Affiliated companies and their role in Russian legislation. Affiliate

The term affiliation of legal entities originated from the English word affiliation - connection. An affiliate or related person is a person or organization that has an ownership interest in an enterprise, holds a management position in it, or can influence its activities in another way. When it comes to legal entities, affiliation refers to the relationship of one enterprise to another.

Affiliation is a legal term from the corporate world

Affiliation is defined in different ways:

Through the participation of one legal entity in the capital of another.

When the owner of one enterprise owns a significant share in another enterprise.

With the participation of the owner of one enterprise in the supervisory board of another enterprise.

The affiliation of legal entities in itself does not have a positive or negative character. It is taken into account when resolving legal disputes and when making a decision on the purchase of assets.

Affiliation of legal entities in corporate disputes

An affiliate can use its influence to gain full control over the enterprise, buy or sell goods and services on favorable terms, appoint loyal management, bankrupt a legal entity, issue or receive loans on non-standard terms.

If the shareholders consider the actions of the related person to be unfriendly, they have the right to challenge the transactions or decisions in court. The court satisfies the claims of the plaintiffs if the affiliation of the legal entity is confirmed. In this case, all unfriendly transactions and actions are invalidated.

Investments and affiliation of legal entities

The connectedness of legal entities can both reduce and increase the value and legal attractiveness of an enterprise. For example, the value of an insurance company affiliated with a bank or an industrial group increases. An investor can count on partnership privileges under the current legislation, so the purchase of an affiliated insurer is considered profitable.

The insurance company associated with the bank has access to the database of borrowers and insurance of collateral: real estate, transport. Bank employees often act as agents of the insurer. On paper, the client can choose an insurance company, but in practice, bankers strongly recommend drawing up an agreement with their company.

The investment attractiveness of an enterprise is reduced if it is affiliated with organizations that are experiencing financial difficulties. In this case, there is a risk that the owner of affiliated companies will be brought to subsidiary liability. In this case, he will have to pay for obligations at the expense of all assets belonging to him.

So, the affiliation of legal entities means their connection. It cannot be considered a positive or negative phenomenon until other circumstances are known.

Evgeny Malyar

# business vocabulary

Definition of the term

An affiliated company is a structure controlled by a larger or more influential legal entity. face.

Article navigation

• Is affiliation always prohibited?
• Affiliates: who are they?
• Legislation of the Russian Federation on the protection of competition
• Affiliated companies and the Tax Code of the Russian Federation
• What is an affiliate site?

The concept of affiliation is most often associated with criminal conspiracy. Under the guise of independent companies, business entities related to each other by common owners participate in auctions and transactions. The state seeks to eradicate such phenomena, but in order to achieve this, it is necessary to carefully study their nature and varieties.

From this article you can find out what the concept of "affiliation of a legal entity" means and in what cases such relations are considered illegal.

Is affiliation always prohibited?

The English word affiliated in translation means "attached", without any negative connotation. Everyone knows that large companies often practice opening their branches, subsidiaries and branches. They do so openly, and often use well-known logos and trademarks in the names of their associated businesses.

The meaning of the word itself does not contain a hint of a criminal conspiracy, which always constitutes the secret of its participants.

An example of dangerous stakeholder relationships is abuse in public procurement. It may seem that the participation of affiliates in the auction should be strictly prohibited, but this is not so. Their definition is given in Russian legal norms. According to the law 44-FZ (Article 39, Part 6), they are spouses, close relatives, including half-blooded ones, adoptive parents, adopted children, etc.

At the same time, there is no direct ban on the participation of persons affiliated with members of the commission in procurement for state orders. Another law, 135-FZ, indicates the inadmissibility of restricting or eliminating competition using mutual relations of interested parties. Similar provisions are present in 223-FZ.

In other words, affiliation as such does not legally mean the presence of criminal and corrupt intentions. However, she potentially creates conditions for them in cases where she is hidden.

Affiliates: who are they?

There are some differences in the Russian and English interpretations of the term "affiliate". To begin with, about how this word is spelled correctly: exclusively with two "F" and one "L" - philologists are unanimous in this. Now about what this means.

In foreign legal practice, affiliated companies are subsidiaries, that is, secondary and subordinate firms.

We consider this concept to be two-sided. Both affiliates and affiliates fall under its signs. The connection between them seems to be mutual, although in practice one of the subjects is always more important. Perhaps Russian law will eventually come to the need to distinguish between them.

An example of direct submission is any affiliate site. Wikipedia understands as such a twin resource containing the same information as the "mother" page. His policy, if it fluctuates, then only together with the "general line".

It is this aspect that makes it possible to understand the difference between interdependent and affiliated structures. In the domestic interpretation, these are, in simple terms, synonyms. Foreign lawyers see the difference between direct subordination and the ability of partners to influence each other.

When disclosing possible abuses, the main problem is how to prove the affiliation of an individual responsible for making a certain decision with an enterprise interested in it. If he is someone's relative or business partner, then the conclusions suggest themselves. It is more difficult when he is just a friend, a friend or a good acquaintance. Especially when few people know about it.

So who is objectively considered a natural or legal affiliate? What are the criteria by which it can be uniquely distinguished from all others?

Dependence manifests itself in several possible circumstances.

• The economic entity has complete control over the enterprise by reason of ownership or ownership.
• Owns a certain part of the authorized capital of the enterprise, giving the right to vote in making collective management decisions.
• Holds the position of CEO or other key position in the management of the company or has a legal status that gives the ability to manage. For a legal entity, this is expressed by the right to instructions that are mandatory for execution.
• The person is related to the owners of the company by kinship or family ties.
• Owns more than a fifth of the shares that make up the capital of the enterprise.
• Included with the management and management of the company in at least one group united by common business interests. These may be business clubs or other similar communities.

The main criterion for classifying an individual or legal entity as affiliated is its ability to influence the economic activity of the enterprise.

Legislation of the Russian Federation on the protection of competition

Taking into account the basis on which a person is recognized as affiliated, it should be noted the participation of third-party organizations in the management of Russian state-owned companies, including natural monopolies. There is nothing surprising in this fact. Such large business entities are necessarily surrounded by related parties that are financially involved in their activities.

Affiliation is due to the presence of a block of shares, which makes it possible to participate in the management of the corporation. Current legislation, subsequent amendments to the Civil Code of the Russian Federation and other regulatory documents oblige to provide lists of structures that have direct effective business ties with each strategically important corporation.

This information is public. It is a list of affiliated companies indicating the percentage of their share in the total capital.

In particular, anyone can find out that JSC (Joint Stock Company) Rosneft has the following share capital structure:

• 50.00000001% - JSC Rosneftegaz;
• 19.75% - BP Russian Investments Limited;
• 19.50% - QHG Oil Ventures Pte. Ltd.;
• 10.39% - JSC National Settlement Depository.

Ultimately, one can conclude that the listed four entities control Rosneft almost completely - the remaining shareholders account for an insignificant share of capital, measured in tenths of a percent.

Similar reports are provided by other state corporations.

A distinction should be made between data on affiliates and beneficiaries, who often use offshore schemes to hide their identities, that is, those who are beneficiaries.

First, the title documents indicate the official shareholders who own at least a fifth of the capital. At least a quarter, that is, 5% more (FZ-115), are the beneficiaries. What else is the difference? Nothing more. Both those and others receive income from this enterprise and are its share owners.

The activities of affiliates in the Russian Federation are regulated by sixteen regulations, including the Federal Law “On Competition”, “On Auditing”, the Presidential Decree, letters from the Ministry of Finance, etc. There are plans to adopt a special Federal Law specifically dedicated to affiliated entities.

Affiliated companies and the Tax Code of the Russian Federation

The term "affiliation" in the official legal documents of the Russian Federation is used as an auxiliary and is indicated in brackets. The Tax Code of the Russian Federation contains the basic concept of the interdependence of participants.

The attention paid to affiliates in the Tax Code is due to the fact that schemes with their participation are often developed in order to optimize the fiscal burden, in other words, avoid taxation when concluding transactions.

The use of special methods of tax control of companies provides for the mandatory disclosure of information about related business entities.

Signs of interdependence of legal entities and individuals and the degree of their participation are set out in chapter 14.1 and article 105.1 of the Tax Code of the Russian Federation and subsequent amendments to them. Unlike the Civil Code, these documents do not talk about 20, but about 25% of direct or indirect participation in the capital of an enterprise. It also indicates the percentage of representation in the collegial executive body or the board of directors of the organization - more than half.

Based on Art. 93 of the Federal Law "On JSC", joint-stock companies are obliged to keep records and reporting documentation of persons affiliated with them. The same requirement is enshrined in other legislative acts of the Russian Federation (decisions of the Federal Commission for the Securities Market, etc.).

Joint-stock companies must submit information about affiliated persons to the state registration authority every quarter. Lists of such are published in the public domain, indicating the changes within a period not exceeding three days after they occurred.

The 2018 list template includes the following information:

• full name of the affiliated person (for sole proprietorship - full name) with all the details;
• the date from which a legal or natural person can be recognized as affiliated;
• details of the document on which the fact of affiliation is based;
• share of participation of a person in the total capital of JSC;
• date of change of the list of affiliates and its description;
• signature of the head of the joint-stock company.

This document can be filled out in the form of an electronic questionnaire on the website of the Federal Securities Commission of the Russian Federation, from where the information enters the unified register.

If there are suspicions of tax evasion through affiliated persons, an audit of the enterprise should be carried out. The following facts can serve as signs of abuse:

• During the audit or immediately before it, the founders of the company registered a new legal entity.
• The actual addresses and contact details of both firms are the same.
• Since the beginning of the audit, the amount of the company's assets has sharply decreased.
• Supply contracts are urgently reissued to another company, rights and obligations are assigned in its favor.
• Employees move to another joint-stock company, the management structure of the enterprise and its staffing are changing.
• The proceeds are transferred to the bank details of the newly formed company.

Each of the listed signs is an indirect evidence of hidden affiliation (interdependence). Identification of an attempt to evade taxes becomes the basis for taking measures to recover arrears already from an affiliated entity (TC RF, clause 2, clause 2, article 45).

The liability of a limited liability company and persons affiliated with it for incomplete, distorted or untimely provision of the specified information provides for three main forms.

• Administrative - in case of formal violations (violation of deadlines, unintentional omissions, etc.).
• Tax - if the actions caused an unreasonable change in market prices. Consequence - additional taxes plus penalties with direct write-off from the account.
• Civil law - upon the occurrence of the consequences provided for by the Civil Code of the Russian Federation.

When conducting tenders for public procurement and in other similar circumstances, a letter of inquiry about the absence of affiliated persons among employees, managers or founders of counterparty firms allows speeding up the verification. This document is executed on letterhead and includes a link to the source (registry) to verify the veracity of the information.

What is an affiliate site?

Internet sites, like firms, can be affiliated. True, when creating affiliate resources, other tasks are set. The purpose of their organization is to maximize the flow of information. For this, twin sites are formed (they are also called clones), identical in content, and sometimes even similar in appearance.

An example from real life, not virtual life, helps explain this concept, when the same product is packaged by its seller in different packages. In this case, the probability that the buyer will choose this particular product increases significantly (by the number of fictitious varieties).

Search engines struggle with this phenomenon. Determining the dependence of Internet resources is quite simple: most often they have a common IP address, identical content, the same structure and layout.

Very often in a professional environment you can hear such a legislative term as "affiliate". What is this term and who can usually be called such a term in the legal field, we will consider in the article.

The concept of "affiliated": what is it and where did it come from?

First, let's figure out what the very concept of "affiliated" means and to whom it can be addressed. In colloquial speech, this adjective practically does not occur, so most people simply do not know what they are talking about. However, often this word can be heard on the news or analytical articles when it comes to fraud in the economic or legal sphere, as well as operations in these planes, obscure to the average citizen. You can often hear about affiliated persons or law firms, and even about affiliated Internet resources.

The word itself has Latin roots and originally referred to the word "son" (later the word "branch" was formed from this word), and the later English version of affiliate literally means "to attach something", and the English noun affiliation is translated as "connection" or "compound".

Thus, we see that the word "affiliated" in colloquial Russian means connected or affiliated.

Since the word in Russian is not very common, often you can find different options its Russian transcription, however, the form "affiliated" is the only correct one.

As we have understood, an affiliated object is one on which the activities of others, less significant, depend. Now let's consider what this concept is from the point of view of law.

Who can be an affiliate or company?

So, from a legal point of view, an affiliate is a person or an organization that able to directly influence for the work of another legal entity, whether it be a large company or an individual entrepreneur.

This can also be considered by companies, and not only subsidiaries, but also those structures that have the right to manage the activities of other companies and legal organizations.

In the Russian tax code, this concept itself does not exist, but it has been replaced by a more understandable name - an interdependent person.

Who is considered an affiliate: a list of personalities and structures

For a company or other organization that is considered a legal entity, affiliates are categories such as:

• sole executives, board of directors or supervisory structure;
• citizens who are in the same group as the organization itself;
• persons owning more than 20% of the shares of this structure or its authorized capital;
• a company in which the structure in question has 20 or more percent of shares or capital (it is worth noting that affiliation is a two-way process);
• if the company is part of a financial or industrial group, then this is the management of that group.

In the case of individual entrepreneurs, affiliates are:

• those persons who are included in the same group of persons with the entrepreneur;
• a company or firm in which the entrepreneur has a share or part of the authorized capital in the amount of more than twenty percent.

Affiliate Group: Who are they and who can be in it?

When we listed who can act as affiliates in relation to a legal entity or an individual entrepreneur, a group of persons was mentioned in which a company or entrepreneur may be a member. So, the members of such a group in the case of an individual entrepreneur are his closest relatives, including spouses, children, parents, brothers or sisters. But the members of the group for the company are such categories of persons who:

• may dispose of more than half of the votes of the shares of the company or more than half of its share;
• single-handedly manage this company or structure;
• have the right to give instructions requiring unquestioning implementation;
• represent the majority of the supervisory and executive staff of the company's management body;
• have the right to appoint or elect a nominal head of the company;
• take part in the selection of most of the members of the supervisory and executive staff of the company.

It is quite natural that members of a particular group may intersect and unite. For example, if two members of two different groups have a lot of influence in the third group, but from a legislative point of view, the first two groups should be considered as one.

Is it necessary to provide information about affiliates?

According to the legislation, which is devoted to the problems of monopolization, joint-stock companies required to provide such lists. the authorities. Such a report is required both to government agencies and shareholders, as well as for accounting reports.

Why is this account necessary? The fact is that in cases where some entrepreneurs are able to strongly influence commercial structures, phenomena such as:

• biased and overpriced pricing;
• persecution of competing structures using non-market methods;
• formation of monopolies.

If such a process is uncontrolled, then it leads to the destruction of entire markets, and at different levels. In the Russian Federation, such records are maintained by the Antimonopoly Service.

What is an affiliate site?

There is also the concept of an affiliated Internet resource. In this context, this concept means somewhat different than in the legal one. So, an affiliated site is a site that created for the purpose of promoting main. It can also be called a doorway or a satellite. Developers can create a huge amount of affiliate resources, which will eventually lead the user to the site that is being promoted.

As you can see, when explaining the concept of affiliation, it becomes more understandable and you can understand what your interlocutor means by mentioning some affiliates in a conversation or talking about the presence of affiliated sites around some major resource on the Internet.

The institute of affiliated persons is a fairly new phenomenon both in theoretical and practical terms. The article reveals the very definition and scope of its application.

Attention will also be paid to the accounting rules for this category, responsibility for their failure to comply, as well as the relationship between the main and subsidiaries.

Affiliates. Concept and types

The phrase itself appeared in Russian in the 90s. For the first time the concept of an affiliated person was mentioned in 1992 in the appendix to the Decree of the President of the Russian Federation. It was about investment funds. In a broad sense, affiliation implies proximity to something, since the English verb to affiliate, from which the word comes, is used in the sense of "join, connect."

Also, this term can be interpreted as joining a membership. Affiliated persons influence each other to some extent, whether it is economic or economic activity. In general, they represent a certain group.

This term found legislative reflection in 1995, and the official definition appeared only in 1998 as a result of amendments to the Law on Competition. Affiliates are individuals or businesses that can influence the business activities of other people or companies. There are some aspects in accordance with which the entity is considered to be controlling in relation to the organization. Affiliated persons of OJSC are citizens or entrepreneurs:

• Owning more than 20% of voting shares. At the same time, affiliated persons of the Joint Stock Company have the opportunity to influence the decision-making process in this organization.
• Owning more than 50% of voting shares.

It is believed that an individual is able to have a significant impact on the organization, having the ability to participate in decision-making, even without controlling its activities.

The legislative framework

Article 4 of the Federal Law, as mentioned above, defines what affiliates are. In addition, the normative act deciphers the possible composition of this category. The list of affiliates primarily includes entities closely associated with the control mechanism.

These may include holders of a large block of voting shares, direct participants in the enterprise management process. Affiliation implies, as a rule, the possibility of unilateral influence of one side of economic activity on another.

It should be emphasized that we mean relations that are not of a property, but of a managerial nature. Property dependence can rather be defined as a consequence, and not at all a condition for the emergence of dependence on control. Not the last role in this matter is played by relationships of a kindred nature.

Classification

According to the Competition Law, affiliates may have:

1. Enterprises:

One of the owners of this legal entity;

Member of any governing body (for example, the board of directors);

Persons having at their disposal at least 20% of the total number of decisive shares;

An organization in which the subject in question acquires the right to dispose of the number of votes in excess of 20% of the total;

The party exercising the powers of the sole body.

2. An individual doing business:

Citizens who belong to the same group as the subject;

An organization in which the entrepreneur in question has the right to dispose of 20% or more of the total number of votes expressed by decisive shares, contributions, shares in the authorized capital.

3. Entrepreneurs participating in financial and industrial groups:

Members of supervisory bodies or boards of directors;

Collegial management structures;

Entities that exercise the powers of the sole divisions of the group.

Scope of this category

The category of affiliated persons can often be found not only in the theoretical, but also in the practical part of the activities of entrepreneurs. Meanwhile, as practice shows, many do not have a clear idea about this category. This, in turn, often causes quite serious errors in the process of economic activity of the subject. The term "affiliates" is predominantly associated with corporate law. It is most often used for:

• the process of identifying persons knowingly having an interest in the actions of the company, which presumably will lead to the conclusion of the transaction;
• identification of directors having the right of a decisive vote in relation to a transaction of interest to them, which an open joint-stock company with more than a thousand participants intends to make;
• determining the list of entities about which information must be provided to the business entity;
• the process of identifying persons, the provision of information about which the joint-stock company is obliged to provide;
• determination of the list of participants who overcame the 30% milestone in the course of the acquisition of shares in OJSC; in this case, certain procedures must be followed, the course of which is regulated by law.

Relationship between the parent company and the subsidiary

How do affiliates interact? An example of such a relationship can be considered by taking the predominant (main) company and the subsidiary (dependent on the main). When creating the latter, the company gets ample opportunities to increase the volume of its activities. The main difference between the main company and branches is legal independence.

Responsibilities

Affiliates have not only rights and opportunities. By virtue of their status, they have a number of responsibilities. First of all, they are charged with informing the public about their shares. This must be done in writing and with specified details (exact number, types of papers, etc.).

Information must be received within a certain period of time from the date of acquisition of shares in ownership. Despite the fact that such persons are not liable before the law in connection with the failure to provide the necessary information within the allotted time, certain sanctions against them still exist.

If, through the fault of affiliated persons, the joint-stock company has suffered losses of any nature (for example, property damage), then compensation for the entire amount of damage caused (in accordance with Article 15 of the Civil Code of the Russian Federation) will act as a punishment.

Accounting responsibilities of businesses

The company is required to maintain a list of affiliates. The list is mandatory submitted to the relevant authorities responsible for the regulation of this market. Antimonopoly legislation provides for the imposition of a fine for violation of existing rules for providing the necessary information. The same rules apply to the list of affiliated persons of the LLC. Lists should be publicly posted on a web page.

Such requirements are quite understandable. Such information is in great demand within a certain procedure for concluding transactions in which affiliates participate. These include, in particular, agreements with interest. A logical question arises: "Is a closed joint-stock company obliged to submit information about affiliated persons?"

After all, it, as a rule, does not engage in public offering of securities. Accordingly, the rule relating to an open joint-stock company does not fully apply to a CJSC. Nevertheless, his duties include keeping records of the subjects in question, albeit in an arbitrary form. If a CJSC carries out a public placement of bonds, then it is also obliged to publish the register of affiliated persons on the website on the Internet.

Accounting procedure

If we take any example of a list of affiliates, then the list will contain the following information:

1. Company name (short and full), postal address.

2. Surname and initials of the subject, address of residence (for individuals);

3. Grounds for being an influential party, the date of occurrence of these grounds.

A responsibility

There are different types of punishment for violating the prescribed order.

1. Administrative responsibility. It occurs if the information is provided incompletely or in violation of the deadlines specified in the legislation.

2. Tax liability. It occurs in relation to related parties and concerns unreasonable price adjustments that run counter to the real situation on the market. If, according to the results of the audit, it turns out that the value of the completed transaction deviates from the existing one on the trading floor by more than 20%, this fact entitles the regulatory authority to charge additional tax and penalties. In this case, the collection is made in a non-acceptance manner.

3. Civil liability may also be imposed for violation of the procedure for carrying out transactions, the participants of which are affiliated persons.