Spin-off vs Split-off – Difference and Comparison

What is a Spin-off?

A Spin-off is the creation of an independent company through the sale or distribution of new shares of an existing business or division of a parent company  

The expectation of a company when creating a spin-off is that it will be worth more as an independent entity

The board of directors and shareholders approves a spin-off with state laws and stock market guidelines.

The parent company owns the new business, while the spun-off entity gets a new name and management and access to the former’s products, assets, resources, infrastructure, and intellectual property.

The holding company distributes a 100% ownership interest in the new company as a stock dividend to its existing shareholders on a pro- rata basis.

Spinning-off makes companies more than independent entities than part of a larger business

When a company spins off a business unit that has its management structure, it sets it up as an autonomous company under a renamed business entity.

 There will be a new name and management structure for the new entity, but the same assets are retained; intellectual property, and human resources. 

What is a Split-Off?

When a new company is created from the parent company, it is called Split off. The shares of the newly created entity are shared among the shareholders of the parent company 

A shareholder has two options; continue owning shares in the parent company, or exchange some or all of the shares held in the parent company for shares in the subsidiary.

The friendly tax terms in split-offs make it easy for the redemption of shares by the parents Nevertheless, because split-offs need shareholders to tender their Parent Co shares to get new shares of the subsidiary, they risk minimum certainty of execution and are mechanically more complicated in relation to spin-offs. 

One notable benefit of split-off is the potential for shareholder litigation if the exchange ratio offered by Parent Co is deemed unfriendly by champion shareholders.

Operations of the company are reordered strategically through Split-ups.

Splitting -up can be of benefit to investors, because managing each split individually would maximize the profits of the autonomous entity.

The merged profits of the split-up companies surpass those of the parent company.

Difference Between Spin-off and Split-off

  1. In a spin-off, the parent company is divided into a new subsidiary independent of the parent company. Split-off, shareholders of the new subsidiary are the former shareholders of the parent company. 
  2. In Spin-off, shares of both the new division and the host company are shared among shareholders. While shareholders of the split-off give up their shares in the parent company. 
  3. In a Spin-off, the parent organization’s resources create an identity in the subsidiary company. In a split-off, the parent company’s resources are not used in the subsidiary.
  4.  Spin-offs are tax-free while Split-offs are not. 
  5. In a spin-off, stakeholders create a separate identity for a new firm, whereas in a split-off, they distinguish between the core business and the new division.

Comparison Between the Spin-off and Split-off

Parameter of ComparisonSpin-offSplit-off
Meaning A new entity is formed from a large company. A company subsidiary turnout into a separate entity.
ShareholdingThe shares of the parent company and the new division go to the shareholders Shareholders in the holding company are expected to exchange their shares for acquisition shares in the subsidiary
Objectives A separate identity for a new firm is createdTransactions between a core business and a new division are distinguished.
Tax treatmentIt is tax- freeThe tax-free privileges are not guaranteed to the parent company
Parent company resourcesA separate identity for a new firm is created by stakeholdersThey distinguish between the core business and the new division