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 to 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In the Russian tax code, this concept itself does not exist, but it has been replaced by a more understandable name - an interdependent person.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 subjects of many concepts in the business language are familiar to us. Only for the time being, we are not aware that they are also denoted by this kind of term. An example of this is affiliated companies. Let's figure out what is hidden behind this phrase.
Definition of the term
A broader concept would be affiliates. This is the name of objects (people, organizations) that can significantly affect the activities of any company or individual entrepreneur. Hence affiliated companies - organizations, enterprises, firms, institutions that can influence the fate of an individual or legal entity engaged in entrepreneurship.
One more definition. An affiliated company is a firm that owns a stake in the main enterprise in an amount less than the controlling one. It can act as its branch, representative office, subsidiary. At the same time, the parent company takes part in the affairs of the affiliated company on the basis of an appropriate agreement. Such interdependent companies are created when expanding business to areas remote from the head office, when opening branches of transnational corporations.
Thus, an affiliated company is controlled by a larger, parent company. For the Russian language, the more common option is a branch, a subsidiary. The concept of "affiliation" came to us from foreign law in 1992.
I must say that Russian terminology is less strict than foreign terminology here. In a foreign business language, affiliated companies are precisely controlled ones. In Russia, their list is wider - these are both "daughters" and parent corporations. The concept itself is enshrined in the Tax Code of the Russian Federation:
- Art. 20;
- p. 1, art. 105;
- p. 2, art. 105.
However, the legislation refers to affiliated companies as interdependent.
Now consider more specific examples concerning two groups of businessmen.
Affiliated persons
Consider who is an affiliated company, person in relation to a legal entity:
IP affiliates
For individual entrepreneurs, the list consists of only two items. So, a group of affiliated companies, individuals of an individual entrepreneur:
- Firm, enterprise, 20% of the shares or authorized capital of which is owned by this individual entrepreneur.
- Objects belonging to the same group of persons as the entrepreneur.
Let's take a look at another concept that is often encountered in the explanation.
Group of people - what is it?
With regard to the list of affiliated companies, the term is explained in the Federal Law "On Protection of Competition".
The IP group includes:
- parents;
- children;
- spouse;
- sisters and brothers.
And here are the signs that someone is a member of the group of legal entities:
- Solely manages the legal entity.
- It is authorized to give instructions to the company, which the latter is obliged to fulfill.
- Manages more than 1/2 of the votes attributable to shares or authorized capital.
- It was at the suggestion of this person that the head of the legal entity was elected.
- The executive (management or board) and supervisory (council of the fund, directors) boards are the same persons.
- At the suggestion of this person, more than half of the members of the supervisory/executive board were elected.
Features of affiliated firms
Let's take a look at some of the most important features:
Providing information about affiliates
Russian antimonopoly legislation obliges PJSCs and CJSCs to provide lists of their affiliated companies. The report is kept both to state control bodies and to its own shareholders. Lists of affiliates must also be in accounting documents.
What is the value of such information? All kinds of mutual influence of individual entrepreneurs and legal entities can lead to collusion in the field of pricing, elimination of competitors by non-market methods. And ultimately - to the formation of monopolies. Such a process leads to the paralysis of individual Russian markets for goods or services. Therefore, in our country, the lists of affiliated persons are closely monitored by the Federal Antimonopoly Service.
Example corporation
And now a vivid example of the object of our conversation. These are affiliated companies of Philip Morris International (PMI). This is the name of the international tobacco corporation, leading in its industry. Its products are presented in more than 180 countries of the world. For 2015, she owned a share of 15.6% of the entire global cigarette market. In Russia - 28.4%.
In the Russian Federation, PMI is represented by three affiliated companies:
- "Philip Morris Sales and Marketing" (LLC).
- "Philip Morris Izhora" (CJSC). The factory is located in the Leningrad region.
- "Philip Morris Kuban" (PJSC). Located in Krasnodar.
Branches of these companies in more than 100 Russian cities. The factories employ about 4.5 thousand specialists.
Affiliates are objects that can affect the activities of the organization. But the concept of affiliated companies in the Russian Federation is broader - these are both parent and controlled companies.
According to the current law in our country, an affiliate is a status under which both legal entities and individuals can fall. The beginning is taken in English terminology. In translation " affiliate" has the same meaning as our verb "attach" or "bind". However, there is some difference between the European understanding of this term and the Russian one.
Legislation of the Russian Federation
Unlike the understanding accepted in Europe, according to Russian laws, affiliated companies are those organizations that have the ability to manage other legal entities, as well as subsidiaries. Often because of this, you can come across the term "interrelated" companies. It is also included in the Tax Code Art. 20 and Art. 105. There, the persons are not called affiliated, but rather interconnected.
A more complete breakdown of what affiliates are can be found in Law 948-1. Also, the concept has extensive coverage in the regulations governing the activities of joint-stock companies. Significant attention is paid to the rights of shareholders. An example is Federal Law 208 of December 26, 1995, which establishes a special procedure for transactions with affiliates, and also regulates the possibility of providing information about them. There are references to these subjects of legal relations in the legislation relating to the securities market (FZ-39 04/22/96) and municipal enterprises (FZ 161 11/14/2002).
You need to know that accounting also includes a breakdown of what affiliates mean. The definition was included in the Order of the Ministry of Finance No. 5n, which entered into force on January 13, 2000. All information about transactions carried out by persons related in this way is mandatory entered into the accounting records of the enterprise. This is done where affiliates have significant influence or control over the entity.
Affiliation of legal entities is a situation where two enterprises (or more) are dependent. That is, one company can have a significant impact on another in economic activity, which affects the nature of decisions made by a business entity.
Signs of affiliation of legal entities
Legislative regulation of the concept of affiliation is given in Art. 53.2 of the Civil Code of the Russian Federation, art. 20, Art. 105.1 of the Tax Code of the Russian Federation and the law on competition dated March 22, 1991 No. 948-1. The last legal act defines affiliation in Art. 4, and clarifies that not only legal entities, but also citizens can be dependent.
In relation to enterprises, the following can be recognized as affiliated:
- Members of the supervisory board of the company, representatives of the collegial or sole executive body.
- Members of the group of persons to which a particular firm belongs.
- Shareholders who are entitled to participate in voting at general meetings, if the votes of such shareholders account for more than 20%.
- Investors with a capital share of 20% or more.
- The affiliation of legal entities can manifest itself if the company is a member of the FIG (financial-industrial group). In this situation, affiliates may be representatives of the management bodies of other companies participating in FIGs.
For the purposes of taxation, the concept of "interdependent persons" is applied to affiliation. The following are recognized as such (clause 2, article 105.1 of the Tax Code of the Russian Federation):
- organizations that have a share of more than 25% in the capital of another company;
- legal entity and individual, if the individual owns more than 25% of the capital;
- several legal entities, with the participation of one of them in several companies, if its share in each of them is more than 25%;
- legal entity and its head;
- an organization and a person authorized to appoint its head, or half of the leadership;
- legal entities in which more than half of the management (board of directors) are the same citizens;
- several companies in which the same individual is appointed as the head;
- several legal entities in which the first owns more than half of the capital of the second, the second, in turn, owns more than half of the capital of the third, etc.
The presence of signs of affiliation suggests that companies coordinate organizational or economic decisions with each other.
In relation to the relationship of individuals, interdependence can manifest itself in relatives - for example, in married spouses, between an adopted child and his adoptive parent.
There is another option of dependence - labor. What is the affiliation of officials - this is a situation where one individual is obliged to obey the decisions of another citizen within the framework of labor relations and the hierarchy of management according to the staffing table. This principle of dependence is voiced in Art. 20 of the Tax Code of the Russian Federation.
Affiliation of legal entities: consequences
Legislative regulation of relations between affiliated persons is necessary to solve the following tasks:
- prevention of economic collusion in the field of pricing and competition;
- prevention of situations with the emergence of hidden monopolistic structures on the market.
Checking the affiliation of legal entities may be carried out by the Antimonopoly Service or tax authorities. In the fiscal system, the identification of interdependent enterprises is necessary to assess the objectivity and economic feasibility of controversial business transactions. For example, the Federal Tax Service may challenge the legality of a sale and purchase transaction between affiliated parties if the price of the products sold is understated. The provision of special benefits in cooperation with a dependent structure may also be outside the legal field. Transactions made under such conditions may be declared invalid in court, as they entail an artificial underestimation of tax liabilities and damage to the state budget.
The risks of affiliation of legal entities may manifest themselves in the receipt of services by a company from an affiliated expert organization. In this situation, the opponents of the firm that used the services of such an expert may reasonably challenge the results of the expert opinion and demand a review of the case. The results of auctions may also be recognized as invalid if affiliated persons take part in them. The basis may be the existence of a collusion between dependent enterprises, which led to the winning of one of these firms. If the affiliation of legal entities is revealed, the evidence will turn out to be irrefutable, the results of the auction will be canceled, and the illegally winning enterprise will have to compensate for the losses incurred by other participants.
The presence of interdependence between the debtor and his creditor may be the basis for reviewing the bankruptcy case. The reason is that the parties, entering into an agreement, get the opportunity to create a fictitious debt for the partner to receive funds. This procedure infringes on the rights of other creditors.
Checking the affiliation of legal entities is free of charge on the website of the Federal Tax Service and on other Internet services. Some sites provide an opportunity to explore the relationship between two counterparties, including the analysis of transactions implemented with the participation of intermediaries. Other services make it possible to view the general characteristics of the counterparty of interest by name or TIN, for example:
- registration data;
- information about the founders;
- information about the executive body;
- the presence or absence of enforcement proceedings, arbitration cases;
- statistics of participation in public procurement;
- list of established organizations;
- data on inspections carried out at the enterprise and the number of violations detected;
- related institutions and trademarks.
Checking the affiliation of legal entities on the website of the Federal Tax Service can be done by everyone - for this you need to know the basic details of the counterparty. The services of the tax authority (for example, "]]> Information on state registration of legal entities, individual entrepreneurs, peasant farms ]]> ") will help identify unscrupulous business entities, detect "]]> mass founders ]]> ".
How to prove the affiliation of legal entities:
- conduct a search for information about companies in open sources of information, including the website of the Federal Tax Service;
- check the data on the founders and their shares in other enterprises;
- to study family ties between managers and founders of cooperating firms;
- study the economic condition of firms - this way you can identify the financial dependence of a company on another enterprise (this can be seen in the structure of purchases and sales, by analyzing the client base, by receivables and payables).
