Key Takeaways

  • An affiliated person can be an individual or entity with control or influence over a company, such as directors, officers, large shareholders, subsidiaries, or parent companies.
  • The SEC defines affiliates broadly, including 10% shareholders, promoters, underwriters, and advisors.
  • Bankruptcy law treats affiliates as entities with at least 20% ownership or voting power in the debtor or its parent.
  • In corporate and finance contexts, affiliates are often controlling shareholders, lenders, or parties with significant influence in agreements.
  • Trademark law considers affiliation when assessing brand ownership across subsidiaries, which can create a risk of consumer confusion.
  • The SBA affiliation rules affect small business eligibility for federal contracts and loans, combining entities’ employees or revenues when affiliation exists.
  • Affiliate marketing in law shows how law firms may leverage affiliate-style relationships for referrals, though ethical and legal restrictions apply.

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)
  • Directors
  • Stockholders (those who hold a large amount of stock)
  • Subsidiaries
  • 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.

Trademark Law and Affiliated Companies

Courts also consider affiliation when analyzing trademark ownership and potential consumer confusion. In many businesses, related trademarks may be registered under different subsidiaries for organizational or tax purposes. However, trademark law evaluates whether consumers would assume that marks owned by affiliated entities originate from the same source.

For example, in In re Wella A.G., the court found that trademarks owned by different but related companies could still create a likelihood of confusion because of their affiliation. The principle is that affiliation between companies does not automatically eliminate the possibility of confusion in the marketplace. Businesses must carefully manage trademarks across affiliated entities to avoid infringement claims and protect brand identity.

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.

Affiliation Rules Under SBA Regulations

The U.S. Small Business Administration (SBA) applies specific rules to determine affiliation when assessing whether a business qualifies for government contracting programs or small business loans. The SBA combines the employees, revenues, or assets of affiliated entities when making size determinations.

Key affiliation standards include:

  • Ownership and Control: If one party owns or has the power to control 50% or more of another company’s voting stock, the entities are affiliated.
  • Common Management: Shared officers, directors, or managers may establish affiliation.
  • Identity of Interest: Close relatives or businesses with identical economic interests can be treated as affiliates.
  • Contractual Relationships: Agreements that give one entity significant influence over another can establish affiliation.

Understanding SBA affiliation rules is essential for businesses seeking eligibility under small business set-aside programs. Misclassification can lead to disqualification from contracts or repayment obligations for loans.

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.

Affiliate Marketing in Legal and Business Contexts

Outside of traditional corporate and securities law, the concept of “affiliated” also appears in marketing. Affiliate marketing involves one party promoting another’s products or services in exchange for compensation, often through commissions. In the legal industry, affiliate relationships may take the form of referral partnerships between firms, directories, or content platforms.

Law firms considering affiliate marketing must be cautious:

  • Ethical restrictions under state bar rules limit fee-sharing and referral arrangements.
  • Disclosure requirements apply to ensure transparency with clients.
  • Strategic benefits include expanded reach, increased lead generation, and enhanced visibility when structured properly.

While affiliate marketing in law differs from corporate affiliation, both concepts involve interconnected relationships that impact governance, compliance, and business growth.

Frequently Asked Questions

  1. What does it mean to be an affiliated person?
    An affiliated person is an individual or entity with control, influence, or ownership ties to a company, such as shareholders, directors, subsidiaries, or parent companies.
  2. How does the SEC define affiliated persons?
    The SEC includes shareholders with 10% ownership, promoters, underwriters, and advisors, as well as associates of these individuals.
  3. How does affiliation affect bankruptcy proceedings?
    Affiliates with at least 20% ownership or voting power in a debtor or its parent may be considered affiliates under bankruptcy law, affecting claims and disclosures.
  4. What are SBA affiliation rules?
    The SBA combines affiliated companies’ employees or revenues when determining small business size, looking at control, management, contracts, or family ties.
  5. Can affiliated companies share trademarks without confusion?
    No. Trademark law assesses consumer perception, and affiliation alone does not prevent confusion. Courts have held that related companies owning similar marks can still confuse consumers.

If you need help with understanding the definition of an affiliated person, you can post your job on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.