The word affiliate is one that many of us may use in our day-to-day lives - for example, the phrase affiliate marketing is commonplace in social media and sales. However, it does have several different meanings and uses. When it comes to the legal affiliate definition, an affiliate meaning is pretty specific. Here, we look to define affiliate so that a true understanding of the term can be reached.

What is an affiliate?

A quick way to define affiliate is that affiliates are entities whose business concerns are controlled by a third party or even one another. Shared management or shared ownership structures are common where affiliates are concerned. It is often the case that an affiliate is a company in which a large company holds a minority stake. 

How does an affiliate work?

When it comes to being an affiliate of a firm, it can work in different ways. And that is down to the potential affiliate and potential affiliate owner to thrash out over a contract negotiation. Affiliates will often earn money by selling products of the parent company. Hence, it is essential for the affiliate to determine what sort of commission they are comfortable with before signing any contracts. 

On the flip side, the affiliate owner must be sure that the terms and conditions laid out in their final agreement helps them achieve their aims and goals too. Affiliates need to strengthen a company - not be a drain on its resources. If the commission structure is too favorable for the affiliate, the parent company may not benefit from the partnership at all. Parent companies also need to be sure they are happy with how and when an affiliate is paid. Payments need to work for those companies both administratively and financially. So it could be better to pay out monthly or quarterly, or even annually. Finally, companies and affiliates need to include in the contract how the partnership can be dissolved. 

Advantages of an affiliate 

There are advantages to being an affiliate on both sides of the business relationship - whether you are the affiliate itself or the company owning the affiliate. If you are the affiliate, it can mean that you gain a cash injection from the company looking to take a minority stake in your firm. Additionally, it can also mean you can more easily take advantage of what that company has to offer. For, it could be that their business provides a means to make your processes more efficient - either through systems they have in place or by an outside opinion being made on the workings of your company. Or, when selling their products, you may find you sell more of them (and other byline products), increasing your overall profits. 

For the company looking to take a stake in an affiliate, there can be significant benefits. Firstly, they can access inside information from that affiliate which can help their company become more productive. Or, it could be that that affiliate helps strengthen their brand to sit under their larger company umbrella. Finally, it could provide them with a diversified income stream which helps improve the company’s broader profits. 

Contractbook and affiliate

Contractbook is a great place to head if you are considering starting an affiliate relationship with another company - either to be the affiliate or to be the company controlling the affiliate. Our software can help automate contracts that can generate an agreement that is mutually beneficial for both sides, leaving a working partnership where both sides of the relationship derive real value.

For more info on the topic, see affiliate program.

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