features:
Providing information about affiliates
Russian antimonopoly legislation obliges PJSCs and CJSCs to provide lists of their affiliated companies. The report is kept both to government control agencies and to its own shareholders. Lists of affiliated persons must also be included in accounting documents.
What is the value of such information? All kinds of mutual influences between individual entrepreneurs and legal entities can lead to collusion in the field of pricing and the elimination of competitors by non-market methods. And ultimately - to the formation of monopolies. This process leads to the paralysis of individual Russian markets for goods or services. Therefore, in our country the lists of affiliated persons are closely monitored by the Federal Antimonopoly Service.
Example Corporation
And now shining example the object of our conversation. These are affiliated companies of Philip Morris International (PMI). This is the name of the international tobacco corporation, a leader in its industry. Its products are represented in more than 180 countries around the world. As of 2015, it held a share of 15.6% of the entire global cigarette market. In Russia - 28.4%.
In the Russian Federation, PMI is represented by three affiliated companies:
- Philip Morris Sales and Marketing (LLC).
- "Philip Morris Izhora" (JSC). The factory is located in Leningrad region.
- "Philip Morris Kuban" (PJSC). Located in Krasnodar.
Branches of these companies in more than 100 Russian cities. About 4.5 thousand specialists work at the factories.
Affiliates are entities that can influence the activities of the organization. But the concept of affiliated companies in the Russian Federation is broader - these include both parent and controlled companies.
Hello! In this article, you will learn who affiliates are, what rights they have, and how to compile and store a list of such data.
Today we will look at:
- What is included in the concept of “affiliates”;
- What characteristics do they have?
- Why do companies need to maintain a detailed list of affiliates?
Main characteristics of affiliates
The term is increasingly found in economic publications, articles on finance and entrepreneurship.
Affiliates - these are legal or individuals that can affect the work of joint stock companies or private entrepreneurs. They have the opportunity to control the operation of the enterprise, the adoption important decisions leadership.
The name comes from English word"affiliate", which means to attach something. In simple words, affiliation is the exertion by a person of influence on the work of a company, which implies property and organizational relations between them. And the affiliation procedure means that one enterprise or company is included in the structure of another without changes in the management team.
In domestic practice, the main distinguishing features of affiliation are not only the ability to intervene and influence business activities, but also dependent relationships.
They appear:
- If a person has the right to vote at all meetings;
- If it has a share in , a certain percentage of shares;
- There are family ties between members of the board or in the concern;
- If an affiliated person by status ( general manager or chairman of the board) can suspend subordinate decisions.
For enterprises, employees who can influence work through strikes or demands to change are not considered interdependent. wages, cancel the deal. But the owner's son, who runs the subsidiary company and wishing to enter into a promising transaction is already an affiliate.
In any case, the relationship not only takes on a managerial nature, but also affects the distribution of property. The main problem is the possibility of collusion, which will lead to the creation of a monopoly relationship. This is harmful to the economy and creates a serious imbalance in the industry, so affiliates and their transactions are under the systematic control of the state antimonopoly committee.
Who is included in the list for a legal entity
Such a dependence may occur:
- With shareholders who own at least 20% of the company’s shares;
- With the supervisory board or owners, with members of the management board or board of directors;
- With other enterprises belonging to the same concern or trading group;
- With enterprises in which this legal entity owns a fifth of the authorized capital or at least 20% of the votes.
For a company, an affiliate can be either a legal entity or an individual. It has the right to control or manage it: officials of various ranks, founders of the enterprise and large investors. In European legislation, only dependent companies and joint stock companies are referred to as such. In domestic – all participants in the relationship, including subsidiaries and individuals.
List of groups with an affiliated person in their composition
When listing related parties for a commercial company or joint stock company, a group is often mentioned in which they may belong in parallel with the affiliate.
The main signs of the presence of such a person in a group:
- It solely controls and manages the entire company;
- Has a controlling interest in voting shares or the largest share in authorized capital;
- On his recommendation or direct order, key positions in the firm were appointed;
- It influences and approves candidates for the supervisory board;
- The enterprise specifies the powers of the parent company, which allow the cancellation or adoption of important decisions;
- The supervisory board and the management board of a commercial company consist of the same people.
All members of the group can intersect with each other, collaborate or carry out common transactions. A simple example formation of an affiliated group is joint stock company With subsidiaries: many founders are actively investing in the expansion and creation of branches, and developing regional areas. They are called “affiliate networks”.
Duties and responsibilities of affiliates
Interdependent legal entities and individuals have certain rights and restrictions. They are required to conduct transactions according to certain regulations, informing commercial companies about their affiliation. This adds post-accrual checks and post-profit tax payments.
The liability of affiliated persons may be:
- Legal for failure to comply with the requirements for conducting a transaction;
- Administrative for untimely or incomplete provision of information, a list of interdependent persons;
- Tax authorities for artificially lowering or inflating prices.
The law does not explicitly state the rights of affiliates. But they stem from their position in the group or with other participants in economic relations. They must conduct business in strict compliance with anti-corruption laws.
How and why to keep a list
For all joint-stock enterprises, maintaining a list containing information about affiliated persons is mandatory. It is updated every quarter based on recommendations for changes that have occurred. For the company, it is a documented basis for entering into transactions with interdependent companies.
- Download the LLC affiliate list form
The main positive aspects of maintaining a register:
- Ensures the safety of capital in the company by reducing the possibility of interference by outsiders in the operation of the enterprise;
- Reduces to a minimum the risk of recognizing the concluded agreement as invalid due to disapproval of the transaction by influential members of the supervisory board;
- Simplify the procedure for approving and concluding a transaction in which there is a certain interest.
Companies that publicly place shares on the stock market are required not only to maintain lists of affiliated persons, but also to periodically publish them on the Internet. They must be available to shareholders and other users for at least 3 years.
All lists must contain information:
- The date on which it is drawn up;
- Taxpayer identification number;
- All information about the company;
- Legal address;
- The percentage of shares or share in the authorized capital controlled by an affiliate.
IN big companies an authorized person may be appointed who will be responsible for storing and compiling the list: the chairman of the board or corporate secretary, the registrar of the joint-stock company.
The data is periodically studied by the antimonopoly service to identify cases of collusion and illegal transactions. Lists are often required by banks when considering a loan application, government agencies or own shareholders, tax authorities when checking reporting documentation.
An affiliate is a person (individual or legal) capable of influencing the activities of individuals or legal entities implementing entrepreneurial activities. In simple words, an affiliate (person or organization) is directly involved in control of the joint stock company.
The term “affiliated person” used in Russian legislation was borrowed from Anglo-American law. English verb affiliate denotes verbs: connect, join, connect.
“Affiliating someone” means introducing an official of another into the management of one company.
In European law, affiliated companies are companies that are dependent on other companies. In Russian legislation, the word affiliated is applied to both dependent and dominant persons. The main feature of affiliation is the ability to influence business activities.
Signs of an affiliate
An important feature of an affiliate is the existence of a dependent relationship between an individual or legal entity and an affiliate of this individual or legal entity.
This dependence manifests itself in the following cases:
When an individual or legal entity owns a certain share of the authorized capital of a legal entity with voting rights in the management body
- if an individual or legal entity, due to a certain legal status (for example, the status of a general director or fund manager), has the right to issue binding instructions
- if there are certain family ties (kinship relationships) between individuals
Affiliate of a legal entity
Affiliates of legal entities persons may be:
Member of the supervisory board or board of directors, member of the collegial executive body
- individuals or legal entities having the right to dispose of more than 20% of total number votes translated into voting shares or components authorized capital contribution from the share of a legal entity
- a legal entity, if it is a member of a financial-industrial group (financial-industrial group).
“Affiliation procedure” is the process of one company entering the structure of another without changing the owner.In this case, its affiliated person may also be members of the board of directors, members of the collegial management bodies of the financial industrial group and persons participating in the financial industrial group having the authority executive bodies
Affiliate of an individual
Affiliated individuals persons conducting business activities may be:
Persons who belong to the same group of persons as the individual
- a legal entity where an individual a person has the right to dispose of 20% of the total number of votes attached to voting shares or a contribution from the share of a legal entity that constitutes the authorized capital.
Joint-stock companies regularly provide information about their affiliates to the Federal Securities Commission. Also, any joint stock company is obliged to prepare lists of its affiliates for annual publication in the media. In addition, the lists must indicate the types and quantities of shares owned by affiliates.
The term affiliation of legal entities originates from the English word affiliation - connection. An affiliate or related person is a person or organization that has an ownership interest in an enterprise, holds a leadership position in it, or can influence its activities in other ways. When it comes to legal entities, affiliation refers to the connection of one enterprise with another.
Affiliation - a legal term from the corporate world
Affiliation is defined in different ways:
Through the participation of one legal entity in the capital of another.
When the owner of one enterprise owns a significant share in another enterprise.
With the participation of the owner of one enterprise in the supervisory board of another enterprise.
Affiliation of legal entities in itself does not have a positive or negative character. It is taken into account when resolving legal disputes and when deciding to purchase assets.
Affiliation of legal entities in corporate disputes
An affiliate can use its influence to gain full control over an enterprise, buy or sell goods and services on favorable terms, appoint loyal management, bankrupt a legal entity, issue or receive loans on non-standard terms.
If shareholders consider the actions of a related person to be unfriendly, they have the right to challenge transactions or decisions in judicial procedure. The court satisfies the plaintiffs' demands if the affiliation of the legal entity is confirmed. In this case, all unfriendly transactions and actions are considered invalid.
Investments and affiliation of legal entities
The connection of legal entities can both reduce and increase the value and legal attractiveness of an enterprise. For example, the cost of being affiliated with a bank or industrial group insurance company increases. An investor can count on partnership privileges within the framework of current legislation, so purchasing an affiliated insurer is considered profitable.
An insurance company associated with a bank has access to a database of borrowers and insurance of collateral: real estate, transport. Bank employees often act as insurer agents. On paper, the client can choose an insurance company, but in practice, bankers strongly recommend drawing up an agreement with their company.
The investment attractiveness of an enterprise decreases if it is affiliated with organizations that are experiencing financial difficulties. In this case, there is a risk that the owner of affiliated companies will be held vicariously liable. In this case, he will have to pay off his obligations at the expense of all his assets.
So, affiliation of legal entities means their connection. It cannot be considered a positive or negative phenomenon until other circumstances are unknown.