Affiliate: Overview, definition and example
What is an affiliate?
An affiliate is a company or entity that is connected to another through ownership, control, or a shared relationship. Affiliates are often part of a larger corporate group, such as a parent company and its subsidiaries, or companies under common ownership.
For example, if a holding company owns two separate businesses—a manufacturing firm and a logistics firm—those two businesses would be considered affiliates because they share the same owner.
Why is an affiliate important?
Affiliates are important in contracts because they define which related entities are covered by the terms of the agreement. For instance, a contract might allow one company to extend rights or responsibilities to its affiliates, ensuring that the agreement applies across a group of connected businesses.
For businesses, understanding affiliates helps clarify the scope of agreements and responsibilities. It also ensures transparency about which entities are involved, reducing the risk of disputes.
Understanding affiliates through an example
Imagine a software company signs a licensing agreement with a retail chain. The contract states that the software can be used by the retail chain’s affiliates. This means the software can also be used by other companies owned by the same parent company, such as a sister retail brand.
In another example, a supplier signs a distribution contract with a beverage company and its affiliates. If the beverage company owns a subsidiary that distributes snacks, that subsidiary may also be able to distribute the supplier’s products under the agreement.
An example of an affiliate clause
Here’s how an affiliate clause might look in a contract:
“The term ‘Affiliate’ means any entity that, directly or indirectly, controls, is controlled by, or is under common control with a Party to this Agreement. Rights and obligations under this Agreement may extend to Affiliates upon written notice to the other Party.”
Conclusion
An affiliate is a company or entity connected to another through ownership or control. In contracts, affiliates often share rights or responsibilities, ensuring agreements cover a broader network of related businesses.
By understanding affiliates, businesses can clearly define who is involved in a contract and avoid confusion about the scope of their agreements. It’s about managing relationships within interconnected business structures.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.