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Affiliated Persons: Definition, Implications, and Compliance

Last updated 03/19/2024 by

Alessandra Nicole

Edited by

Fact checked by

An affiliated person, commonly known as an affiliate, holds a position within a corporation that grants them the authority to influence the company’s decisions and actions. This includes directors, officers, and specific shareholders. However, depending on the regulatory context, the term may encompass a broader range of individuals associated with the corporation.

Affiliated persons: What you need to know

An affiliated person, often referred to as an affiliate, is a pivotal figure within a corporation, possessing the capacity to shape the organization’s course of action. This article elucidates the concept of affiliated persons, their regulatory implications, and their significance in various financial contexts.

Understanding affiliation in securities regulation

Within the realm of securities regulation, an affiliated person holds substantial sway over corporate affairs. The Securities and Exchange Commission (SEC) defines affiliated persons expansively to encompass individuals with significant ties to the corporation. These may include:
  • Directors, officers, and executives
  • Shareholders holding 10% or more of any class of the company’s stock
  • Company promoters and principal underwriters
  • Individuals providing management or advisory services
Identifying affiliated persons is essential for regulatory oversight, as they often possess privileged access to inside information, necessitating stringent monitoring to deter potential abuse.

Implications in bankruptcy proceedings

In the context of bankruptcy proceedings, affiliated persons assume critical importance, particularly concerning debtor corporations. Affiliated persons encompass individuals or entities exerting control or ownership over the debtor corporation, thereby influencing the bankruptcy process. Understanding the involvement of affiliated persons is integral to navigating complex bankruptcy proceedings effectively.

Transaction restrictions and regulatory compliance

Affiliated persons face stringent transaction restrictions to mitigate conflicts of interest and uphold corporate integrity. Regulatory bodies impose limitations on transactions involving affiliated persons, particularly those pertaining to the sale of securities or property to the corporation or its controlled entities. Compliance with regulatory mandates is imperative to ensure adherence to ethical standards and legal requirements.
Here is a list of the benefits and the drawbacks to consider.
  • Enhanced regulatory oversight
  • Prevention of insider trading
  • Clear delineation of responsibilities
  • Potential for conflicts of interest
  • Complex regulatory compliance
  • Restricted transactional freedom

Frequently asked questions

What are the transaction restrictions imposed on affiliated persons?

Affiliated persons face restrictions on transactions involving selling securities or property to registered companies or their controlled entities, except under specific circumstances outlined by regulatory authorities.

How do affiliated persons influence bankruptcy proceedings?

Affiliated persons exert significant influence over bankruptcy proceedings by virtue of their control or ownership stakes in debtor corporations, thereby impacting the course of restructuring and asset distribution.

Key takeaways

  • An affiliated person holds authority to influence a corporation’s actions and decisions, encompassing directors, officers, and certain shareholders.
  • Regulatory definitions of affiliated persons are expansive, covering individuals with significant influence or connections to the corporation.
  • Identification of affiliated persons is crucial in securities regulation to prevent insider trading and ensure comprehensive regulatory oversight.
  • Transaction restrictions are imposed on affiliated persons to mitigate conflicts of interest and abuse of corporate authority.

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