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What are affiliated companies?

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A parent company is an entity that owns or controls one or more other companies (subsidiaries), typically through the ownership of 50% or more of the voting rights.  The designation “Parent” depends on the structuring of the financing and its nature.  In acquisition finance, a parent company may be the acquiring company (“NewCo”), the sub-holding company (“Sub-Holding Company”) or the group holding company (“Parent” or “TopCo”).

A company that is controlled by another (parent) company is a subsidiary, it thus being considered part of the controlling company and a member of the com­pany group.  A parent and its subsidiary companies are referred to as affiliated companies, which are all the companies presented in the consolidated financial statements of a parent company.  A parent-sub­sidiary relationship exists when an entity has the power to govern the financial and operating policies of another enterprise in order to obtain benefits from its activities.

Affiliate” means, in relation to any person, a Subsidiary of that person or a Holding Company of that person or any other Subsidiary of that Holding Company.

Collectively, a parent company and its subsidiaries are a company group.  The definition of a “Subsidiary” in loan agreements determines the definition of “Group”, which, in turn, is used in determining which companies are caught by many of the provisions of the agreement.

Whereas a subsidiary is any enterprise that is controlled by another enterprise (its parent), an associate is an entity over which an investor has significant influence but which is neither a subsidiary nor a joint venture of the investor.  A direct or indirect investment of more than 20% of the voting rights of a company should enable an investor to significantly influence the operating and financial decisions of the company.

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