Definition of Affiliated Person: Everything You Need to Know
The definition of affiliated person is anyone or any entity that has the power to influence a corporation.3 min read
2. Affiliated Person According to the Securities and Exchange Commission
3. Affiliates and Bankruptcy
4. Corporate Affiliated Person
5. Affiliates in Finance
6. GTE v. Cellexis Case: Affiliates or Subsidiaries
The definition of affiliated person is anyone or any entity that has the power to influence a corporation.
What Is an Affiliated Person?
Affiliated persons, or affiliates, do not need to be people; they can also be other business entities. The most common affiliates of a corporation include:
- CEOs (chief executive officers)
- Stockholders (those who hold a large amount of stock)
- Sister companies
- Parent companies
- Members of a corporation's advisory board
The affiliated persons of a corporation are also called insiders or control persons. They have direct ownership of the corporation or some form of voting power. Certain companies, like investment companies, involved in a corporation are automatically considered affiliates because of how they interact with the business.
Affiliated Person According to the Securities and Exchange Commission
The Securities and Exchange Commission (SEC) has a somewhat broad view of what constitutes an affiliated person. They include the following positions in their definition of affiliates:
- Anyone who owns at least 10 percent of stock in a company
- Anyone who promotes the company or is connected with it in any way
- Anyone acting as a principal underwriter for a company's securities
- Any managers or advisors in the company
- Any associates of those individuals or entities previously mentioned
It is important to understand who a company's affiliates are when undergoing any transactions regarding the company's debt or equity securities. Affiliated persons tend to have the company's trust and, therefore, access to sensitive information.
Affiliates and Bankruptcy
When it comes to bankruptcy, affiliates are considered anyone who owns or controls any part of a company. A debtor is the individual or company filing for bankruptcy, so their affiliates would be those who own the debtor corporation and even those who own the owner of the debtor.
Affiliates who own 20 percent of the company or more or have voting power equal to that percentage are considered affiliates. For instance, a company that owns 20 percent of another company is considered an affiliate of that company. An individual who owns 20 percent of the owning company is also considered an affiliate of the owned company.
When referring to owners who hold securities as a fiduciary, debt controller, or agency, these rules for affiliates do not apply.
If an entity's business or larger amount of property is operating under an operating agreement or lease of a debtor, they are considered an affiliate.
Corporate Affiliated Person
In the corporate world, affiliated persons are those entities or people who control, either directly or indirectly, another entity. Sometimes two entities can both be considered affiliates even if one of those entities has more control or ownership than the other.
Affiliates of corporations are frequently considered the officers and shareholders with large amounts of stock in the company. Such shareholders own enough stock in the company in order to have a significant impact on the business when it comes to voting. They are called controlling shareholders.
Affiliates in Finance
Affiliated persons in loan agreements are individuals or entities who control or own a large portion of the entity taking out a loan or offering a loan. Again, these affiliated persons can control the entity either directly or indirectly. This does not apply to subsidiaries of an entity.
A subsidiary is a company that is owned by a parent company. Many companies have other business entities acting as owners, members, or shareholders, so, in order to be considered a subsidiary, the company must be at least 50 percent owned by a parent company.
Other affiliates in loan agreements include entities with managerial duties and a level of control over the direction of the loan giver or borrower.
GTE v. Cellexis Case: Affiliates or Subsidiaries
In the GTE versus Cellexis Case, the court had to decide whether the settlement agreement between the two companies could be enforced. Cellexis was attempting to sue Cellco, an affiliate of GTE, but this company wasn't an affiliate of GTE when Cellexis entered into the agreement.
The problem arose with GTE's definition of their company in the agreement. They referred to themselves as a corporation, including its subsidiaries, affiliates, and joint ventures. The court decided that the agreement language did, in fact, include Cellco in the definition of the GTE company, so Cellexis was able to sue them directly.
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