What is the difference between an Affiliate and a Subsidiary?

The subsidiary is known to be a type of company that has its parent company as its major shareholder. This means that the parent company still has to own more than 50% of the company’s overall shares. When you say affiliate, this means that the parent company has minor shares.

This is actually more common for some companies especially with parent companies that have a lot of affiliate companies. They have distributed their shares to different companies in order to possibly gain more profit from the different companies available. There are also times when the term “affiliate company” is used to describe companies that are connected to each other.

Affiliates and subsidary's are both related to businesses and companies. A subsidiary is a type of company. This company is defined as being owned by either a parent company or a holding company. With this, a majority of the stocks shares are controlled by the parent company. This leads to the stocks that the subsidiary has being controlled by the parent company.

An affiliate company differs from that because the stocks of the affiliate company have a certain percentage that are controlled by that company. It could be any type of percentage, but it would not be a full percentage like with a subsidiary.

In order to properly differentiate between an affiliate and a subsidiary, we must understand what the two terms stand for. A subsidiary is a company owned by a holding company or a parent company in which a major share of its stocks is owned or controlled by the parent company. At times, all the stocks of a subsidiary can be controlled by the parent company.

In contrast, just a little percentage of the total stocks an affiliate company is being controlled by the parent company. For instance, let's assume Company A is the parent company and has 70 percent, 60 percent, 40 percent stakes on company B, C, and D, respectively.

The daughter companies B, C, and D, can be regarded as subsidiaries and affiliates, but companies B and C are qualified to be called subsidiaries of company A, while Company D is an affiliate company to company A since only a small portion of its stocks is owned by the parent company.

Companies create subsidiaries and affiliates to avoid sharing in any negative stigma of their foreign ownership; it also helps to extend the company's market to places it naturally won't have. A subsidiary also known as a daughter company is a company having its parent company to be the major shareholder owning above 50% of its shares, In a situation where parent company owns all 100% shares, it is then referred to as a wholly-owned subsidiary.

They provide parent companies with a specific benefit like more tax benefits, reduced regulation, diversified risk, or assets in the form of earnings, equipment, or property. While Affiliate is a company with its parent company having only a few stakes in the ownership of the affiliate, they can also refer to a relationship where two different companies are subsidiaries of a larger company. An affiliate company is not strictly controlled by the main company; Affiliate companies are viewed as a much safer investment, as a risk in terms of money or reputation in case of bankruptcy, the main company is not so much affected.

They afford the company the international market. Affiliate companies can also have subsidiary companies controlling a majority of stocks; they can exit as large stockholders, subsidiaries, parent entities, and sister companies.