Affiliated company

An affiliated company (관계회사/關係會社) is a corporation whose parent company possesses only a minority stake in the ownership of the company. The parent company typically owns 20 to 50 percent of the voting shares; if more than 50 percent of the shares are owned by a parent company, it creates a subsidiary (where the parent company consolidates the financial statements). Typically, the parent company records the affiliatd company's value as an asset in its balance sheet.

Key words
subsidiary, affiliated company, associate company, ownership, under common control, consolidated financial statements

Statutory ground
Under the Act on External Audit of Stock Companies (주식회사의 외부감사에 관한 법률), the affiliated company of X Corp. means any one of the followings: Article 5 of the Enforcement Decree of the Act
 * 1) A company which is subordinate to X Corp. (종속회사);
 * 2) A company which owns more than 20 percent of issued shares of X Corp., or more than 20 percent of shares of which are owned by X Corp.;
 * 3) Other company or companies than X Corp. which are under common control of a same person who owns 30 percent or more shares of those companies including X Corp.; or
 * 4) Such other company as deemed to be of considerable interest to X Corp.

Under the Monopoly Regulation and Fair Trade Act (독점규제 및 공정거래에 관한 법률/公正去來法), the affiliated company (계열회사/系列會社) means that where two or more companies belong to the same business group (기업집단/企業集團), each company is called as an affiliated company of the others). Article 2 (Definitions) iii.

The subsidiary (자회사/子會社) means a domestic company the business of which is controlled by the holding company under the criteria prescribed by Presidential Decree.

Associate Company
An associate company (관련회사/關聯會社) is partly owned by another company or group of companies.

In this case, the parent company does not consolidate the associate company's financial statements. Associate companies are not fully consolidated. Consolidated financial statements are the combined financial statements of a parent company and its associated company or subsidiaries. Rather than being consolidated, the revenue and profits from associate companies appear separately on the parent company's profit and loss (P&L) statements. Associate companies are sometimes created in host countries in the case of foreign direct investments to reduce any negative stigma connected to the foreign ownership.

Subsidiary
The subsidiary (자회사/子會社) is defined by the Commercial Act (상법/商法) as follows: Article 342-2.
 * (1) In case where a company (the "parent company") holds more than 50 percent of the total issued and outstanding shares in another company (the "subsidiary company"), the subsidiary company may not acquire shares in the parent company.

A subsidiary or sister company is a company that is completely or partly owned by another corporation that owns more than half of the subsidiary's stock, and which normally acting as a holding corporation which at least partly or (when as) a parent corporation, wholly controls the activities and policies of the daughter corporation. The subsidiary can be a company, corporation, or limited liability company. In some cases it is a government or state-owned enterprise. The controlling entity is called its parent company or holding company.

Subsidiaries are a common feature of business life, and all multinational corporations organize their operations in this way.