Associate Company

  

Categories: Accounting

Think of an associate company as not quite a subsidiary.
If one company owns another company outright, then the smaller firm is a subsidiary of the bigger one. But there are times when a larger company owns only a smallish stake in a smaller one, but not a majority of the shares. It has a sizable interest, possibly seats on the board and a heavy influence on management, but less than 50% of the voting stock. In this scenario, the smaller firm is an associate company.
The distinction has some impact on the accounting for the larger company. Even though it owns a notable stake in the smaller company, the smaller firm's holdings don't get rolled into the holdings for the larger company for accounting purposes, as would happen with a straight-up subsidiary. Instead, the holdings are viewed like an investment. The larger company holds shares in the smaller company as an asset, but doesn't hold the smaller company's assets directly.

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