associate company



An associate company (or associate) in
accounting Accounting, also known as accountancy, is the measurement, processing, and communication of financial and non financial information about economic entity, economic entities such as businesses and corporations. Accounting, which has been calle ...
and business valuation is a company in which another company owns a significant portion of voting
shares In finance, financial markets, a share is a unit of Equity (finance), equity ownership in the capital stock of a corporation, and can refer to units of mutual funds, limited partnerships, and real estate investment trusts. Share capital refers t ...
, usually 20–50%. In this case, an owner does not consolidate the associate's financial statements. Ownership of over 50% creates a
subsidiary A subsidiary, subsidiary company or daughter company is a company (law), company owned or controlled by another company, which is called the parent company or holding company. Two or more subsidiaries that either belong to the same parent company ...
, with its financial statements being consolidated into the parent's books. Associate value is reported in the
balance sheet In financial accounting, a balance sheet (also known as statement of financial position or statement of financial condition) is a summary of the financial balances of an individual or organization, whether it be a sole proprietorship, a busine ...
as an asset, the investor's proportional share of the associate's income is reported in the income statement and
dividend A dividend is a distribution of Profit (accounting), profits by a corporation to its shareholders. When a corporation earns a profit or surplus, it is able to pay a portion of the profit as a dividend to shareholders. Any amount not distributed ...
s from the ownership decrease the value on the balance sheet. In Europe, investments into associate companies are called fixed financial assets. Associate value in the enterprise value equation is the reciprocate of
minority interest In accounting, minority interest (or non-controlling interest) is the portion of a subsidiary corporation's stock that is not owned by the parent corporation. The magnitude of the minority interest in the subsidiary company is generally less than 5 ...
. Under the UK
Companies Act 2006 The Companies Act 2006 (c 46) is an Act of Parliament, Act of the Parliament of the United Kingdom which forms the primary source of UK company law. The Act was brought into force in stages, with the final provision being commenced on 1 Octobe ...
, two companies are "associated" if one company is a subsidiary of the other or both are subsidiaries of the same body corporate.Companies Act 2006
section 256


External links

Basis of Consolidation
Corporate law Mergers and acquisitions Financial accounting {{accounting-stub