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Guest (n/a)     13 January 2009

Difference between associated Company and related company

Can you pls explain me as to wat is an associated company and wat is the diffrence with a related company.. thanks


 2 Replies

AEJAZ AHMED (Legal Consultant/Lawyer)     13 January 2009


I am providing with you the following info, as per your request: 


Definition : --

Firm over which another firm exercises a degree of control which is less than the degree of control exercised over a subsidiary. In accounting, such control is typically taken to mean the ownership of at least 20 percent of voting shares, and some say in the management of the associate firm. Associated companies usually have interlocking directorates to ensure they have common policies and complementary objectives.





Definition :--


Related companies are companies that do not have an arm’s-length relationship (e.g., a relationship involving independent, competing interests). This could be due to both companies being part of the same business group or could stem from family or personal ties between officials of two companies.


Related company - producers shall be deemed to be related to exporters or importers only if :


(a) one of them directly or indirectly controls the other; or

(b) both of them are directly or indirectly controlled by a third person; or

(c) together they directly or indirectly control a third person, provided that there are grounds for believing or suspecting that the effect of the relationship is such as to cause the producer concerned to behave differently from non-related producers.


For the purpose of this paragraph, one shall be deemed to control another when the former is legally or operationally in a position to exercise restraint or direction over the latter.


Also called affiliated company.

Related companies are those over which an institution has control or exercises a substantial degree of influence. They include: companies formed to provide commercial services; companies formed to exploit the commercial potential of research and intellectual property assets; companies formed to conduct joint ventures.

Once established, related companies are independent legal entities. The management of the records generated by individual related companies is therefore outside the scope of this Study.

Accounting for transactions between related companies is particularly difficult (see Arm’s length principle). For this reason managerial, regulatory and tax arrangements often provide for greater scrutiny of transactions between related companies.

What are the differences between affiliate, associate and subsidiary companies?


All three of these terms refer to the degree of ownership that a parent company holds in another company. In most cases, the terms Affiliate/Related and associate are used synonymously to describe a company whose parent only possesses a minority stake in the ownership of the company.

A subsidiary, on the other hand, is a company whose parent is a majority shareholder. Consequently, in a wholly owned subsidiary the parent company owns 100% of the subsidiary.


Example: --


For example, the Walt Disney Corporation owns about a 40% stake in the History Channel, an 80% stake in ESPN and a 100% interest in the Disney Channel. In this case, the History Channel is an affiliate company, ESPN is a subsidiary and the Disney Channel is a wholly owned subsidiary company.

In many cases of foreign direct investment, companies create subsidiaries and affiliates in host countries in order to prevent any negative stigma associated with foreign ownership or negative opinion associated with being owned by a controversial parent company.  

In the banking industry, affiliate and subsidiary banks are the most popular setups for foreign market entry. Although affiliate and subsidiary banks must follow the host country's banking regulations, these styles of banking offices allow banks to underwrite securities.  





Samir Das   11 December 2018

Can a public charitable trust promoted by the group be called a group company or is it just a related party?

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