Occurs when a part of a company is 'spun off' to form its own company.

Occurs when a part of a company is 'spun off' to form its own company.

• A. Merger
• B. Divestiture/Demerger
• C. Acquisition
• D. Spin-off

Answer: (B)

Spun off describes creating a new, independent company from part of the existing business and distributing shares of that new company to the current shareholders. That exact mechanism—forming a separate entity from a portion of the original company and handing shares to shareholders—defines a spin-off. It’s different from a divestiture, which is selling the unit to another party, and from a demerger, which is simply splitting into separate entities (which may not involve issuing a new, independently owned company to shareholders). The use of “spun off” signals a spin-off action.

Spun off describes creating a new, independent company from part of the existing business and distributing shares of that new company to the current shareholders. That exact mechanism—forming a separate entity from a portion of the original company and handing shares to shareholders—defines a spin-off. It’s different from a divestiture, which is selling the unit to another party, and from a demerger, which is simply splitting into separate entities (which may not involve issuing a new, independently owned company to shareholders). The use of “spun off” signals a spin-off action.