What Is an Affiliate Relationship? Control, Obligations, and Rules

An affiliate relationship is a legal connection between two parties in which one directly or indirectly controls the other, or both sit under the common control of a third party. “Control” here is not a fixed ownership percentage. It is the power to direct management and policies, whether that power comes from stock, a contract, overlapping officers, or some other arrangement. The classification shows up across securities law, tax, federal contracting, real estate, and advertising, and each regime attaches its own disclosure or eligibility rule to it.

How Control Is Measured

The SEC’s definition at 17 CFR § 230.405 is the one most other agencies borrow from. An affiliate is any person or entity that directly or indirectly controls, is controlled by, or is under common control with another party, and control means the power to direct management and policies through voting stock, contract, or any other mechanism.¹

There is no automatic ownership threshold. A majority-owned subsidiary requires more than 50 percent of voting securities, but the broader affiliate label can apply at much lower levels when the investor wields real influence. A 30-percent shareholder who controls the board is an affiliate. The test is functional, not arithmetic.

Ownership is only the most common path. The SBA, which applies the broadest version of the concept, also looks at contractual relationships, management agreements, and licensing arrangements. A franchise agreement that dictates pricing, suppliers, and marketing can create affiliation even when the franchisor holds no equity in the franchisee.²

Ways Two Businesses Become Affiliated

Parent and Subsidiary

When one company owns a controlling interest in another, they are parent and subsidiary. The parent directs strategic decisions and the subsidiary operates under that direction. Shared accountability flows from the structure, and courts routinely look past the separate corporate forms when the parent exercises day-to-day control over the subsidiary.

Common Management

No investment is required. When the same individuals serve as officers, directors, or managing members of two companies and control both, the SBA finds affiliation on that basis alone.²

Family Ties

Close family relationships between business owners create a rebuttable presumption of affiliation under SBA rules. Companies owned or controlled by married couples, parents and children, or siblings are presumed affiliated if they do business with each other, share employees, use the same equipment or office space, or make loans between the firms. The presumption extends to parties in a civil union.³

Overcoming the presumption requires showing a “clear line of fracture” between the businesses: separate operations, independent decisions, no shared resources, no financial entanglements. Cousins, aunts, uncles, and more distant relatives are not covered by this presumption, though they could still trigger affiliation through other tests.

Economic Dependence

Two companies with no shared owners or managers can still become affiliates through revenue concentration. The SBA presumes an identity of interest when a company derives 70 percent or more of its revenue from a single other business over the previous three fiscal years. The presumption can be rebutted by showing the dependence is temporary or that nothing contractually prevents the company from diversifying its customer base.²

Negative Control by Minority Investors

A minority investor can create affiliation without owning anywhere close to a majority. If the investor holds veto rights over ordinary business decisions through the company’s charter or shareholders’ agreement, the SBA calls that “negative control” and finds affiliation. The carve-out is narrow: veto rights limited to extraordinary events, like dissolving the company, selling all assets, or amending governance documents to strip the investor’s protections, do not trigger affiliation.²

The SBA also exempts specific investor categories from counting as affiliates for purposes of financial or management assistance under the Small Business Investment Act. Those include venture capital operating companies as defined in Department of Labor regulations, employee benefit or pension plans established by federal, state, or local governments, ERISA-governed pension plans, charitable trusts, foundations, and endowments exempt under IRC § 501(c), and registered investment companies under the Investment Company Act of 1940.²

Where Being an Affiliate Changes Your Obligations

The label does nothing on its own. It becomes consequential when it hooks into a specific statute or regulation.

Small Business Eligibility

For federal contracting and SBA loan programs, the agency aggregates the revenue, employees, or other size measures of a company and all its domestic and foreign affiliates when checking whether the business meets the size standard for its industry. If the combined total exceeds the limit, the company is ineligible no matter how small it is on its own. The SBA looks at whether the power to control exists, not whether it is being used, so a dormant controlling interest counts the same as an active one.²

Selling Stock in a Public Company

Affiliates of publicly traded issuers face restrictions on how they resell shares. SEC Rule 144 covers both restricted securities (acquired in unregistered private sales) and control securities (any shares held by an affiliate, however acquired).

Restricted securities carry a holding period before resale. For issuers that file SEC reports, the holding period is six months from the date the securities were purchased and fully paid for. For non-reporting issuers, it is one year. Shares an affiliate buys on the open market are not restricted, so no holding period applies to those, but they remain subject to Rule 144’s other conditions as control securities.⁴

Volume is also capped. During any three-month period, an affiliate cannot sell more than the greater of one percent of the outstanding shares (based on the issuer’s most recent report) or the average weekly trading volume over the four calendar weeks before the Form 144 filing, or before the order is placed if no filing is required.⁵

Affiliates planning to sell more than 5,000 shares or more than $50,000 worth of securities in any three-month period must file Form 144 with the SEC at the same time they place the sell order.⁴

Separately, public companies must list their subsidiaries as Exhibit 21 to the annual Form 10-K under Regulation S-K Item 601, showing each subsidiary’s name, state or jurisdiction of incorporation, and any names it does business under.⁶

Filing One Tax Return for a Corporate Group

An affiliated group can file a single consolidated federal income tax return, but the threshold is higher than the general affiliate definition. Under 26 U.S.C. § 1504, the common parent must own stock possessing at least 80 percent of both the total voting power and the total value of each subsidiary’s stock, and each subsidiary in the chain must be connected to the group through stock meeting the same 80-percent test.⁷

Consolidated filing lets the group eliminate intercompany transactions and offset one subsidiary’s losses against another’s gains. In exchange, every member’s income, deductions, and credits flow into one return, and each member becomes jointly liable for the group’s total tax. The parent files IRS Form 851 with the consolidated return to identify each member, confirm it qualifies, and report how overpayment credits and estimated tax payments are allocated.⁸

So a company can be an “affiliate” of another under the SEC’s control test and still fall short of the 80-percent threshold that would let the two file a consolidated tax return. The labels are not interchangeable across statutes.

Referrals in Real Estate Transactions

Real estate deals routinely involve referrals between companies that share ownership, such as a mortgage lender steering borrowers toward a title company it partly owns. RESPA permits these affiliated business arrangements under 12 CFR § 1024.15, but only if three conditions are met:

The person making the referral gives the consumer a separate written disclosure, at the time of referral, explaining the ownership or financial relationship and providing an estimated charge or range of charges for the service.
The consumer is not required to use the affiliated provider. The referral must be a suggestion, not a condition.
The only payment the referring party receives from the arrangement is a legitimate return on an ownership interest or franchise relationship. Payments tied to the volume or value of referrals are prohibited.

The disclosure must follow the format in Appendix D of part 1024 and sit on a separate piece of paper. Documents related to these arrangements must be retained for five years.⁹

Endorsements and Online Promotions

The term “affiliate marketing” uses “affiliate” loosely, but the FTC’s rules operate on the same underlying idea: a material connection between the endorser and the seller must be revealed. Under the Endorsement Guides at 16 CFR Part 255, any promoter who earns commissions, receives free products, or gets any other compensation for endorsing a product must disclose that relationship clearly and conspicuously, meaning it is difficult to miss and easily understood by ordinary consumers.¹⁰

Material connections go beyond cash. Free samples, early access, prize eligibility, or a family relationship with the seller all count. The question is whether the connection might affect how much credibility a consumer gives the endorsement and whether the audience would reasonably expect it. If not, say so.

Placement decides whether the disclosure actually works. Something buried at the bottom of a post, hidden behind a “more” link, or tucked into an “About Me” page fails. Short, upfront language (“Ad,” “Paid partnership,” “Commission earned”) near the start of the post or in the first line of a caption meets the standard. On platforms like Instagram or X, a hashtag such as #ad can work if it appears prominently rather than lost among a dozen others. In video, the disclosure must appear in the video itself, not just in the description, and the FTC recommends giving it in both audio and on-screen text at once.¹¹

The Thread Running Through All of This

Across every regime, the same logic repeats. The law identifies a party with meaningful influence over another, treats the resulting connection as capable of distorting a decision (an investment, a tax calculation, a contract award, a referral, a consumer purchase), and requires either disclosure, a quantitative limit, or disqualification to blunt that risk. Figuring out whether you have an affiliate relationship is step one; the step that matters is identifying which statute’s version of the test applies to what you are trying to do, because the threshold for being an SBA affiliate, an SEC affiliate, a § 1504 affiliated group member, and a RESPA affiliated business are not the same number.

1
eCFR. 17 CFR 230.405 – Definitions of Terms
2
eCFR. 13 CFR 121.103 – How Does SBA Determine Affiliation?
3
eCFR. 13 CFR 121.103 – How Does SBA Determine Affiliation?
4
U.S. Securities and Exchange Commission. Rule 144 – Selling Restricted and Control Securities
5
eCFR. 17 CFR 230.144 – Persons Deemed Not to Be Engaged in a Distribution
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eCFR. 17 CFR 229.601 – Item 601 Exhibits
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Office of the Law Revision Counsel. United States Code Title 26 – Section 1504
8
Internal Revenue Service. About Form 851, Affiliations Schedule
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eCFR. 12 CFR 1024.15 – Affiliated Business Arrangements
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eCFR. 16 CFR 255.5 – Disclosure of Material Connections
11
Federal Trade Commission. Disclosures 101 for Social Media Influencers