How Do I Spin-Off A Subsidiary?


Presentation Description

A spin-off (“Spin-off”) involves a transaction in which a parent company (“Parent”) distributes securities of its subsidiary (“Subsidiary”) to the Parent’s stockholders so that the Subsidiary becomes a separate, independent company.  Spin-off securities are usually distributed on a pro-rata basis.


Presentation Transcript

What is a stock spinoff? By: The Going Public Lawyers :

What is a stock spinoff? By: The Going Public Lawyers Securities Lawyer 101

What is a spin-off? :

What is a spin-off? A spin-off (“Spin-off”) involves a transaction in which a parent company (“Parent”) distributes securities of its subsidiary (“Subsidiary”) to the Parent’s stockholders so that the Subsidiary becomes a separate, independent company.  Spin-off securities are usually distributed on a pro-rata basis.  State law dictates whether stockholder approval of a spin-off is required.  Securities issued in spin-offs do not require registration under the Securities Act of 1933 , as amended (the “Securities Act”) if certain conditions are met.   The SEC has taken the position, that as long as the conditions of Staff Legal Bulletin No. 4, have been satisfied, the spin-off of the Subsidiary’s securities by the Parent will not require a registration statement under the Securities Act.  After the spin-off is complete, the private issuer must locate a sponsoring market maker to submit a Form 211 to FINRA to seek a ticker symbol .

What is a spin-off? (cont.):

What is a spin-off? (cont.) As long as the requirements of Staff Legal Bulletin No. 4 are met, the securities distributed to the Subsidiary’s stockholders are not restricted securities if: ♦  the stockholders of the Parent do not provide consideration for the spun-off Subsidiary securities; the spin-off securities are distributed pro-rata to the Parent stockholders ; ♦  the Parent provides adequate information about the spin-off and its Subsidiary to its stockholders and to the trading markets; ♦  the Parent has a valid business purpose for the spin-off; and ♦  the Parent spins-off restricted securities not registered with the SEC, the Parent has held the securities for at least one year.


Consideration In order for the spin-off to be exempt from registration , the Parent stockholders cannot provide consideration for the Subsidiary securities they receive.  If consideration is tendered, then a “sale” has occurred and a registration statement under Section 5 of the Securities Act is required, unless an exemption is available.  In a spin-off, an exemption from registration is rarely available because of the number of stockholders receiving the Subsidiary’s securities .

Pro-Rata Issuance Requirement :

Pro-Rata Issuance Requirement   A spin-off is exempt when the spin-off securities are distributed pro-rata to the Subsidiary’s stockholders, meaning that the Parent stockholders must hold the same percentage of the Parent and Subsidiary after the spin-off.  If a spin-off is not pro-rata, the stockholders’ proportional holdings change and a registration statement under the Securities Act is required.

Disclosure Requirements:

Disclosure Requirements In order for a spin-off to be exempt from the SEC’s registration requirements, the Parent must provide adequate information to its stockholders and the public markets about the transaction. If the Subsidiary is a non-reporting issuer, it can satisfy the adequate public information requirement by providing the same disclosures that would be found in a proxy statement under the Securities Exchange Act of 1934 , as amended (“Exchange Act”).  The disclosures must be provided to stockholders prior to or contemporaneously with the spin-off securities.  If the Subsidiary is not reporting with the SEC, it must file a Form 10 registration prior to the time the Subsidiary’s securities trade.  A reporting Subsidiary is deemed to have satisfied its information requirements as long as it is current in its reporting obligations and has provided all relevant material information about the spin-off .

Disclosure Requirements (cont.):

Disclosure Requirements (cont.) Where both the Parent and Subsidiary are non-reporting issuers the adequate information requirement is satisfied if prior to the date of the spin-off: ♦ the Parent provides the stockholders with an information statement which satisfies the Section 14 proxy rules of the Exchange Act; ♦ the securities issued are restricted until such time as the Subsidiary files a Form 10 registration statement; and ♦ the transfer restrictions are enforced such as by means of stop transfer instructions to the transfer agent .

Valid Business Purpose Requirement in Spin-Offs:

Valid Business Purpose Requirement in Spin-Offs In order to be exempt from the registration requirements of Securities Act, the spin-off company must have a valid business purpose for the spin-off.  Creating a public company or shell is not a valid business purpose. Examples of valid business purposes include: ♦  allowing management of the Parent and of the Subsidiary to be separate and allowing each to focus solely on the relevant entity’s business; ♦  providing incentives to employees of each business linked solely to his or her respective employer; ♦  increasing potential funding opportunities by allowing investments into each business separately; and ♦  enabling the separate entities to do business with the other’s competitors.

Holding Period – Spin-Off Securities:

Holding Period – Spin-Off Securities Lastly, the Parent must have held the securities of the Subsidiary for at least twelve months.  This is so the receiving stockholder may tack with the Parent’s holding period and thereby satisfy the holding period requirements of Rule 144. If you are going to engage in a spin-off you will need the assistance of an experienced securities law firm like Hamilton & Associates to assist you with the SEC’s registration statement requirements to ensure all required disclosures are provided. For information about the registration statement requirements that apply to a registered Spin-Off please visit: https ://


For further information about this  securities law blog   post, please contact   Brenda Hamilton, securities attorney   at 101 Plaza Real S, Suite 202 N, Boca Raton Florida,   (561) 416-8956 , by email at .   This   securities law blog   post is provided as a general informational service to clients and friends of   Hamilton & Associates Law Group   and should not be construed as, and does not constitute legal advice on any specific matter, nor does this message create an attorney-client relationship.  Please note that the prior results discussed herein do not guarantee similar outcomes. Hamilton & Associates  | Securities Lawyer Brenda Hamilton, Securities Attorney 101 Plaza Real South, Suite 202 North Boca Raton, Florida 33432 Telephone: (561) 416-8956 Facsimile: (561) 416-2855 Securities Lawyer 101


A+ Offerings A+ Reporting About Brenda Hamilton Accredited Investor Status Crowdfunding Crowdfunding Portals Direct Public Offering Direct Public Offering Attorneys Draft Registration Statements DTC Chills DTC Eligibility DTC Global Locks Due Diligence EB-5 Program & Going Public Eligibility & Regulation A+ Form S-3 Registration Statement Form S-8 Registration Statement Funding Portals Global Locks Go Public 101 Going Public Attorney Going Public Bootcamp Going Public for Foreign Issuers Going Public Law Regulation A+ Disclosures Regulation A+ Q&A Regulation A+ SEC Reporting Reverse Mergers 101 Schedule 14A Schedule 14C Spam Sponsoring Market Makers Stock Promotion Going Public Lawyers Going Public Transactions Jobs Act 101 Initial Public Offerings Intrastate Crowdfunding Investor Relations 101 IPO Alternative s LinkedIn Manipulative Trading OTC Link OTC Markets OTC Markets Attorney OTC Markets Dual Listings OTC Pink Sheets OTCQB Listing, Eligibility, Quotation OTCQX Listing, Eligibility, Quotation Periodic Reporting Private Placements Registered Direct Public Offerings Regulation A+ Regulation D Regulation D Bad Actor s Restrictive Legends Reverse Mergers Reverse Merger Game Changers Reverse Stock Splits Rule 10b-5 Rule 15c-211 Rule 504 Rule 506(c) SEC Comments SEC Investigations SEC Inquiries SEC Registration Statements SEC Requests for Comments Secondary Registration Statement What is a Form 10 Registration Statement? What is DTC Eligibility? What is a Form S-8 Registration Statement? What is Form 12b-25? What are the OTC Markets OTC Pinks? What Is Regulation SHO? What Is A Confidential Registration Statement? What Are The OTC Markets? Secondary Registration Statement Social Media Schedule 14A Schedule 14C Short Sales Spam Sponsoring Market Makers Stock Scalping 101 Stock Promotion Equity Crowdfunding Exempt Direct Public Offerings FINRA Rule 6490 Forensic Attorneys Form 1-A Form 10 Registration Statement Form 10-K Twitter & Regulation A+ Wells Notices What is Going Public? What Is Accredited Crowdfunding? What Are Short Swing Profits ? Stock Spin-Offs Going Public Attorney Roles Going Public Attorneys DD OTC Markets Attorneys DD For more information about our publications please visit the links below:

authorStream Live Help