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Normally, an affiliate is a company in which another company or entity has a minority interest. (This is different from a subsidiary, in which a company has more than 50% control.) Under those circumstances, I don't see how the company can bind its affiliate in a contract.

But Company B signed a contract with Company C, binding itself to sell all of its widget production, and that of its "affiliate" A, at a fixed price to C. In the relevant contract, Company B defined "affiliate" (perhaps improperly) as a company it controls. In point of fact, the "control" percentage was 80%.

Can Company B so bind A with 80% control? How about 40% ownership?

Ryan M
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Libra
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2 Answers2

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It sounds like you may be conflating ownership and control. It's very common for an affiliate to have a contract with the parent company. These terms can be very detailed - it may give the parent company the right to sell the affiliates widgets, but not sprockets (as those are sold by another parent company). As such, you can't really measure "control" as a simple percentage.

So, when the parent is selling widgets, it can reasonably claim control over its affiliate. The buyer does not need to know the exact terms governing the relation between parent and affiliate.

MSalters
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(I am answering from my understanding of law in NZ. I expect its similar in USA)

Company B can't bind company A unless it enters into or can compel company A to do something. Even here though company B can't bind company A to company C. Any representations or undertakings company B makes to company A about company C would not make company C liable to company A, however it could make company B liable to company A - and thus if C dies not perform as represented to A, A may have recourse against B.

(At least in NZ) From a legal POV the shareholdings of the companies are irrelevant.

davidgo
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