Understanding Securities Law
The business professional's guide to securities laws
 

If you break off part of your business and put it in a separate subsidiary desiring to distribute the shares of that subsidiary to your existing shareholders, you are engaged in a “spin off” of part of your existing business. The SEC treats the distribution of your subsidiary’s shares the same as a sale of shares to your shareholders for cash.

This means that unless you have less than 35 shareholders, excluding shareholders you know to be Accredited Investors, you must file a Registration Statement for the Spin Off on Form S-1 or F-1, if available. An exemption to this requirement is found in Staff Legal Bulletin 4. This is a very narrow exemption and really only works to separate two large diverse businesses inside one company.

Some people have attempted to use a spin off as a vehicle to take companies public as an alternative to a direct filing or a reverse merger. This is frowned upon by the SEC staff and today is not recommended by most securities law practitioners.