What is an Affiliate under SEC Rules?

Published June 25, 2025

In the complex world of U.S. securities laws, few concepts hold as much practical weight as the status of an “affiliate”. This seemingly technical label influences a wide range of pivotal decisions for companies and their shareholders, from the resale of shares to the selection of the appropriate registration form with the Securities and Exchange Commission (the “SEC“). Given that affiliate status can shape everything from Rule 144 transactions to a company’s qualification as a large accelerated filer, it’s crucial for companies and their management to have a clear understanding of what “affiliate” means under the Securities Act of 1933 (the “Securities Act”)  and the Securities Exchange Act of 1934 (the “Exchange Act”).

In this article, we’ll explore the definition of affiliate, what control looks like in practice, and the far-reaching implications of affiliate status in the day-to-day operations of companies and their shareholders.

The Securities Act Definition of Affiliate

The Securities Act, one of the bedrocks of U.S. securities regulation, provides the statutory definition of affiliate. Under Rule 405 of the Securities Act, an affiliate is:

“A person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the person specified.”

This definition also appears in Rule 144, the most commonly invoked safe harbor for resales of restricted shares. Rule 144 treats affiliates and non-affiliates differently—something that can greatly impact a shareholder’s ability to sell their shares. For example:

• Volume Limitations: . Affiliates are subject to volume limitations, meaning they can only sell a certain percentage of the company’s outstanding shares within a specific timeframe (e.g., 1% every 90 days). Non-affiliates are generally not subject to volume limitations after the holding period.
• Manner of Sale: Affiliates generally must sell shares through a broker, and sales cannot be solicited. Affiliates generally must sell shares through a broker, and sales cannot be solicited.
• Form 144 Filing: Affiliates must file a Form 144 with the SEC if they plan to sell more than 5,000 shares or shares valued at over $50,000 in a three-month period. Non-affiliates are generally exempt from filing Form 144.

That said, the concept of “control” is famously fact-specific. The SEC, courts, and practitioners have spent decades debating what constitutes control and common control, and they’ve concluded that context matters most. A definitive bright-line test for control simply doesn’t exist. This fact-specific approach can make it challenging for companies and shareholders to determine affiliate status, as it requires a detailed analysis of the specific circumstances.

What Constitutes “Control”?

While holding a majority of voting securities is a clear indicator of control, it’s not the only one. Even owning less than 50% can result in affiliate status if the shareholder has substantial influence over company affairs, decisions, officers, or other stakeholders. This ‘substantial influence’ can manifest in various ways, such as having veto power over key decisions or being a trusted advisor to the company’s management.

And contrary to popular assumptions, just serving as an executive or a director is not enough, on its own, to establish affiliate status. SEC staff has consistently noted that one’s title, or even owning 10% of voting stock, is merely one factor in a larger analysis of control.

Control can also arise informally through personal, business, or social ties. What matters most is whether a person or group can influence company decisions directly or indirectly.

Factors to Assess When Evaluating Control

When evaluating whether someone is an affiliate due to control, here are some of the most important considerations:

• Share ownership percentage (and relative size versus other holders)
• Influence over voting decisions or other shareholders’ votes
• Plans for resales or new securities offerings
• Schedule 13D or 13G filings indicating activist or passive intent
• Holding officer, director, or other key roles
• Family, business, or social connections with company insiders
• Major business relationships that affect the company’s operations
• Debtor-creditor dynamics that could give a lender foreclosure rights
• Founding or incorporator status

Resale Implications for Affiliates

Whether someone is an affiliate determines the types of sales they can conduct under the securities laws. Consider Rule 144, the most popular safe harbor for reselling restricted stock:

• Affiliates must sell within volume limits, only through brokers or market makers, using the company’s current public information, and must file a Form 144.
• Non-affiliates face fewer hurdles after a one-year holding period (or six months if the company meets public information requirements). No volume caps or Form 144 filings are required.

And while Section 4(a)(1) of the Securities Act allows sales by non-issuers who aren’t underwriters, affiliates generally cannot rely on this provision without Rule 144 compliance. Affiliates can also use Section 4(a)(7) as a statutory exemption for resales under the FAST Act, provided they meet specific conditions, such as making required representations about the company’s legal compliance.

Impact on Offerings and Registration

Affiliate status is also critical when deciding what kind of offering a company is conducting. Key examples include:

• Form S-3 eligibility: Public float is measured by equity held by non-affiliates. Companies with less than $75 million in non-affiliate public float cannot use Form S-3 unless they meet alternative tests.
• Primary vs. secondary offerings: Primary offerings involve the sale of a company’s stock directly; secondary offerings involve the sale of existing shareholders’ stock. However, if an affiliate sells shares that resemble a company offering (an “indirect primary offering”), the SEC may require it to be treated as a primary offering, with different requirements, such as underwriter liability.

As Rule 415 under the Securities Act highlights, any offering “by or on behalf of” the registrant or its affiliates is considered primary. Even if an affiliate is named as a selling stockholder, the SEC could treat the offering as one “by the company,” making the seller an underwriter subject to liability. This treatment of indirect primary offerings underscores the potential risks associated with affiliate status, as it can significantly increase the seller’s regulatory obligations and potential liabilities.

If a selling shareholder participating in the offering is determined to be an affiliate of the company, and thus the offering is considered a primary offering, such determination can have far-reaching consequences, such as:

• Pricing Flexibility: Primary offerings must be at a fixed price unless using Form S-3 or F-3, in which case the offering can have flexible pricing. Secondary offerings, on all forms, can have flexible pricing.
• Underwriter Liability: Sellers in primary offerings or indirect primary offerings must be named as “underwriters” in the registration statement, incurring Section 11 liability under the Securities Act.

Exchange Act Definition and Filer Status

The Exchange Act Rule 12b-2 also defines an affiliate similarly as someone who controls or is under common control with the company. This matters greatly when deciding a company’s filing status.

Public companies must evaluate their non-affiliate public float to determine whether they qualify as a Large Accelerated Filer, Accelerated Filer, Smaller Reporting Company (SRC), or Emerging Growth Company (EGC). A company’s filing status dictates its disclosure obligations, deadlines, and whether it must comply with auditor attestation requirements under SOX 404(b).

For instance:

• Large Accelerated Filer: $700 million+ non-affiliate public float.
• Accelerated Filer: $75–$700 million non-affiliate public float.
• Smaller Reporting Company: less than $250 million non-affiliate public float or $100 million in revenue.

And EGCs, which have up to $1.235 billion in annual revenue, enjoy scaled-down reporting and don’t need SOX 404(b) auditor attestation until they hit large accelerated filer status.

Conclusion: Why Accurate Affiliation Analysis Matters

Assessing affiliate status is a nuanced but crucial exercise for public companies, affecting everything from Rule 144 sales to registration eligibility and filing obligations. Misclassifying a shareholder as a non-affiliate can expose the company to underwriter liabilities, increased regulatory scrutiny, and compliance missteps. Conversely, recognizing affiliate status allows companies to make more informed decisions and comply with securities regulations more efficiently.

If you have questions regarding affiliation status and how it may affect your company or need to hire a securities attorney, Hamilton & Associates Law Group, P.A. is ready to help. Our Founder, Brenda Hamilton, is a nationally known and recognized securities attorney with over two decades of experience assisting issuers worldwide with going public on the Nasdaq, NYSE, and OTC Markets. Since 1998, Ms. Hamilton has been a leading voice in corporate and securities law, representing both domestic and international clients across diverse industries and jurisdictions. Whether you are taking your company public, raising capital, navigating regulatory challenges, or entering new markets, Brenda Hamilton and her team deliver the experience, strategic insight, and results-driven representation you need to succeed.

To speak with a Securities Attorney, please contact Brenda Hamilton at 200 E Palmetto Rd, Suite 103, Boca Raton, Florida, (561) 416-8956, or by email at [email protected].

Hamilton & Associates | Securities Attorneys
Brenda Hamilton, Securities Attorney
200 E Palmetto Rd, Suite 103
Boca Raton, Florida 33432
Telephone: (561) 416-8956
Facsimile: (561) 416-2855
www.SecuritiesLawyer101.com