Affiliate definition legal contract can mean several different things depending on the context it is used in. The word affiliate can refer to any corporation, limited liability company, partnership, firm, or other entity that is under the control either directly or indirectly with another party. In the context of bankruptcy, an affiliate would be an entity owning or controlling the debtor or somehow connected to an entity that is owning or controlling the debtor.

The determination of ownership is based on the amount of control of or the power to vote 20 percent or more of the debtor's unresolved voting securities. This excludes entities that hold securities in a fiduciary or agency capacity or solely to secure debt. The term affiliate could also refer to an entity whose business or property operates under a lease or operating agreement of the debtor.

Who Can Affiliates Be?

In the corporate world, affiliates can be:

  • Executive officers.
  • Directors.
  • Large stockholders.
  • Subsidiaries.
  • Parent entities.
  • Sister companies.

Any entity owning or controlling the debtor either directly or indirectly or is connected to any entity that is owning or controlling the debtor. Facts and circumstances will determine whether an affiliation exists. Even when one owns less than a majority of the voting stock, an affiliation still may exist.

How Is an Affiliate Usually Defined?

An affiliate is typically defined in a finance loan agreement and means another entity, other than a subsidiary, that is directly or indirectly in control of or under the power of a different entity. Subsidiary refers to an entity that is more than 50 percent owned by another entity. Typically, the certain percentage of voting power is 5 to 10 percent or more of the securities for the election of directors of an entity.

Direct means to cause the direction of management and policies whether by contract or not. Contracts often list and define affiliates in licensing agreements when granting a license to one of those entities. Note that even in this sense, this list of affiliates often does not include all the parties that are actually considered to be affiliates.

Example of Court Case Involving Affiliate Confusion

Let's look at the well-known musician Duke Ellington and a group of music publishers. When EMI and its affiliates were sold, Mr. Ellington and his heirs were entitled to 50 percent of the net revenues according to a 1961 copyright renewal agreement.

However, after 1961, EMI formed new affiliations with foreign entities that were granted sublicenses. After only receiving half of the net revenue that EMI received from the new affiliated foreign sublicensees, Ellington's heirs argue that since the foreign entities were affiliated of EMI, they were entitled to half of the foreign affiliates net revenues as well.

The court did not side with the heirs, saying the contract did not contain future language stating that there was an intent to bind newly created affiliates; therefore, affiliates referred only to the affiliates that existed at the time of the agreement. This demonstrates that a broad definition of affiliates can be misleading and benefit the licensor, especially when more entities are brought in a lucrative royalty structure.

Importance of Reading Through Affiliate Agreement

When an affiliate agreement exists, there are terms of services between an advertiser and someone else, such as a publisher or website. The so-called affiliate oversees and defines the affiliate relationship.

Sometimes, an affiliate agreement will be referred to as an affiliate program agreement. Within this agreement, there is no joint venture and the affiliate is going to serve as an independent contractor. When you sign an affiliate agreement, this means you understand the terms and conditions of the affiliate relationship.

Much of the time, being an affiliate means that you earn a certain commission according to the sales you make for the entity you are in an affiliate relationship with.

When using an affiliate relationship to advertise on a website, you need to make sure you carefully read the terms and conditions. A lot of the time, you will not make a commission if website cookies have been used. In cases where cookies are allowed, if they have been modified in one way or another, this may void your right to earn a commission.

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