In business and in federal law, an affiliate is any person or company that controls, is controlled by, or shares common control with another business. That single idea runs through every statute and regulation that uses the word, but the threshold for “control” shifts depending on which agency is asking. The Securities and Exchange Commission, the IRS, bank regulators, and the Small Business Administration each draw the line in a different place, and the label carries real consequences: tax treatment, trading restrictions, transaction caps, and eligibility for government small-business programs all turn on it.
The Core Definition: Control, Not a Percentage
The foundational wording comes from SEC regulations. Under 17 CFR § 230.405, an affiliate is “a person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with” another person. Control itself is defined as the power to direct a company’s management and policies, whether through voting stock, a contract, or any other arrangement.1eCFR. 17 CFR 230.405 – Definitions of Terms
No fixed ownership percentage appears in that definition. You don’t have to own a majority of a company’s shares to be its affiliate. Board seats, veto rights over major decisions, or a contract that gives you authority over operations can all be enough. Regulators look at the full picture rather than a single number.
How Affiliate Relationships Show Up in Corporate Structure
Most affiliate relationships fit a familiar hierarchy. A parent company sits at the top and controls one or more subsidiaries, typically by holding a majority of voting shares. Each subsidiary is a separate legal entity, often set up to ring-fence liability or house a distinct product line. Two subsidiaries that share the same parent are called sister companies — affiliates of each other through common ownership, not through any direct relationship.
Each entity in the chain signs its own contracts, carries its own debts, and can be sued on its own. But because the parent directs strategy across the group, every company in that structure is an affiliate of every other for regulatory purposes.
Why the Threshold Changes by Agency
The word “affiliate” is not uniform across federal law. The same two companies may be affiliates for one agency and not for another, and that mismatch is where business owners most often get tripped up.
SEC: Control-Based, Often Captures Insiders
For securities purposes, Rule 144 uses the same control-based definition as 17 CFR § 230.405.2eCFR. 17 CFR 230.144 – Persons Deemed Not to Be Engaged in a Distribution and Therefore Not Underwriters In practice, that pulls in directors, executive officers, and shareholders with holdings large enough to influence corporate decisions. Because these insiders can move a stock’s price, the SEC restricts how freely they can sell.
Affiliates selling restricted or control securities face volume caps on any three-month window. The ceiling is the greater of 1% of the outstanding shares of that class or the average weekly trading volume over the prior four weeks, and over-the-counter stocks can only use the 1% figure.3U.S. Securities and Exchange Commission. Rule 144: Selling Restricted and Control Securities Skipping Rule 144’s conditions can lead to the sale being unwound and to SEC enforcement.
IRS: 80% Ownership for an Affiliated Group
The IRS sets a far higher bar. Under 26 U.S.C. § 1504, an affiliated group exists only when a common parent owns stock representing at least 80% of the total voting power and at least 80% of the total value of a subsidiary’s shares.4Office of the Law Revision Counsel. 26 USC 1504 – Definitions That near-total ownership threshold reflects the IRS’s concern: only genuinely integrated companies should combine their financial results on a single return.
Groups that clear 80% can file a consolidated return under 26 U.S.C. § 1501, which lets them offset one affiliate’s losses against another’s profits and potentially lower the group’s overall tax bill.5Office of the Law Revision Counsel. 26 USC 1501 A company you control for securities purposes may still fall short of this threshold and remain outside your affiliated group for tax purposes.
Banking Regulators: 25% Voting Securities
Banks operate under Section 23A of the Federal Reserve Act. A company or shareholder that owns, controls, or holds voting power over 25% or more of any class of a bank’s voting securities is deemed to control that bank and is therefore an affiliate.6Federal Reserve Board. Section 23A – Relations With Affiliates
Once that status attaches, transactions between the bank and the affiliate face quantitative limits. Covered transactions with any single affiliate cannot exceed 10% of the bank’s capital stock and surplus, and total transactions with all affiliates combined cannot exceed 20%.6Federal Reserve Board. Section 23A – Relations With Affiliates The rules exist to stop a bank from propping up a struggling parent or sister company with depositor funds.
SBA: The Broadest Reach
For small business owners, the SBA’s definition is often the most consequential. When two businesses are affiliates under 13 CFR § 121.103, the SBA counts their employees, revenue, and other size metrics together. A company that qualifies as “small” on its own can be disqualified once an affiliate’s numbers are added in, which closes the door on SBA loans, set-aside government contracts, and other small business programs.7eCFR. 13 CFR 121.103
The SBA applies the control principle more broadly than most agencies. Affiliation can arise from:
- Stock ownership. Owning or controlling 50% or more of a company’s voting stock creates a presumption of control, and even minority holdings can trigger affiliation if they represent the largest block compared to other shareholders.
- Common management. When the same officers, directors, or partners control the boards of two different companies, those companies are affiliates.
- Identity of interest. Family members who run separate businesses can be treated as affiliates if they share resources, subcontract to each other, or hold substantially identical economic interests. Spouses, parents, children, and siblings in business together face a rebuttable presumption of affiliation.
- Negative control. A minority shareholder who can block board action through veto rights, bylaws, or a shareholder agreement can be found to control the company without owning a majority.
The agency looks at the totality of circumstances and can find affiliation even when no single factor would be enough on its own.7eCFR. 13 CFR 121.103 This catches many businesses off guard during loan or contract bidding. An investor with a board seat and protective provisions in a shareholder agreement often doesn’t think of themselves as an affiliate; the SBA often disagrees.
Transactions Between Affiliates and the Arm’s Length Rule
When affiliated companies sell goods or services to one another, the IRS watches the pricing. Under 26 U.S.C. § 482, the agency can reallocate income, deductions, and credits between commonly controlled businesses if doing so is needed to prevent tax evasion or to clearly reflect each entity’s income.8Office of the Law Revision Counsel. 26 USC 482 The intercompany price has to reflect what unrelated parties would charge each other in the same transaction. The IRS calls this the arm’s length standard.9Internal Revenue Service. Transfer Pricing
Companies that get creative with intercompany pricing, such as charging a subsidiary in a low-tax jurisdiction inflated fees, risk having the IRS reallocate income and assess additional tax. It’s one of the most heavily audited areas for multinational affiliate groups.
A Note on “Affiliate” in Marketing
The word carries a separate meaning in digital commerce that has nothing to do with corporate control. An affiliate marketer is a third party who promotes someone else’s products for a commission on resulting sales. The relationship runs on a contract, not shared ownership or board influence. A blogger paid a percentage when a reader clicks through and buys is an affiliate in that sense, with no power to direct the brand’s management.
The applicable law is also different. Under 16 CFR Part 255, anyone endorsing a product has to disclose material connections, including commission arrangements, when a significant portion of the audience wouldn’t otherwise expect that relationship. The disclosure must be “difficult to miss” and “easily understandable by ordinary consumers.”10eCFR. 16 CFR Part 255 – Guides Concerning Use of Endorsements and Testimonials in Advertising This kind of affiliate creates no shared liability for the merchant’s business decisions and doesn’t affect either side’s size for SBA purposes or tax status. The only real overlap with the corporate meaning is the word itself.