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A company can create an independent company from an existing part of the company by selling or distributing new shares in the so-called spin-off.


A situation in which a company offers stock in one of its wholly-owned subsidiaries or dependent divisions such that subsidiary or division becomes an independent company. The parent company may or may not maintain a portion of ownership in the newly spun-off company. A company may conduct a spin-off for any number of reasons. For example, it may wish to divest itself of one industry so it can expand into another. It may also simply wish to profit from the sale of the subsidiary. A spin off should not be confused with a split off.


In a spin-off, a company sets up one of its existing subsidiaries or divisions as a separate company.

Shareholders of the parent company receive stock in the new company based on an evaluation established for the new entity. In addition, they continue to hold stock in the parent company.

The motives for spin-offs vary. A company may want to refocus its core businesses, shedding those that it sees as unrelated. Or it may want to set up a company to capitalize on investor interest.

In other cases, a corporation may face regulatory hurdles in expanding its business and spin off a unit to be in compliance. Sometimes, a group of employees will assume control of the new entity through a buyout, an employee stock ownership plan (ESOP), or as the result of negotiation.

References in periodicals archive ?
We develop a categorization based on the event that triggers the formation of the spin-off (opportunity or adverse developments) and the actor that creates the company (incumbent or employee) (see Figure 1).
Therefore, these papers suggest that sponsored spin-offs should have positive, long-run abnormal stock returns following the spin-off.
The changes in property rights play an important role in Shane's description of the academic spin-off history.
This new ruling policy present a major challenge to corporation contemplating spin-off transactions In many cases, it will be clear that the requirements of section 355 are met, but each of the three factual issues on which the IRS refuses to rule--(i) adequacy of a company's business purpose; (ii) whether the transaction is a device for distribution of earnings and profits; and (iii) whether the spin-off is part of a broader plan--is inherently uncertain.
Under section 355(e)(2)(B), a plan is presumed to exist where (1) one or more persons, (2) acquire directly or indirectly, (3) stock representing a 50-percent or greater interest in the distributing or any controlled corporation, (4) during the four-year period beginning two years before the spin-off distribution.
In Letter Ruling 9849013, the IRS allowed a key employee (and other employees) to obtain stock ownership in a spin-off (nontaxable transaction).
Emerging businesses may ultimately compete with one another, thus requiring a spin-off in order for each to stand on its own.
P owns S and S owns S1), to position S1 for a spin-off to P's shareholders, S would first have to spin S1 off to P.