Sec Staff Legal Bulletin Spin off
The second condition is that the division must be proportionate. If the division is proportionate, the founding shareholders will have an equal proportionate share in the parent company and the subsidiary, before and after the division. If a division is not proportionate, the relative interests of shareholders change and some shareholders renounce the value of the shares transferred, which requires registration on the first condition. The SEC also argued that as long as all of the above conditions are met, the spin-off does not need to be registered under Rule 145 simply because shareholders voted on the spin-off and/or the assets are transferred to the subsidiary as part of the spin-off. In addition, unless expressly stated above (non-reporting parent company and subsidiary), unless expressly stated above (non-reporting parent company and subsidiary), shares issued in connection with the spin-off are not restricted securities. If the parent company and subsidiary fail to report, the reasonable disclosure requirement is met if, at the time of the spin-off: (i) the parent company provides shareholders with an information statement that complies with the proxy rules of Section 14 of the Securities Exchange Act of 1934, (ii) the shares are restricted until a Form 10 is filed; and (iii) transfer restrictions are enforced, for example by instructions to stop the transfer to the transfer point. The fourth requirement is that there be a valid business objective for the split. While there may be many worthwhile business objectives, the SEC specifically recognizes the following: (i) allowing each company`s management to focus solely on that business; (ii) offer action-based incentives to employees of each enterprise that are solely tied to their employer; (iii) improving access to finance by allowing investment in each enterprise separately; and (iv) enabling companies to do business with competitors. The third condition requires that shareholders be sufficiently informed. If the subsidiary is a non-reporting company, it may satisfy this requirement by providing shareholders with an information statement pursuant to Section 14 of the Securities Exchange Act of 1934 Proxy Rules prior to or in conjunction with the provision of the derivative shares. In addition, the non-reporting subsidiary must file a registration statement on Form 10, which can be completed after the split but before trading on the transferred subsidiary begins. A reporting subsidiary is deemed to have met its disclosure requirements as long as it complies with its reporting obligations and provides all relevant information directly related to the division itself.
The first condition is that the founding shareholders do not provide any consideration for the shares transferred. Indeed, when the value is declared, a “sale” has taken place and a “sale” requires registration under section 5 of the Securities Act 1933, as amended, unless an exemption exists. In the case of a division, exemption is rarely possible because of the large number of shareholders who receive the transferred shares. Laura Anthony, a securities lawyer, and her experienced legal team advise small and medium-sized OTC issuers as well as private companies that go public on the OTCBB, such as OTCBB, OTCQB and OTCQX. For nearly two decades, Ms. Anthony has structured her securities law practice as an “alternative for large firms.” Clients receive fast, personalized and state-of-the-art legal services without the inherent delays and unnecessary costs associated with “partner-intensive” securities law firms. In particular, subsidiary shares (shares distributed to shareholders of the parent company) must not be registered if the following five conditions are met: (i) the founding shareholders do not provide consideration for the shares transferred; (ii) the division is proportional to the parent partners; (iii) the parent undertaking provides its shareholders and trading markets with adequate information on the division and the subsidiary; (iv) the parent undertaking has a valid business object for the division; and (v) if the parent company has divested itself of restricted securities, it has held them for at least one year. Below is a discussion of each of the five conditions.
A split occurs when a parent company distributes shares of a subsidiary to the shareholders of the parent company, so that the subsidiary separates from the parent company and is no longer a subsidiary. The distribution is usually made in the form of a dividend by the parent company. In Sheet 4, the Securities and Exchange Commission (SEC) explains how and under what circumstances a spin-off can be completed without the need to file a registration statement. While there are many purposes that would not be valid, the SEC specifically lists as invalid: (i) creating a market for derivatives without providing adequate information, and (ii) creating a public market in a shell company or a development-stage company. Note that this policy may change as the SEC maintains SEC.gov to ensure that the site works efficiently and remains available to all users. For more information, see the SEC`s website privacy and security policy. Thank you for your interest in the U.S. Securities and Exchange Commission. Unauthorized attempts to upload information and/or alter information to any portion of this website are strictly prohibited and liable to prosecution under the Computer Fraud and Abuse Act of 1986 and the National Information Infrastructure Protection Act of 1996 (see 18 U.S.C. §§ 1001 and 1030).
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Finally, the last condition is that the parent company has held the shares for at least one year. In this way, the receiving shareholder can comply with the holding period of the parent company and thus satisfy the requirements of the holding period under Rule 144.