There are three primary methods of dividing a corporation tax-free: (1) spin-off, (2) split-off, and (3) split-up. (A split-off is identical to a spin-off, except that the shareholders of the distributing parent corporation surrender part of their stock in the parent in exchange for the stock of the subsidiary.)
How do you break up an S corporation?
Steps to Dissolving a Corporation or Obtaining a Corporate Dissolution
- Call a Board Meeting.
- File a Certificate of Dissolution With the Secretary of State.
- Notify the Internal Revenue Service (IRS)
- Close Accounts and Credit Lines, Cancel Licenses, Etc.
Is split off tax free?
The taxable status of a spinoff is governed by Internal Revenue Code (IRC) Section 355. The majority of spinoffs are tax-free, meeting the Section 355 requirements for tax exemption because the parent company and its shareholders do not recognize taxable capital gains.
Is split-off tax-free?
How is a business split off under Section 355?
A common transaction structure under Section 355 (among other structures commonly referred to as “spin-offs,” “split-ups” or “split-offs”) that achieves the split is the “divisive D reorganization.” First, the existing corporation (“ ExistingCo ”) transfers the business being split off to a new corporation (“ NewCo ”) controlled by ExistingCo.
What are the benefits of a Section 355 spin off?
A successful Section 355 spin-off allows a corporation (“Distributing”) to distribute to its shareholders the stock of a subsidiary (“Controlled”) in a completely tax-free manner, without recognizing any built-in gain at the corporate level and without triggering any dividend income to the shareholders.
How does a split off of a corporation work?
A split-off involves the shareholders of the Distributing Corporation exchanging part or all of their Distributing Corporation shares for Controlled Corporation shares. In a split-off, some shareholders of the Distributing Corporation may elect to partici- pate in the split-off and others may not.
Is there a way to split a corporation tax free?
There are three primary methods of dividing a corporation tax-free: (1) spin-off, (2) split-off, and (3) split-up. A spin-off is a pro rata distribution of a controlled corporation’s stock to the distributing corporation’s shareholders without requiring the shareholders to surrender any of their stock in the distributing corporation.
