Corporate actions
Spin-off
A company separating part of itself into a new, independently listed company.
How it works
Shareholders normally receive shares in the new entity in proportion to their existing holding, without paying anything.
Spin-offs are studied as a source of opportunity, since forced selling by index funds and mandates that cannot hold the smaller entity can leave it temporarily cheap.
Where it misleads people
Your original cost basis must be split between the two holdings according to a formula the company publishes. Brokers frequently get this wrong, corrupting gain calculations for years.
Related terms
- Cost basisWhat you actually paid for a holding, including fees — the number every gain or loss is measured from.
- Merger and acquisitionOne company buying another, for cash, shares, or a combination.
- IndexA rules-based list of securities used to represent a market or segment of one.
- Corporate actionAny company event that changes the shares you hold or their terms.
More in Corporate actions
- Stock split
- Share buyback
- Underwriter
- Rights issue
- Analyst rating
- Record date
- Consensus estimate
- Proxy vote
All 26 Corporate actions terms · The full glossary, 433 terms
Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.