What are the Differences Between Affiliate, Associate and Subsidiary Companies?

All three of these terms - affiliate, associate, and subsidiary - refer to the degree of ownership that a parent company holds in another company. In most cases, the terms affiliate 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. For example, the Walt Disney Corp. (DIS) owns an equally held joint venture with Hearst Corporation called A&E Television Networks, an 80% stake in ESPN and a 100% interest in the Disney Channel. In this case, A&E Television Networks, which is independently run 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 (FDI), companies create subsidiaries and affiliates in host countries 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.

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