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HOW DOES A PUBLIC COMPANY AFFECT A SPIN-OFF?

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A spin-off is when a public company decides to distribute a subsidiary or a division of its company to its shareholders. This can be done to raise money or to separate a non-core business.

Spin-offs are an important part of today’s corporate world. For instance, DuPont recently spun off its performance chemicals business into a separately traded company in order to focus DuPont on higher-margin products.

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A spin-off can be accomplished by filing a registration statement with the Securities and Exchange Commission. The type of registration statement filed will depend on the transaction. The parent company can decide to retain some of the shares or dispose of all of its holding in the spin-off.

There are three types of spin-offs which can be accomplished, depending on the objectives of the company:

  • The parent sells shares of the spun-off subsidiary. In this case, the spin-off works exactly like a pure sale of the business; however, the sale is to the public via an initial public offering.
  • The subsidiary sells shares to the public and keeps the money. In this case, the seller of the shares is the subsidiary, and the funds raised in the offering stay with the subsidiary for business purposes.
  • The parent distributes the shares to its shareholders without consideration. This is actually the most common method of achieving a spin-off.

There are several important considerations when deciding whether and how to effect a spin-off, such as management of the parent and subsidiary, the assets and liabilities to be allocated to each company, the nature of each company’s business going forward, and tax issues.

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If your public company is considering a spin-off transaction, contact the trusted Houston corporate securities lawyer at Whitley LLP Attorneys at Law today. We will work with you to ensure that the spin-off achieves your business objectives.

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