Fundamentals & corporate actions
What is a spinoff and how are shares allocated to existing parent-company equity holders?
By Easy Money Scanner · Educational reference · Not investment advice
The short answer
A spinoff occurs when a parent company separates a business unit into an independent publicly traded company, distributing new shares proportionally to existing shareholders at no additional cost.
How it works
Shareholders receive shares of the new entity based on a set ratio, such as one spinoff share for every five parent shares held, and cost basis is split between the two stocks for tax purposes.
An example
An investor holding 100 shares of a parent company receives 20 shares of the newly spun-off division based on a 5-to-1 distribution ratio.
Risk & limitations
Spinoff shares are sometimes sold immediately by index funds or disinterested holders, creating short-term price pressure unrelated to the new company's fundamentals.
Examples are hypothetical, not trade recommendations. US contract and regulatory references do not automatically apply in Canada. Rules, margin requirements and broker policies can change; confirm them with the relevant authority and your broker.