13/9/17 The Difference between Affiliate and Subsidiary
Both terms, affiliate and subsidiary, are very frequently used in the business arena, however, most people don’t know how to differentiate them. People freely mention these terms in everyday conversations and even in formal debates without knowing that they may be using it incorrectly. The two terms share only one similarity. Both affiliates and subsidiaries are measurements of ownership that a main company holds over other smaller companies.
A company that acts as a subsidiary to the main company has a major share of its stocks controlled by the main company. There are even cases when the main company controls all of the stocks of a subsidiary.
On the other hand, an affiliate company only has a minor share of its stocks controlled by the main company.
- Both subsidiary and affiliate refer to a company which has a portion of its stocks controlled by a main company.
- Subsidiary companies have majority of their stocks controlled by the main company. Wholly owned subsidiary companies have all of their stocks controlled by the main company.
- Affiliate companies have only a minor portion of their stocks controlled by the main company.
- Banks and multinational corporations use a strategy called foreign direct investment, wherein they create affiliates or subsidiaries to penetrate a target market which they have difficulty entering if they use their main name.