What Are Affiliates and Affiliate Agreements in Business?

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Definition
An affiliate, in general business terms, is an "official attachment" of one business entity to another. Official attachment implies a contract or agreement of some kind and an announcement to the public of the connection between the two businesses. An affiliate agreement is a contract between the two parties: the host or offering business and the affiliate.

Key Takeaways

  • Affiliates are business entities that are attached to other businesses based on a contractual affiliation agreement
  • An affiliate agreement is a contract between the two parties: the host or offering business and the affiliate
  • Whether one business is an affiliate of another is based on common ownership, common management, and the existence of a contract.
  • Corporate affilliates are typically related to a business by way of position of a member or as a subsidiary.
  • Affiliate marketing is common in the retail industry where retailers may use affiliates to sell products or services

How Do Affiliates and Affiliate Agreements Work?

Whether one business is an affiliate of another is based on common ownership, common management, and the existence of a contract.

The SBA says that an individual, entity, or business (Business A) is an affiliate of another business (Business B) if Business B has control over Business A, based on one of several factors. The SBA considers factors like ownership, management, previous relationships with or ties to another business, and contractional relationships.

In addition, parties to a joint venture may be considered affiliates of each other in certain circumstances.

Common Types of Affiliates

The term "affiliate" has two specific uses in business contexts:

In corporate law and taxes, an affiliate is a company that is related to another company, usually by being in the position of a member or a subordinate role, a subsidiary.

In online retailing, affiliation is common in marketing and selling wherein one company may affiliate with another to sell products or services. The seller has a website on which affiliates may sell products. The seller has control over the site and pays a commission to affiliates. This relationship is sometimes called "affiliate marketing."

Note

In broadcasting, local TV and radio stations are affiliates of a national network. These local stations are locally owned, but they use network content and advertising.

Affiliates as Independent Contractors

An affiliate is usually not part of the company with whom it affiliates. It's a separate company, an independent contractor. While another a company may affiliate through ownership, that ownership doesn't mean total control.

Affiliate marketing is an arrangement between a seller and another business that gives a sales commission to the affiliate for promoting a product or line of products for the other company. Amazon affiliate programs are an example of this type of marketing.

Note

Amazon's Associate Program Operating Agreement clearly identifies Amazon and the Associate as independent contractors.

Affiliate Agreements 

Affiliate agreements can be entered into by any type of business, from sole proprietor to corporation. Affiliating with another company is a good way to promote your business and make more money by joining with someone who has a proven track record and a larger customer base. But before you join an affiliate program of any kind, consider these questions (from Leslie Truex, Home Business expert).

An affiliate agreement is a contract between the two parties: the host or offering business and the affiliate. Like any other type of contract or agreement, it's important to put this affiliate agreement in writing.

Parts of an Affiliate Agreement

An affiliate agreement contract should include answers to the following questions:

  • What is the term of the affiliate agreement? Under what circumstances can either party terminate the agreement?
  • What is the definition of "affiliate" in this situation?
  • What is the relationship between the parties? Are they both independent?
  • What are the rights and duties of the affiliate? Of the company?
  • Who pays what to whom and when?
  • What licenses are required of both the affiliate and the host business? Who owns the licenses? For example, a broadcast TV station must have a specific type of license, and keep that license up to date.
  • Who owns the intellectual property? (Trademarks and service marks are the most common types of intellectual property in affiliate agreements.) What are the restrictions on the use of intellectual property by the affiliate?
  • How are affiliate payments made and when? How can commissions be re-negotiated?
  • What state law governs this agreement?
  • What happens if either of the parties goes out of business?
  • What happens if either party defaults on the agreement?

Standard Contract Language You Should Know About

If you are reviewing an affiliate agreement, you MIGHT see some other standard contract terminology. Three standard clauses you may see are: 

  1. A confidentiality/non-disclosure clause that keeps the affiliate from sharing proprietary business details with others. 
  2. An indemnification clause (sometimes referred to as a "hold harmless" clause) that protects either party from harm for the actions of the other party.
  3. Mandatory arbitration is becoming a standard part of many business contracts. This clause requires the parties to use arbitration in a legal dispute, rather than the court process of litigation.

Frequently Asked Questions (FAQs)

What is affiliate marketing?

Affiliate marketing is when a business enters into contractual agreements with affiliates to market and sell its products and services. The affiliates on the other hand get a commission as compensation in return for their services. Large retailers have affiliate programs and even influencers on social media participate in affiliate marketing.

How to become a Twitch affiliate?

social media platform Twitch lists eligibility criteria for who can become an affiliate. If your Twitch channel has at least 500 minutes of broadcast, seven unique broadcasts and an average three concurrent viewers in a 30 day period, you may become eligible to become a Twitch affiliate. After that, Twitch emails invitations to eligible participants with details of the agreement.

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Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Acquisitions.gov. "19.101 Definitions."

  2. Small Business Administration. "How Does SBA Determine Affiliation?"

  3. Small Business Administration. "Small Business Compliance Guide Size and Affiliation."

  4. Integrated Marketing Association. "Affiliate Marketing."

  5. Amazon. "Associates Program Operating Agreement."

  6. Securities and Exchange Commission EDGAR Database. "Marketing Affiliate Agreement." Accessed Sept. 5, 2020.

  7. Twitch. "Joining the Affiliate Program."

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