Learn · Explainer

Spin-offs

How a company separates a business into a new public company: the steps, taxes, what happens to the parent's stock, and recent examples from Honeywell, 3M, GE and Danaher.

How a spin-off works

• The new company registers its shares. It files a registration statement with the SEC, usually on Form 10, with financial statements and a description of the business, much like a prospectus. The SEC staff's Staff Legal Bulletin No. 4 sets out when a spin-off needs Securities Act registration.
• The board sets a record date and a distribution ratio. Shareholders on the record date receive the new shares, a fixed number for each share they hold. Fractional shares are usually sold and paid out in cash.
• The two companies sign separation agreements covering shared services, tax, employees and intellectual property for a transition period.
• The new shares start trading, often for a few days on a when-issued basis before the distribution.

Honeywell's 10-K says its continuing involvement with Solstice is "primarily through a transition services agreement", alongside "a tax matters agreement, an employee matters agreement" and intellectual property and trademark licenses.

What happens to the parent's stock

A spin-off doesn't create value by itself. The parent's share price usually drops when the shares start trading without the new company, by roughly what the spun-off business is worth, and the shareholder now holds that value in the new stock. The parent's later financial statements shrink too: Honeywell's say the results of the business are "reported as discontinued operations for all periods presented", so earlier years are restated without it. Operating income vs. net income shows where discontinued operations sit on the income statement.

Taxes

Most large US spin-offs are structured to be tax-free to the parent and its shareholders under Section 355 of the Internal Revenue Code, usually backed by an IRS ruling or a tax opinion. Danaher's 10-K says outside counsel advised that its spin-offs, Veralto in 2023 among them, "each qualifies as a transaction that is described in Sections 355(a) and 368(a)(1)(D)". Shareholders then split their original cost basis between the old and new shares. The tax treatment can be challenged later, which is why spin-off companies list it as a risk factor.

Recent examples among large companies

• Honeywell and Solstice. Completed Oct 30, 2025, one Solstice share for every four Honeywell shares, per Honeywell's 10-K.
• 3M and Solventum. 3M spun off its health care business as Solventum on Apr 1, 2024, and its 10-K notes that it "retained an equity interest in Solventum" at the time.
• GE and GE Vernova. GE completed the "distribution of all the shares of GE Vernova on April 2, 2024", per its 10-K, after spinning off GE HealthCare in 2023.
• Danaher and Veralto. Danaher distributed all of Veralto's shares "on a pro rata basis" on Sep 30, 2023, per its 10-K.

Split-offs and carve-outs

A split-off works differently: shareholders choose whether to swap their parent shares for shares of the subsidiary, so the parent's share count falls. Johnson & Johnson used one in 2023 for Kenvue; its 10-K describes taking back its own shares "in exchange for 1,533,830,450 shares of Kenvue Common Stock". A carve-out sells part of a subsidiary to the public in an IPO, as Kenvue's listing was before the split-off.

More in Learn and Tools · Methodology & Disclosures explains where every number comes from.