An affiliate is a person or entity that directly or indirectly controls, is controlled by, or is under common control with another person or entity. In U.S. securities regulation, the term is used descriptively to identify relationships based on control, rather than on ownership percentages, contractual arrangements alone, or formal titles.
The concept of affiliation appears across multiple areas of securities law, including disclosure and registration, with the specific implications depending on the rule or provision in which the term is applied.
Regulatory Context
Under the Securities Exchange Act of 1934, the term affiliate is defined in Exchange Act Rule 12b-2, which provides that an affiliate of a specified person is a person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with the specified person.
“Control” for these purposes refers to the possession, direct or indirect, of the power to direct or cause the direction of management and policies, whether through ownership of voting securities, by contract, or otherwise. The determination of affiliate status is therefore fact-specific and depends on the totality of the relationship rather than on a single quantitative threshold.
Relationship to Insider Reporting
Affiliate status by itself does not automatically trigger Section 16 reporting obligations. Instead, Section 16 applies to specific categories of persons—such as directors, corporate officers, and ten percent owners—based on role or ownership thresholds.
However, affiliate relationships may be relevant in broader securities-law analysis when assessing control relationships or ownership attribution, depending on the specific regulatory context in which the term is applied.
Scope and Distinctions
An affiliate is distinct from a beneficial owner, which is a concept focused on voting power, investment power, or pecuniary interest in securities. Affiliate status focuses instead on control relationships, which may or may not involve direct ownership of securities.
Whether a person or entity is an affiliate is determined under the specific rule or provision being applied. As a result, a person may be an affiliate for one regulatory purpose but not for another, depending on how control is defined and evaluated in that context.
Sources
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17 CFR § 240.12b-2 — Definition of “affiliate” and “control”
https://www.law.cornell.edu/cfr/text/17/240.12b-2 -
SEC — Definitions Used in Regulation (Exchange Act Rule 12b-2)
https://www.sec.gov/rules/final/34-28869.htm