What Is AARP?

The American Association of Retired Persons, commonly known by its acronym AARP, is America’s leading organization for people aged fifty and older, providing member benefits, marketing services, and lobbying on their behalf.

Founded in 1958 by retired educator Dr. Ethel Percy Andrus as the American Association of Retired Persons, AARP is a nonprofit, nonpartisan association with a membership of more than 38 million.

How AARP Works

AARP provides information, education, research, advocacy, and community services through a nationwide network of local chapters and experienced volunteers. It focuses its work on consumer issues, economic security, work, health, and independent living issues, and engages in legislative, judicial, and consumer advocacy in these areas.

AARP is considered a powerful lobbying group as well as a successful business, selling life and health insurance, investment products, and other financial and non-financial services. It is also an independent publisher, offering Modern Maturity magazine and the monthly AARP Bulletin. AARP produced $1.70 billion in revenue in 2019, which came from a variety of endeavors, including advertising revenue from its publications, and from royalties for licensing its name and logo.

However, membership fees represent the most significant source of revenue. It is registered as a 501(c)(4) non-profit by the Internal Revenue Service (IRS), which means it is permitted to engage in lobbying. It also administers some 501(c)(3) public charity operations while some of its other operations are for-profit.

AARP Affiliates

There are several AARP-affiliated organizations, and they include the following:

• The AARP Foundation is a non-profit charity that assists people over age 50 who may be at economic and social risk. Within the foundation operates AARP Experience Corps., which encourages tutoring and mentoring of children, and AARP Institute, which holds its gift annuity funds.
• AARP Services develop and manage new products and services and are for-profit.
• Legal Counsel for the Elderly is a non-profit that provides legal services for seniors in Washington, D.C.
• AARP Financial Services holds AARP real estate and is for-profit.
• The AARP Insurance Plan administers some AARP group insurance plans.

AARP also has many other initiatives, including promoting driver safety (AARP Driver Safety), producing television programming that targets seniors, and engaging in sponsorships that support social causes, such as raising awareness of and fighting hunger in America.

AARP manages outreach programs that address housing issues and social isolation among seniors. AARP has also initiated and managed programs that advocate for the strengthening of Social Security and Medicare.

Criticism of the AARP

AARP is one of the strongest lobbying groups in America, and because of its efforts, it often receives attention for exerting its influence in Washington, D.C., and in state capitals. Its non-profit operations also receive millions of dollars per year in the form of federal grants. Some argue that its positions fall into the more liberal part of the political spectrum.

What Is an Affiliate?

Affiliate is used primarily to describe a business relationship wherein one company owns less than a majority stake in the other company’s stock. Affiliations can also describe a type of relationship in which at least two different companies are subsidiaries of the same larger parent company.

Affiliate is also commonly used in the retail sector. In this case, one company becomes affiliated with another in order to sell its products or services, earning a commission for doing so. This term is now used widely in partnerships among online companies in which the affiliate supports another company by channeling internet traffic and e-sales.

Understanding Affiliates

There are several definitions of the term affiliate in the corporate, securities, and capital markets.

Corporate Affiliates

In the first, an affiliate is a company that is related to another. The affiliate is generally subordinate to the other and has a minority stake (i.e. less than 50%) in the affiliate. In some cases, an affiliate may be owned by a third company. An affiliate is thus determined by the degree of ownership a parent company holds in another.

For example, if BIG Corporation owns 40% of MID Corporation’s common stock and 75% of TINY Corporation, then MID and BIG are affiliates, while TINY is a subsidiary of BIG. MID and TINY may also refer to one another as affiliates.

Note that for the purposes of filing consolidated tax returns, IRS regulations state a parent company must possess at least 80% of a company’s voting stock to be considered affiliated.

Retail Affiliates

In retail, and particularly in e-commerce, a company that sells other merchants’ products for a commission is an affiliate company. Merchandise is ordered from the primary company, but the sale is transacted at the affiliate’s site. Amazon and eBay are examples of e-commerce affiliates.

International Affiliates

A multinational company may set up affiliates to break into international markets while protecting the parent company’s name in case the affiliate fails or the parent company is not viewed favorably due to its foreign origin. Understanding the differences between affiliates and other company arrangements is important in covering debts and other legal obligations.

Other Types of Affiliates

Affiliates can be found all around the business world. In the corporate securities and capital markets, executive officers, directors, large stockholders, subsidiaries, parent entities, and sister companies are affiliates of other companies. Two entities may be affiliates if one owns less than a majority of voting stock in the other. For instance, Bank of America has a number of different affiliates around the world including Merrill Lynch.

Affiliation is defined in finance in a loan agreement as an entity other than a subsidiary directly or indirectly controlling, being controlled by or under common control with an entity.

In commerce, two parties are affiliated if either can control the other, or if a third party controls both. Affiliates have more legal requirements and prohibitions than other company arrangements to safeguard against insider trading.

An affiliate network is a group of associated companies that offer compatible or complementary products and will often pass leads to each other. They may offer cross-promotional deals, encouraging clients who have utilized their services to look into the services offered by an affiliate.

In banking, affiliate banks are popular for underwriting securities and entering foreign markets where other banks do not have direct access.

Affiliates vs. Subsidiaries

Unlike an affiliate, a subsidiary’s majority shareholder is the parent company. As the majority shareholder, the parent company owns more than 50% of the subsidiary and has a controlling stake. The parent thus has a great deal of control over the subsidiary and is allowed to make important decisions such as the hiring and firing of executives, and the appointment of directors on the board.

What Are Affiliated Companies?

Companies are affiliated when one company is a minority shareholder of another. In most cases, the parent company will own less than a 50% interest in its affiliated company. Two companies may also be affiliated if they are controlled by a separate third party. In the business world, affiliated companies are often simply called affiliates.

The term is sometimes used to refer to companies that are related to each other in some way. For example, Bank of America has many different affiliated companies including Bank of America, U.S. Trust, Landsafe, Balboa, and Merrill Lynch.

Companies may be affiliated with one another to get into a new market, to maintain separate brand identities, to raise capital without affecting the parent or other companies, and to save on taxes. In most cases, affiliates are associates or associated companies, which describes an organization whose parent has a minority stake in it.

Understanding Affiliated Companies

There are several ways companies can become affiliated. A company may decide to buy out or take over another one, or it may decide to spin off a portion of its operations into a new affiliate altogether. In either case, the parent company generally keeps its operations separate from its affiliates. Since the parent company has a minority ownership, its liability is limited, and the two companies keep separate management teams.

Affiliates are a common way for parent businesses to enter foreign markets while keeping a minority interest in a business. This is especially important if the parent wants to shake off its majority stake in the affiliate.

There is no single bright-line test to determine if one company is affiliated with another. In fact, the criteria for affiliation changes from country to country, state to state, and even between regulatory bodies. For instance, companies considered affiliates by the Internal Revenue Service (IRS) may not be considered affiliated by the Securities and Exchange Commission (SEC).

Affiliates Versus Subsidiaries

An affiliate is different from a subsidiary, of which the parent owns more than 50%. In a subsidiary, the parent is a majority shareholder, which gives the parent company’s management and shareholders voting rights. Subsidiary financials may also appear on the parent company’s financial sheets.

But subsidiaries remain separate legal entities from their parents, meaning they are liable for their own taxes, liabilities, and governance. They are also responsible for following the laws and regulations where they are headquartered, especially if they operate in a different jurisdiction from the parent company.

An example of a subsidiary is the relationship between the Walt Disney Corporation and sports network ESPN. Disney owns an 80% interest in ESPN, making it a majority shareholder. ESPN is its subsidiary.

SEC Rules Surrounding Affiliates

Securities markets around the world have rules that concern affiliates of the businesses they regulate. Here again, these are complex rules that need to be analyzed by local experts on a case-by-case basis. Examples of rules enforced by the SEC include:

• Rule 102 of Regulation M prohibits issuers, selling security holders, and their affiliated purchasers from bidding for, purchasing, or attempting to induce any person to bid for or purchase, any security which is the subject of a distribution until after an applicable restricted period has passed.
• Before disclosing nonpublic personal information about a consumer to a nonaffiliated third party, a broker-dealer must first give a consumer an opt-out notice and a reasonable opportunity to opt out of the disclosure.
• Broker-dealers must maintain and preserve certain information regarding those affiliates, subsidiaries, and holding companies whose business activities are reasonably likely to have a material impact on their own finances and operations.

Tax Consequences of Affiliates

In nearly all jurisdictions, there are important tax consequences for affiliated companies. In general, tax credits and deductions are limited to one affiliate in a group, or a ceiling is imposed on the tax benefits that affiliates may reap under certain programs.

Determining whether companies in a group are affiliates, subsidiaries, or associates is done through a case-by-case analysis by local tax experts.