How Do I Spin-Off A Subsidiary? Going Public Lawyers

Spin-offs - Going Public Attorneys
Securities Lawyer 101 Blog

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.

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.


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 

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

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.

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

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

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:

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 [email protected] or visit  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