Spinning Off A New Business

Spinning Off A New Business

Our firm has represented a business client for many years. Over that time, the client has developed other businesses which have been included under the corporate umbrella. Recently, the client came to the conclusion that, for a number of business reasons, one of those developed businesses would better flourish as a stand-alone entity.

So the principals of our client discussed with us and the company’s CPA the possibility of “spinning off” the assets of the developed business into its own distinct corporation.

This was successfully accomplished under the Arizona Entity Restructuring Act, enacted in Arizona last year. The same shareholders now own both entities after the spin-off. It is important to point out that, as a result of the passing of the Arizona Entity Restructuring Act, any “resulting” or spun-off entity does not necessarily have to be a like entity to the main entity. In other words, a corporation could spin off assets to a limited liability company or vice-versa. But tax consequences often differ between corporations and limited liability companies and need to be carefully examined with the company’s CPA.

If your business entity is experiencing within it the growth of a separate business and you no longer wish to keep the separate business under the umbrella of the main entity, we would be happy to discuss the spin-off process with you and your CPA.

In addition, to spin-offs, there are other types of business separations, such as “split-ups” whereby a company with multiple businesses splits them off and distributes those businesses so that each business is owned by different shareholders. This can occur when shareholders have a falling out or have different visions for the Company’s direction. We would be pleased to discuss this process with you and your CPA, as well.

Darlene Lundy
Certified Paralegal