Issues With Respect to Spin-Offs

Section 355 — Interpretations to 355 and 368 may differ. It is therefore prudent for the private company to obtain a ruling from the IRS prior to proceeding with the distribution. Management and Governance —A spin-off might result in a new and inexperienced management team. The differences in managing the parent and the subsidiary require a thoughtful transition. The initial board of directors will be mostly compromised of the board of directors of the parent company as they vet management and overseeing the complete divestiture of the two private companies. Separation of Assets — There may be significant issues in deconsolidating the assets of the parent private company and the subsidiary especially if they use the same inventory, office space or resources.