Law Blog Category: Spin-Off
A subsidiary spin-off is a transaction where a parent corporation’s stock ownership of a subsidiary is distributed to the parent corporation’s shareholders giving the shareholders direct ownership of the former subsidiary. Typically, the subsidiary shares are distributed to the shareholders pro rata as a dividend. In fact, two of the requirements for an unregistered spin-off, as set forth in Staff Legal Bulletin No. 4 issued by the Securities and Exchange Commission, are that the distribution be pro rata and that no consideration be paid by the shareholders (i.e. a dividend).
A spin-off occurs when a parent company distributes shares of a subsidiary to the parent company’s shareholders such that the subsidiary separates from the parent and is no longer a subsidiary. In Staff Legal Bulletin No. 4, the Securities and Exchange Commission (SEC) explains how and under what circumstances a spin-off can be completed without the necessity of filing a registration statement.