The term affiliates is widely used in business practice. Let's take a closer look at what affiliates are and why they are talked about. First of all, this concept is used in managerial relations between two business entities.

Affiliation is the ability of an organization or person to influence an individual entrepreneur. But this connection is always two-way and affiliation is often called interdependence. Sometimes the concept is interpreted as joining membership.

In business communications, it is customary to talk about the affiliation of a person - an individual or a legal entity. This means that there is a special management relationship between the affiliate and the company itself. As a result, property dependence arises, and family ties play an important role in such relationships.

The term first appeared in 1992 with the adoption of the first competition law. In general, affiliation relates more to the field of corporate law and the securities market. Modern antimonopoly laws use the concept of “circle of persons,” and tax law uses the term “interdependence.”

Affiliates

Corporations and people who influence other companies in the decision-making process are called affiliates. They directly control the activities of the company, such as a director, or participate in making key decisions for the company or individual entrepreneur:

• purchase and sale
• reorganize the company through merger or acquisition
• change the leadership structure

Affiliates directly influence each other, representing a group of related entities. In order to maintain market competitiveness and control over transactions with interested parties, all companies are required to compile and maintain records of affiliated persons. Based on the type of activity, these data are officially published or submitted to the Central Bank of the Russian Federation, the stock exchange, and counterparties when concluding transactions. It is these lists that are most often encountered when working with banks, joint stock companies, public companies, and monopoly firms in a certain product market.

Information about the affiliation of an individual organization, its director and founders is necessary for checking counterparties when concluding contracts and making a decision on the feasibility of a transaction.

Regulatory acts

The terminology adopted in Russia is formulated less clearly than in foreign legal norms. In addition, different branches of law interpret essentially the same concept with individual variations (Table 1).

Affiliation is explicitly stated in Art. 53 of the Civil Code. In the old Law of the RSFSR No. 948-1, adopted back in March 1991, the concepts of interconnectedness were first given. Now only the initial definitions of this law are valid, and all other provisions were replaced in 2006 by antimonopoly law No. 135-FZ. It also talks about a group of persons and gives comprehensive explanations about the members of such a group.

Video about who these affiliates are:

A definition of interdependence similar to affiliation exists in Art. 20 and chapter 14, art. 105.1 and 105.2 of the Tax Code. At the same time, a more detailed description of dependent parties is given in Art. 105.

Composition of the list of persons

According to Law No. 948-1, which is still in force, affiliates for a specific organization include certain entities.

Let's look at the example of the company Sun JSC:

Here is the definition of affiliates for individual entrepreneurs:

• all entrepreneurs and companies included in the group of persons, which directly includes the individual entrepreneur himself
• corporations, the founder of which is an individual entrepreneur and at the same time he owns at least 20% of the shares

The law does not say anything about family ties between affiliated entrepreneurs and companies, but this is clearly stated in the relevant articles of the Tax Code.

Signs of an affiliate

An organization or person is considered affiliated or interdependent if:

According to the articles of the Tax Code of the Russian Federation, not only direct family ties mean affiliation: guardians and wards also belong to direct relatives.

A citizen’s group of persons also includes other organizations directly related to his relatives.

An important point in distinguishing interdependence from affiliation:

1. Interdependence is recognized voluntarily, and affiliation is established only on the basis of appropriate criteria.
2. To recognize affiliation, a person only needs to own 20% of the authorized capital of another company, and for interdependence a 25% participation is required.

Rights and obligations

The rights of affiliated companies are not defined in any way in Russian legislation. They are allowed to conduct general financial and economic activities within the framework of federal antimonopoly laws, anti-corruption legal norms, strictly observing Russian laws.

Responsibilities are more clearly defined and there are many more of them than other business entities. Affiliates are required to regularly inform the business corporations with which they are affiliated of their position. They also have certain regulations for concluding transactions, which are called controlled transactions in tax legislation.

An important responsibility of joint stock companies is maintaining a register of affiliated persons. Together with the published reports, joint stock companies post this list on the Internet on their own website.

The most difficult moment for joint-stock companies is control over, if they are allowed to acquire stakes in other corporations. In the absence of information about the acquisition by a subsidiary of a block of shares in a certain company, whose shares have already been acquired by the JSC, it will immediately acquire the status of an affiliate of this company.

For example, the subsidiary of JSC Vella of the Gamma corporation acquired a 6% stake in the Alpha company. But Gamma already has a 14% stake in Alfa, and after Vella JSC purchases the remaining 6%, it automatically becomes an affiliate of Alfa JSC.

Responsibility

The current regulatory framework does not provide for separate liability for affiliated persons. When joining a certain group, JSCs and PJSCs are required to report this. They are responsible to the corporation for concealing information if, for this reason, the company suffered property damage.

LLCs are not subject to any liability whatsoever for failure to provide detailed information about affiliations. Banks bear administrative responsibility for incomplete data.

When concluding transactions, a group of affiliated entities bears tax liability if prices are artificially inflated or lowered below market prices.

Accounting for affiliates

Joint-stock companies are required to provide information about affiliation in the form of a special register. When trading shares of the company on the stock exchange, this list is sent without fail to the organizer of trading and to the Central Bank along with quarterly reporting. Also, JSCs and PJSCs are required to openly post these lists on their own websites and retain the information presented for review for 3 years.

Rules for maintaining the register of affiliates

Certain requirements have been developed for maintaining such a register. The accounting form is chosen and approved by a separate order directly by the organization. It must contain the following details:

• full name
• legal address
• Company details
• date of affiliation
• event description
• name of the individual and his address
• size of the owned share in the authorized capital

The law does not specify the deadlines for updating information; the dates and deadlines are set directly by the company itself. As a rule, such data is updated once a quarter or year.

Why is it necessary to provide information?

Information about affiliated persons must be publicly available for verification of the company by its counterparties.

Such a list is required when tax authorities check controlled transactions with affiliates. Publication of information is necessary in order to counteract monopolistic market behavior, the formation of secret price collusions and squeezing out competitors. Published data simplifies the procedure for registering interested party transactions.

Differences between affiliates and related parties

The concept of relatedness of the parties is enshrined in PBU 11/2008. This term is more extensive and, in addition to the standard signs of affiliation, includes 2 more categories of business entities:

• participants of a simple partnership conducting joint activities under full or simple partnership agreements
• organizations that have entered into agreements with various non-state pension funds for services, and this also includes all legal entities associated with such organizations

Affiliate highlight video:

Example of an affiliate

So that information about affiliation does not turn out to be complex and confusing, we will give a simple example.

In Vorontsovskoye LLC, the director and sole participant is A.E. Maksimov. His wife Maksimova E.V. owns 60% in PIK LLC, which provides legal services, and his daughter has her own individual entrepreneur, Aphrodite Beauty Salon. All three are interdependent persons and, by definition of the antimonopoly law, are part of a group of persons.

Maksimov controls Vorontsovskoye LLC and influences his wife when she makes decisions in the PIK company. His wife also influences Maksimov in managing the Vorontsovskoye company. Their daughter is able to influence her parents in the management of both companies.

Affiliation will be key if family members begin to make joint purchase and sale transactions and at the same time apply reduced prices in order to save taxes.

Definition of a group of persons

The group of persons is described in detail in Art. 9 of the latest antimonopoly law of 2006. This term brings together entrepreneurs and organizations that have complete control over the activities of the company compared to other participants. Possessing 50% of shares, shares, and sometimes more, they have the right to fully manage the company. The instructions of such persons are binding.

Affiliates are able to control other business entities, but are required to act within the framework of established federal antimonopoly laws, complying with the requirements of civil and tax legislation. All transactions made by affiliates must not cause damage to corporations. Moreover, each agreement between them is strictly controlled by inspection authorities. Business entities are required to regularly report on their affiliation.

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The term “affiliates” is often used in legislation. Let's try to figure out what it meansand in connection with what it is used.

Affiliates and affiliated companies - what exactly are they?

According to the law, affiliates are organizations and people capable of exerting a significant influence on the activities of a company or individual entrepreneur.

Affiliates can be not only people, but also companies. In Russian law, the terminology is less strict than abroad, and not only subsidiaries are recognized as such entities, but also those that themselves can manage the activities of other companies.

There is a similar concept in the Tax Code of the Russian Federation (Articles 20, 105.1, 105.2), but in it such persons are not called affiliated, but interdependent.

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Who exactly is on the list?

For a legal entity, affiliates are:

• members of governing bodies (board of directors, supervisory board), as well as sole directors;
• persons belonging to the same group as the company itself;
• persons who own or otherwise dispose of 20% or more of the shares or authorized (share) capital of a given legal entity;
• a company in which this legal entity controls 20% or more of the shares or capital (affiliation applies in both directions);
• for companies included in financial and industrial groups - the management of the group itself.

For individual entrepreneurs, the following are considered affiliated:

• persons belonging to the same group of persons as the individual entrepreneur;
• companies in which the entrepreneur owns the share in shares or capital that was indicated above in relation to legal entities.

What is a group of persons?

In relation to affiliated persons, this term is clearly disclosed in Art. 4 of the RSFRS Law “On Competition and Protection of Entrepreneurial Activities...” dated March 22, 1991 No. 948-1. According to the norm, affiliated persons are individuals and legal entities capable of influencing the activities of individuals/legal entities engaged in business activities. In particular:

• member of the collegial management body;
• persons who have the right to dispose of more than 20 percent of the votes attributable to voting shares or constituting the authorized capital;
• persons belonging to the group of persons to which this individual or legal entity belongs, etc.

The concept and characteristics of a group of persons are given in Art. 9 of the same law.

Why do I need to provide affiliate information?

Legislation regarding monopolies stipulates that joint-stock companies must provide a list of affiliated persons. They report to both regulatory government agencies and their shareholders, and also maintain lists of such persons in their accounting records.

This information is necessary because the mutual influence of entrepreneurs and companies easily makes it possible to arrange various collusions regarding prices, squeeze out competitors using non-market methods and form monopolies. Previously, such conspiracies sometimes paralyzed even the markets of some countries. To prevent this from happening again, the Federal Antimonopoly Service (FAS RF) is now monitoring the lists of affiliated entities in Russia.

An affiliate is a person (individual or legal) capable of influencing the activities of individuals or legal entities engaged in business activities. In simple words, an affiliate (person or organization) is directly involved in control of the joint stock company.

The term “affiliated person” used in Russian legislation was borrowed from Anglo-American law. The English verb affiliate denotes the verbs: connect, attach, connect.

“Affiliating someone” means introducing an official of another into the management of one company.

In European law, affiliated companies are companies that are dependent on other companies. In Russian legislation, the word affiliated is applied to both dependent and dominant persons. The main feature of affiliation is the ability to influence business activities.

Signs of an affiliate

An important feature of an affiliated person is the existence of a dependent relationship between an individual or legal entity and an affiliate of this individual or legal entity.

This dependence manifests itself in the following cases:

When an individual or legal entity owns a certain share of the authorized capital of a legal entity with voting rights in the management body
- if an individual or legal entity, due to a certain legal status (for example, the status of a general director or fund manager), has the right to issue binding instructions
- if there are certain family ties (kinship relationships) between individuals

Affiliate of a legal entity

Affiliates of legal entities persons may be:

Member of the supervisory board or board of directors, member of the collegial executive body
- an individual or legal entity who has the right to dispose of more than 20% of the total number of votes attached to voting shares or a contribution from the share of the legal entity that constitutes the authorized capital
- a legal entity, if it is a member of a financial-industrial group (financial-industrial group).

“Affiliation procedure” is the process of one company entering the structure of another without changing the owner.

Affiliate of an individual

Affiliated individuals persons conducting business activities may be:

Persons who belong to the same group of persons as the individual
- a legal entity where an individual a person has the right to dispose of 20% of the total number of votes attached to voting shares or a contribution from the share of a legal entity that constitutes the authorized capital.

Joint-stock companies regularly provide information about their affiliates to the Federal Securities Commission. Also, any joint stock company is obliged to prepare lists of its affiliates for annual publication in the media. In addition, the lists must indicate the types and quantities of shares owned by affiliates.

Who are they and what should you consider when dealing with them?

If companies or citizens can influence the business activities of an individual entrepreneur or legal entity, then the law classifies them as affiliated persons.

They have the right to directly control the work of an LLC or joint stock company.

LLC Affiliates

This concept is directly defined in Art. 53.2 of the Civil Code of the Russian Federation and in the Federal Law of July 26, 2006 No. 135-FZ.

The main characteristic of an affiliate is the ability to directly influence the company.

In this case, the activities of the LLC directly depend on the AL, which include:

• individuals directly performing the functions of managers in an LLC, members of the board of directors, appointed to the position of manager or working in a collegial executive body;
• individuals participating in the company who have more than 20% shares;
• commercial corporations in which the LLC has more than 20% shares;
• individuals and legal entities included in a single group in accordance with antimonopoly legislation.

Note!

A single group of legal entities may include companies with more than 50% participation shares that are capable of controlling other group members and giving them binding instructions.

Bank affiliates

AL of any credit institution can be:

• an individual who is a member of the governing body (supervisory board or board of directors);
• the sole director of a credit institution, acting as an executive body or a member of the executive body;
• an individual who is the only member of the executive body;
• a shareholder or shareholder of a bank who, after purchasing securities, has the right to dispose of more than 20% of the shares or can dispose of more than 20% of the votes;
• a legal entity that has acquired more than 20% of the bank’s shares or can control more than 20% of the total number of votes;
• legal entities included in a single financial and industrial group with the organization.

What are the responsibilities for affiliates?

After individuals and legal entities become dependent on each other, they acquire corresponding rights and obligations. The parties must conduct various transactions on the basis of certain regulations.

Commercial companies with which banks come into contact in their work must be informed of their affiliation.

After receiving profit from transactions, accrual and payment of taxes, you can expect additional checks from regulatory authorities.

The legislation provides for several types of liability for affiliates. First of all, this is civil liability, which occurs when the law is not observed in the process of making transactions.

In case of artificially inflating or understating prices, tax liability can be expected. If the bank fails to provide a list of related parties in a timely manner, or if this list is incomplete, this will entail an administrative sanction.

The rights and obligations of affiliated persons are not directly established by law. They directly depend on the position of the AL in the group and on relations with other participants in economic processes.

During commercial relations with other legal entities or individuals, banks must comply with the requirements of anti-corruption legislation.

Where can I find information about affiliates?

Any organization must maintain lists of affiliates.

The procedure for disclosing information about them directly depends on the goals pursued by government or other bodies. For example, it is necessary to submit data on AL related to financial statements on the basis of by-laws (orders) of the Ministry of Finance of the Russian Federation.

For credit institutions, the Bank of Russia adopted special regulation No. 454-P. He approved the form of the AL list for joint-stock companies.

OJSCs that are issuers of securities must necessarily post lists of their ALs on their own websites on the Internet. In addition, such a list is submitted to the registration authority, which records the issue of securities of this joint-stock company.

Such bodies include the Department for Licensing the Activities of Credit Institutions and Auditing Firms of the Bank of Russia, territorial offices of the Bank of Russia or regional branches of the Federal Commission for the Securities Market of Russia.

This information must be submitted every quarter. The list of AL must be compiled no later than thirty days at the end of the reporting quarter. Other organizations submit lists once a year.

All JSCs must inform the registration authorities of any changes that have occurred in the lists of their ALs.

To do this, a written request must be received from the registration authority, which must be satisfied no later than 10 days after receipt of the JSC.

Transactions with affiliates

The laws on individual commercial companies contain the composition of interested parties classified as affiliated. A legal entity will be interested in concluding an agreement if AL is the intermediary, beneficiary or party to the transaction.

Note!

Such a transaction can include an agreement concluded between a member of the board of directors of an LLC and the company itself, between the company and another business company in which a close relative of the manager has a controlling stake.

Legislation is aimed at protecting the interests of a commercial company that is the subject of civil legal relations and its members from the unfavorable consequences of an agreement to which an interested party wishing to obtain personal benefit was a party.

Protection of transactions from the interest of AL is associated with such mandatory actions as:

• removal of the interested party not only from signing the agreement, but also from initial participation in the discussion of the terms of the agreement and the feasibility of its conclusion;
• approval of the contract by the highest management body of the company.

When concluding a transaction between related parties, it is very important to pay attention to the procedure for determining the price, which affects the tax consequences of the agreement.

Summary

OJSCs or LLCs that have affiliates are required to act on the basis of relevant laws and constantly inform interested organizations by submitting available information.

All ALs are responsible for the transactions carried out, which should not cause damage to the company and its members and are controlled by the management bodies of the OJSC or LLC.

If you have questions related to the submission of information or the liability of affiliates, you can seek help from qualified lawyers of our company.

Comments

Good afternoon

My name is Vasily.

I am one of the three founders of a company engaged in the supply of heating equipment. Let's call it Start LLC. I am also the director of another company engaged in the retail trade of heating equipment. Let's call it LLC "Kometa". LLC "Start", where I am the founder, is the main supplier of goods for LLC "Kometa" (here I am the director), this is approximately 80% of all goods. Terms of delivery of goods from LLC "Start" - interest-free loan with payment for goods as they are sold.

Now the question is: do I fall into the category of affiliated persons in the described situation and can there be questions from desk services to our organizations, for example, about delays in tax payments due to the exclusivity of conditions between interdependent persons?

Client clarification

If my father is the founder of Start LLC instead of me, will transactions between Start LLC and Cometa LLC be considered as transactions with an affiliate?

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