Affiliate letters: Overview, definition, and example
What are affiliate letters?
Affiliate letters are written certifications signed by individuals or entities considered “affiliates” of a company—typically executives, directors, or large shareholders. These letters are often required in connection with public offerings, mergers, or other securities transactions to confirm that the affiliate understands and agrees to comply with certain restrictions under securities laws.
Why are affiliate letters important?
Affiliate letters help companies and underwriters comply with securities regulations, particularly around resale restrictions and insider trading. They ensure that affiliates won’t sell or transfer their shares improperly during sensitive periods like public offerings or mergers. These letters reduce legal risk and provide a paper trail showing that the company has taken proper steps to inform insiders of their obligations.
Understanding affiliate letters through an example
In a public company merger, officers and directors may be required to sign affiliate letters agreeing not to sell their shares until after the merger closes and certain reporting periods have passed. This prevents them from unfairly profiting or disrupting the market and helps the company meet SEC requirements under Rule 145 or similar regulations.
Example of an affiliate letters clause
Here’s how an affiliate letters clause may appear in a contract:
"Each person identified by the Company as an affiliate shall deliver to the Acquirer, on or prior to the Closing Date, an executed affiliate letter in a form reasonably acceptable to the Acquirer, confirming their agreement to comply with Rule 145 and applicable resale restrictions under the Securities Act."
Conclusion
Affiliate letters are compliance tools that help manage insider behavior during major transactions. By documenting an affiliate’s acknowledgment of legal restrictions, these letters protect both the company and the transaction from regulatory issues. Businesses should identify affiliates early and ensure they execute these letters as part of the closing checklist.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.