Affiliates

Affiliates play an important role in business and economic relations; they often significantly impact the management of companies and their financial results. The concept of affiliates covers many participants, including owners, shareholders, managers, and even close relatives. Knowing who the affiliates are and understanding their impact on decision-making within the company is essential to ensure transparency and legality of business processes. 

In this article, we will look at who the affiliates are, the key aspects related to their definition, and the government requirements that the company must comply with about affiliates and affiliated companies about the company. Understanding these issues will help entrepreneurs and company executives avoid potential risks and effectively use affiliated structures to achieve their business goals.

Which Individuals are Affiliates

Affiliates are defined only in business entities: joint-stock companies, limited and additional liability companies. Affiliates include companies and individuals who can directly or through other companies (individuals) determine the company’s decisions or influence their adoption. 

The state establishes the list of affiliates. Affiliates are treated depending on the company’s management structure:

1. Members of the Board of Directors (Supervisory Board).
2. Members of the collegial executive body and their close relatives.
3. A person who performs the functions of the company’s sole executive body (an individual or a management company).
4. The deputy (first deputy) head of the company, as well as close adult relatives of the listed categories of persons (except for relatives of members of the collegial management body, the sole management body and the deputy director (first deputy)).
5. Companies that are part of the holding company.
6. Owners or persons who have the right to dispose of stake in the company’s authorized capital (shares) in the amount of 20 per cent or more individually or together with their spouse, parents, children and their spouses, adoptive parents and adopted children and their spouses, wards, grandfather, grandmother, grandchildren and their spouses, siblings and the parents of the spouse and close relatives of these owners (managers).
7. A company that owns or may dispose of a share in the authorized capital (shares) in the amount of 20% or more or may determine the company’s decisions by the agreement.
8. A company in whose authorized capital a legal entity owns 20% or more of shares or whose decisions may be determined by the legal entity under an agreement concluded between them.
9. Members of the collegial management bodies of a company that is affiliated with the company, an individual or a legal entity, are the sole executive body of this affiliated entity.
10. Companies and individuals who manage shares of state-owned companies.

The company may request information from the listed persons to determine the circle of its affiliated persons.

Which Individuals are Not Affiliates

Affiliates do not include:

• Belarus as a state and its administrative parts.
• The National Bank.
• Public administration bodies at the national level. Organizations that are subordinate to the Belarusian Government.
• Local executive and administrative bodies.
  
  

What does the Company Do about Affiliates

About affiliates, the company has responsibilities established at the state level:

1. Defines the circle of affiliates.
2. Notifies the affiliates in writing.
3. Keeps records of affiliates.
4. Determines the procedure for transmitting the necessary information by affiliates to the general meeting of participants and/or the Board of Directors (Supervisory Board).
5. Commits interested-party transactions by resolution of the general meeting of participants, adopted by a majority of the total number of votes of the participants of the business company who are not interested in making this transaction. The company’s articles of association may specify a different transaction procedure involving affiliates. For the security of a future transaction involving or involving affiliates, we recommend you consult our experienced corporate lawyer. 

Also, a resolution of the general meeting (Board of Directors, Supervisory Board) on transactions involving affiliates is not always required. For example, such a solution is unnecessary when the transaction is an ordinary business transaction with standard terms that the company regularly performs or when the company belongs to one owner (participant). For registration and execution of transactions involving affiliates, we recommend that you consult our experienced lawyer.

Why Is It Needed to Identify Affiliates and Keep Records of them

Identification and accounting of affiliates of a business entity are important elements of effective corporate governance. It is necessary for several reasons related to transparency, risk management, and compliance with legal requirements. Here are the main ones:

1. Compliance with the requirements of the state
In many jurisdictions, the law requires companies to disclose information about affiliates. This law aims to prevent conflicts of interest and protect the interests of shareholders, especially minority shareholders. Failure to comply with these requirements can lead to fines, sanctions, and even loss of trust in the company.

2. Conflict of interest management
Affiliates may be involved in transactions with the company, which creates a risk of conflict of interest. Accounting for such persons allows you to control and minimize these risks, ensuring honesty and transparency in doing business.

3. Transparency in the company’s activities
Disclosure of information about affiliates increases the confidence of investors, shareholders and partners. Transparency helps to create a positive image of the company in the market, which is especially important when attracting investments or concluding large transactions.

4. Assessment of financial and legal risks
The availability of information about affiliates allows the company to better assess the possible financial or legal risks associated with its activities. These risks may include issues of taxation, contractual obligations, and potential liability.

5. Improving the quality of corporate governance
Accounting for affiliates contributes to a clearer understanding of the company’s ownership and management structure. It improves decision-making, as management knows who can influence key processes.

6. Protection of shareholders’ interests

This is especially true for companies with a large number of shareholders. Keeping records of affiliates helps protect minority shareholders from abuse by majority shareholders or related parties.

7. Reducing regulatory and reputational risks

Failure to comply with the requirements for disclosing information about affiliates can lead to fines and the loss of the company’s reputation. It may also affect the company’s market position and attractiveness to investors.

How to Keep Records of Affiliates

It is necessary to develop an internal accounting policy for affiliates  and maintain a list of affiliates in a form approved by the company.

It also is needed to update information about related parties regularly. The company must monitor transactions involving affiliates and approve them through corporate procedures.

Specialized software can account for affiliates and analyze data, including transactions involving their interests.

Thus, identifying and accounting of affiliates is a legal requirement and an effective risk management and mitigation tool. It allows the company to remain transparent, reliable and stable.

Obligations of Affiliates about the Company

The members of the Board of Directors (Supervisory Board), the Collegial Executive Body (Directorate), the director or the person who exercises his powers, and the person who owns more than 20% of the shares (stakes) in the company, must inform the company by the procedure established within the company:

1. About companies in which they, alone or with close relatives and parents of the spouse, own or have the right to dispose of a share in the authorized capital (shares) of 20% or more.
2. About companies whose property is owned by them or their close relatives, spouses of close relatives, siblings and parents of the spouse.
3. About companies in whose management bodies they or their close relatives, spouses of children, adoptive parents, adopted children and their spouses, grandfather, grandmother, grandchildren and their spouses, siblings and parents of the spouse hold positions.

Companies that own or dispose of a share in the authorized capital or shares of a company in the amount of 20% or more or can determine the decisions of this company based on an agreement are required to inform the general meeting and (or) the board of directors (supervisory board) the company:

1. About companies in whose authorized funds they, individually or jointly with an affiliate(s), have the right to dispose of shares in the authorized fund (shares) of 20% or more.
2. About the companies whose property they own.

The listed persons are required to inform the general meeting of the company’s participants and (or) the Board of Directors (Supervisory Board) no later than five days from the date on which they became aware of relevant information about known or proposed transactions of the business company in which they may be considered interested. The company itself determines the ways and forms in which such information is transmitted.

Its affiliate is obliged to notify the company about the acquisition of a share in its authorized capital (shares) no later than 10 days from the date of acquisition. 

Conclusion

Affiliates play an important role in any company’s activities, and their accounting and updating are an important part of corporate governance. Understanding the status of affiliates and complying with government requirements in this area helps to avoid possible legal risks and conflicts of interest.  

We recommend contacting our experienced lawyers to resolve issues related to the identification and accounting of affiliates and the development and implementation of appropriate corporate policies. We provide qualified advice and practical assistance, ensuring the protection of your company’s interests and compliance with regulatory requirements.

Contact us

If you have any questions or disputes related to the identification and accounting of affiliates in Belarus , we will be happy to help! Our long-term experience in corporate law will help you resolve any disputes in this area.

• +37529142-27-19 (WhatsApp, Viber, Telegram);
• info@ambylegal.by.