What is Section 355 spin-off?
In short
A corporation can distribute the stock of a subsidiary it controls (at least 80%) to its shareholders tax-free if both companies carry on an active business, the distribution has a business purpose and isn't a device to distribute earnings.
Key takeaways
- Each business must have been actively conducted for at least 5 years.
- Divisions take the form of a spin-off, split-off or split-up.
- Historic shareholders must keep continuity of interest in both companies.
Where it's tested
TCP: Distributions, Redemptions & Liquidations — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A shareholder owns 70% of a corporation's stock. Following a redemption, she owns 52%. Ignoring attribution, does the redemption qualify as substantially disproportionate?