ComplianceJune 07, 2024

Corporate spin-off checklist

A corporate spin-off occurs when a company creates a new entity within its operations. The spun-off entity was a business unit or division of the company before the spin-off, but after the spin-off it is a separate, independent subsidiary. Shareholders of the parent are given shares in the spun-off subsidiary on a pro rata basis.

Corporate spin-offs can have benefits for multiple stakeholders:

  • A corporate spin-off can allow a divested business unit to be more profitable as an independent company than it was as a part of its parent. 
  • Investors may benefit from the flexibility, simplicity, and focus of spin-offs. 
  • The parent company can achieve greater value since executives are free to focus on key issues and improve margins, growth, and valuation across all lines of business.

As an added benefit, a spin-off can be achieved in a tax-free way to both the parent company and shareholders.

However, any spin-off is a complex undertaking, fraught with a range of legal, compliance, and tax responsibilities. 

No two spin-offs are the same

The success of a corporate spin-off depends on many factors. 

Spin-off transactions have surprisingly strict and short timelines. During this period, deal teams must identify how the new entity will be separated from the parent and meet legal and compliance requirements for the parent company and the spun-off entity. In addition, deal teams must determine governance issues such as the composition of the spin-off’s board of directors, potential conflicts of interest, and more. 

Furthermore, regulatory, tax, and reporting requirements can vary significantly depending on the exit structure, method, and jurisdiction, and usually involve different timetables and locations.

Failure to address these and other issues can be damaging for both parties.

To address these requirements, below is a checklist outlining the critical steps, considerations, and trigger events for any spin-off.

Phase 1: Strategy

For a successful spin-off, the parent company must have a clear understanding of transaction priorities and ensure all levels of the company are aligned behind them.

Below are key steps to follow during this phase: 

  • Assemble a team comprising key individuals from both the parent company and, if necessary, the spin-off entity. This team will review and resolve key issues associated with the transaction. 
  • Develop a detailed spin-off strategy, encompassing various critical aspects such as:
    • Business objectives.
    • Identification of assets to be spun-off, including contracts and intellectual property.
    • Capital structure considerations.
    • Tax implications.
    • Configuration of the operating model, organizational structure, and governance framework.
    • Evaluation of senior management and staffing requirements.
    • Director and board composition.
    • Compensation, regulatory compliance, and other pertinent matters.
  • Define the relationship between the parent company and the spin-off. The separation of entities can vary from day one depending on the interoperability of systems, abbreviated spin-off timeline, etc.

Phase 2: Preparation

Unforeseen regulatory constraints or demands have the potential to disrupt the spin-off process and lead to unwarranted delays. It is crucial to assess these implications across all jurisdictions, particularly when establishing new legal entities. Moreover, early planning is essential, as the groundwork for post-spin filings must coincide with the spin-off company's SEC registration process. 

This phase delineates the tasks required to carry out the separation, with certain steps overlapping with those in phase one:

  • Engage a team of multidisciplinary third-party consultants to advise on regulatory issues.
  • Establish a timeline with key dates and tasks (such as soft- and final spin-off dates).
  • Develop a communication plan and strategy, including which stakeholders will have knowledge of the spin-off before it is made public (employees, partners, vendors, regulators, etc.)
  • Form the subsidiary entity (select and reserve a name, choose a registered agent, draft and file articles of incorporation, etc.) 
  • Determine if the spun-off subsidiary will be required to file a Beneficial Ownership Information (BOI) report pursuant to the Corporate Transparency Act and if so, identify its beneficial owners and company applicants, obtain the required information, and file the BOI report.
  • Establish a spin-off company board. Elect directors and officers and adopt bylaws (including takeover defense provisions) and adopt and implement corporate governance policies.
  • Draft separation documents, including a separation and distribution agreement, transition services agreements, commercial agreements, and tax matters agreement.
  • Address and resolve any regulatory compliance issues and secure regulatory approvals, where necessary.
  • Prepare the requisite SEC filings and registrations for both the parent and spin-off companies.
  • Identify systems and processes that require replication or replacement in the spin-off, assessing the need for any redundant services.
  • Conduct a comprehensive review to determine which records and data should be phased out (sunset) and which should be retained after the spin-off.
  • Conclude the process by finalizing financial statements.
Mergers are increasingly complex.  CT Corporation has extensive expertise managing M&A from beginning to end.

We provide end-to-end project management with a single, accountable specialist who can partner with you from start to close of a deal.

Our Relationship Managers, who are accessible around the clock, are industry experts who can directly interact with the state to resolve issues that may arise.

Phase 3: Execution

As phase two concludes, the parent and spin-off company will be close to operating as distinct entities. However, the formal legal separation of the two entities occurs in phase three, to include the following pivotal steps:

  • Launch a soft spin-off to test the operational structure and assignments. It's worth noting that some companies under time constraints, may choose to forego this parallel operational phase, which takes place before the legal launch, potentially leading to post-deal issues and conflicts. 
  • Validate and execute legal documents, effect stock transfers, and facilitate required payments.
  • Confirm the definitive spin-off date.
  • Submit new business filings as necessary.
  • Sign closing documents.
  • Issue official press releases.
  • Lodge financial statements and securities notifications.

Phase 4: Post-execution and ongoing management

There are several reporting and filing matters to keep in mind post spin off:

  • Verify the final corporate structure post-spin.
  • Audit written documents to ensure accuracy.
  • Parent company sunsets records it no longer needs.
  • Spin off makes its data/records live.
  • Verify all spin-off documents have been filed.
  • Order state-filed documents to review accuracy.
  • Update and verify Secretary of State filings (including registering to do business in foreign states where the subsidiary will be doing business) and the status of business licenses and company records.
  • File any updated BOI reports that may be required
  • Monitor ongoing compliance.


Corporate spin-offs have many advantages and can unlock significant equity value for companies. However, spin-offs must be executed with precision and foresight across multiple disciplines. 

From legal and regulatory compliance to financial and operational intricacies, every aspect must be carefully considered to ensure a smooth and successful separation. 

For more information, contact your CT representative.

Related resource: Corporate spin offs: Four essential compliance steps  

Cristina Faherty
Account Executive
Cristina is an Account Executive at CT Corporation, partnering with legal and financial professionals in large corporations to create custom compliance management strategies.
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