Difference Between an Affiliate & Subsidiary

When companies own a percentage of other companies' stock, these other companies are considered either affiliates or subsidiaries. According to Business Dictionary.com and The Free Dictionary.com, the main difference between an affiliate and a subsidiary is the percentage of the business's stock another company owns.

A parent company is a company that owns enough of another company’s stocks to enable it to control the other company. The term parent company only refers to subsidiaries and not to affiliates. The parent company is required to combine its subsidiary’s financial statements with its own. This is only required with subsidiaries, not with affiliates.

A subsidiary company is a company whose stock is owned 50 percent or more by another company. This gives the parent company majority control over the subsidiary, giving it the power to make decisions, such as naming a board of directors. If a parent company owns 100 percent of another company’s stock, the junior company is considered a wholly owned subsidiary. A subsidiary is always an affiliate; however an affiliate is not always a subsidiary.

An affiliate company is similar to a subsidiary; however, with affiliates, one company owns less than 50 percent of the affiliate company’s stock. The company that owns less than 50 percent is said to have minority control over the affiliate company and, depending on the percentage owned, has some level of control over the affiliate. If two companies are subsidiaries of a company, they are affiliates of each other.

There are several benefits for parent companies in owning subsidiaries. One is allowing the parent company to engage in business activities different from its usual ones. Subsidiaries and affiliate companies also can help companies reach parts of the world they ordinarily could not reach. Another reason is that the subsidiary may make huge profits now or is expected to in the future. One benefit to a company with an affiliate company is that if the affiliate company incurs a net loss, the company with minority rights takes less of a hit than with a subsidiary.