If you are new to the business industry, you might hear about the concept of a company spinoff. A spinoff is when a division of an existing company or organization separates from it and becomes an independent business.
Why does it happen?
A spinoff could happen for several reasons, which usually lie in a company’s goals. Some of the common reasons for this corporate realignment include the following:
- Potential growth as an independent business: When a business division holds significant potential, a company can spin it off to better manage its business and resources.
- Keeping subsidiary businesses: Existing companies can also spin off the less-growing business units without completely closing them up to focus on their more successful business lines.
- Change in priorities: If it becomes clear that a business section no longer holds the same goals and priorities as the parent company, the latter can spin it off to operate independently.
Companies may have other reasons to initiate a spinoff. But usually, they do so to increase returns, one way or another.
Will they take the assets and employees of the original company?
Even if it becomes an independent company, spinoff businesses usually receive support from the original company. Moreover, the division gets to keep its assets, intellectual property and employees.
Like any other decision in the business industry, a spinoff is either a chance or a risk. The new business can find success as initially expected from its potential or could have a difficult time penetrating the market. Understanding the benefits and disadvantages can help business owners decide whether spinning off a part of their company is the best move for them.