Company spin-off in Spain: what it is, types, advantages, tax treatment and process

When a company starts its activity, it does so with a structure that may no longer work or be appropriate years later. The business may grow, accumulate real estate assets, incorporate new lines of activity or bring in new shareholders.

In these cases, keeping everything under the same umbrella, within a single company, can make management more difficult. In addition, it can cause different activities, assets and risks to become mixed.

A company spin-off makes it possible to reorganise this structure and distribute assets between several entities. However, it is not simply a matter of transferring assets from one company to another. The transaction must have a business rationale, comply with legal requirements and coordinate its tax, accounting, labour and contractual effects.

Below, we explain what a spin-off is, what types exist, when it may be useful and what process, a company should follow to carry it out.

What is a company spin-off?

A company spin-off consists of dividing all or part of a company’s assets and liabilities and transferring them as a block to one or more companies, which may already exist or may be created as part of the transaction.

The assets and liabilities transferred may include different elements, such as assets, debts, contracts, employees, rights, obligations or other elements linked to a business activity.

When we refer to a transfer as a block, we are talking about one of the main characteristics of this transaction. Instead of selling or assigning each element separately, a set of assets and liabilities is transferred through universal succession. This facilitates the continuity of the activity, although certain contracts, licences or authorisations may require specific procedures.

On the one hand, the company receiving the assets and liabilities is known as the beneficiary company. On the other, the company that divides or transfers its assets and liabilities is known as the spun-off company.

Depending on the type of spin-off chosen, the original company may disappear or may continue carrying out part of its activity. In addition, the shares or equity interests of the beneficiary companies may be received by the shareholders or by the transferring company itself.

Spanish corporate law distinguishes between three types: total spin-off, partial spin-off and segregation. These figures are currently regulated by Royal Decree-law 5/2023, which replaced the previous regulation on structural changes.

What is a company spin-off used for?

A spin-off can respond to very different needs. Some companies want to separate activities, while others need to protect certain assets, prepare a succession process or facilitate the entry of investors.

Therefore, the starting point should not be the legal transaction itself. First, the company must identify which business problem it wants to solve.

In other words, a spin-off can help organise the business when there are lines of activity with different clients, teams, resources and risks. However, it can also facilitate the division of functions between shareholders or family branches.

In other cases, it is used to delimit a business unit before selling it, integrating it with another group or opening it to new investors. In this way, the future transaction can focus on a specific activity, rather than on the company’s entire assets and liabilities.

In conclusion, there is no single type of spin-off that is valid for all these situations. The choice depends on what must be transferred, who should receive the shares or equity interests and whether the original company must continue to exist.

Difference between a company spin-off, merger and segregation

Business restructuring transactions can produce very different results. For this reason, before starting the process, it is advisable to distinguish between a spin-off, a merger and a segregation.

A spin-off divides a company’s assets and liabilities. By contrast, a merger integrates two or more companies into a single structure.

In this context, segregation requires an additional clarification. From a corporate law perspective, it is a type of spin-off. However, it is often compared separately because the shares or equity interests of the beneficiary company are not received by the shareholders, but by the segregated company itself.

For example, a company with two activities may use a spin-off to separate them. By contrast, two companies that carry out complementary functions could consider a merger to operate jointly.

If a company wants to transfer a business line to a subsidiary and retain control over it, segregation may be a more appropriate alternative.

Types of company spin-off in Spain

The regulation distinguishes between total spin-off, partial spin-off and segregation. All three allow assets and liabilities to be transferred as a block, but their corporate result is not the same.

The following table summarises their main differences:

The main difference lies in two questions: what happens to the original company and who receives the shares or equity interests of the beneficiary companies.

Total spin-off

In a total spin-off, the original company divides all its assets and liabilities into two or more parts and transfers them to different beneficiary companies.

As a result, the spun-off company is extinguished. However, it is not liquidated in the same way as a company that permanently ceases its activity. Its assets and liabilities are not distributed directly among the shareholders but transferred to the beneficiary companies.

In this situation, the shareholders of the extinguished company receive shares or equity interests in those companies. In addition, as a rule, the allocation must be proportionate to the shareholding they held before the transaction.

For example, a company carries out two completely independent businesses. One is dedicated to manufacturing and the other to distribution. If both have their own resources, clients and structures, a total spin-off could be considered. After the transaction, there would be one company for each activity. The original company would disappear, and its shareholders would hold interests in the two beneficiary companies.

This type may also be used when several shareholders want to continue separately. In that case, the distribution of shares, equity interests and assets requires particularly careful analysis.

Partial spin-off

In a partial spin-off, the original company retains its legal personality and continues carrying out part of its activity.

In this type of spin-off, only part of the assets and liabilities are transferred. Generally, that part must form a business unit, meaning a set capable of carrying out an activity with its own resources.

The shareholders of the spun-off company receive shares or equity interests in the beneficiary company. At the same time, they keep their shareholding in the original company.

Imagine a company that manufactures equipment and also provides maintenance services. In this case, both activities have different clients, employees, contracts and resources.

As a solution, the company could separate the maintenance activity through a partial spin-off. The result would be that the manufacturing activity would remain in the original company, while the technical service would be transferred to a beneficiary company.

In other words, it is not enough to choose several assets and call them a “business branch”. The composition of the assets and liabilities transferred must make it possible to explain which activity is being separated and how it will continue to operate.

In addition, from a tax perspective, it will be necessary to check whether the transaction meets the definition and requirements needed to apply the special regime.

Segregation

Segregation also allows one or more business units to be transferred to existing or newly created companies. The difference compared with the other two types lies in the consideration. Instead of delivering the shares or equity interests of the beneficiary company to the shareholders, they are delivered to the segregated company itself.

As a result, the original company continues to exist and becomes a shareholder of the entity receiving the activity.

For example, a company may transfer its logistics unit to a new company. After the transaction, the original company will own the logistics subsidiary. As a result, this structure can facilitate the independent management of each activity. It also allows control to be maintained within the same corporate group.

Segregation is often used to create subsidiaries, organise groups or prepare a business line for independent development. However, its tax treatment must be studied separately, as the corporate and tax classifications do not always coincide automatically.

Advantages of a company spin-off

A spin-off should not be assessed only for its possible tax effects. Its main usefulness lies in its ability to adapt the corporate structure to the reality of the business. For this reason, company spin-offs offer many advantages, including the following:

• Separating activities with different risks. Each business line can operate from a different company. This prevents all commercial, operational or financial risks from being concentrated in a single entity.
• Protecting certain assets. A reorganisation can help differentiate the business activity from real estate, investments or other assets. However, the transaction must respect creditors’ rights and respond to a real economic rationale.
• Organising corporate groups. Many companies grow by creating activities, companies or shareholdings without prior design. A spin-off can form part of a broader reorganisation that better defines the role of each entity.
• Improving operational efficiency. Separating businesses makes it possible to allocate teams, budgets and responsibilities more clearly. It also makes it easier to know the real profitability of each activity.
• Facilitating business succession. In a family business, not all members always have the same interests. An organised structure can differentiate ownership of assets, business management and the participation of each family branch.
• Unlocking conflicts between shareholders. When shareholders manage different activities, a spin-off can help organise their separation. To do this, the distribution must be balanced and supported by appropriate valuations.
• Preparing a sale or integration. A company can delimit in advance the business branch it wants to sell. This allows the buyer to acquire a specific unit without taking on all the company’s assets and liabilities.
• Facilitating the entry of investors. An investor can enter a specific activity without necessarily participating in other businesses or assets of the group.

However, these advantages do not arise automatically. The result will depend on the design of the transaction and the subsequent management of the companies, as the reorganisation must also be reflected in daily operations.

Separating the operating activity from asset-holding assets

Asset protection is one of the usual reasons for considering a spin-off. Many companies concentrate the activity, employees, debts and assets accumulated over the years within the same company.

This situation may not cause problems during the early stages of the business. However, risk increases as the company grows, takes on debt or develops new activities.

Think of an industrial company that owns the warehouse where it operates. In addition, this company has accumulated investments and surplus cash.

The same company also holds client contracts, supplier obligations and the risks arising from the industrial activity. Therefore, the assets and the operations are within the same perimeter.

The company could consider a spin-off to reorganise that structure. One company would retain the industrial activity, while another would receive certain asset-holding assets.

Even so, this separation does not mean that the assets are protected from any situation. Nor does it allow debts to be avoided or creditors to be harmed.

The transaction must be carried out before there is an insolvency situation and with a clear distribution of assets and liabilities. It must also respect the legal mechanisms that protect creditors.

Separating the operating activity from asset-holding assets

The operating company assumes the risks inherent to the business. These include contractual breaches, client claims, financing or operating losses.

On the other hand, a company may have accumulated assets that it does not need to carry out its ordinary activity. This may be the case with certain real estate assets, financial investments or surplus funds.

When everything remains in the same company, those assets are linked to the company’s general risk. A restructuring process may allow both asset pools to be differentiated.

After the transaction, each company must have a real function. The operating entity must have the resources needed to work. The beneficiary company must also have a coherent purpose and management structure.

Real estate used by the company itself

Real estate assets are often one of the most sensitive elements in a spin-off. A company may own a warehouse, office or premises used for its activity. Over time, the value of the property may represent a significant part of the company’s assets.

Before transferring it, it is necessary to analyse whether the property forms part of a business unit and which elements must accompany it. Transferring an organised real estate activity is not the same as transferring an isolated property.

In addition, the presence of real estate affects the tax analysis. VAT, Transfer Tax and Stamp Duty, municipal capital gains tax and other costs associated with formalisation and registration may be involved.

Family business and succession

In a family business, a spin-off can help organise succession and avoid all family members having to participate in the same assets or activities.

One part of the family may want to continue managing the business, while other relatives may prefer to maintain an asset-holding position without being involved in management.

Through a spin-off, for example, one company could retain the main activity, while another concentrates certain assets. In other cases, different companies may be created for businesses managed independently.

A spin-off does not replace a family protocol or shareholders’ agreements. However, it can help implement the decisions adopted in those documents.

Taxation of company spin-offs in Spain

Although tax is an essential part of any restructuring transaction, it should not be the only reason for carrying it out.

A well-designed transaction may fall under the special regime for mergers, spin-offs, contributions of assets and share-for-share exchanges. This system is commonly known in Spain as the FEAC regime or tax neutrality regime.

Its purpose is to prevent immediate taxation from obstructing a business reorganisation that has real economic reasons.

However, neutrality is not automatic. The corporate transaction must also meet the tax requirements. In addition, each tax must be reviewed separately.

Corporate Income Tax and the tax neutrality regime

This tax neutrality regime is regulated from Article 76 onwards of the Spanish Corporate Income Tax Law (LIS), the consolidated text of which incorporates amendments published up to March 2026.

When the regime is applicable, certain income generated by the transfer is not immediately included in the taxable base of the transferring company. In simple terms, taxation is deferred. It does not necessarily disappear.

As a rule, the transferred assets maintain their tax values. In this way, the deferred income may arise in a future transfer or when the applicable requirements are not met.

For example, a property may have an accounting and tax value below its market value. If it were transferred through an ordinary sale, taxable income could arise.

Valid economic reasons

The special regime does not apply when the main objective of the transaction is fraud, tax evasion or the artificial obtaining of a tax advantage. The Spanish Corporate Income Tax Law requires valid economic reasons, such as the restructuring or rationalisation of activities.

Valid economic reasons may exist when the company aims to:

• Separate activities with different risks.
• Improve the management of each business line.
• Facilitate business succession.
• Prepare the entry of an investor.
• Organise a group that has grown without a defined structure.
• Resolve organisational inefficiencies.
• Delimit an activity before its sale.
• Differentiate operational and asset-holding management.

In other words, it is not enough to include a generic sentence in the documentation. The reasons must be connected to the company’s real situation. If the company states that it wants to improve management, but nothing changes afterwards, it will be more difficult to prove the business purpose.

Communication of the FEAC regime to the Spanish Tax Agency

The application of the special regime must be reported to the Spanish Tax Agency. Generally, this communication is the responsibility of the acquiring entity. If that entity is not resident in Spain, it may fall to the transferring entity. In international transactions, other rules may apply.

The communication must be submitted within three months following registration of the deed. When registration is not required, the period is counted from the granting of the corresponding document.

Among other information, it must include:

• Identification of the participating entities.
• A description of the transaction.
• A copy of the public deed or equivalent document.
• An indication of whether the application of the special regime is being waived.

Failure to submit the communication within the deadline constitutes a serious tax infringement. The law establishes a fixed fine of 10,000 euros for each transaction not correctly reported.

You can expand this information in LEIALTA’s content on the communication of the special tax neutrality regime.

VAT, Transfer Tax and Stamp Duty, and municipal capital gains tax

In addition to Corporate Income Tax, other taxes that may affect the spin-off must also be reviewed.

For VAT purposes, the transfer may be non-taxable when it comprises a business unit capable of carrying out an activity by its own means. However, the treatment may be different if only isolated assets, such as a property, are transferred.

Regarding Transfer Tax and Stamp Duty, restructuring transactions are not subject to the corporate transactions modality and may be exempt under other modalities, provided that the applicable requirements are met.

Finally, if urban land is transferred, municipal capital gains tax must be analysed. In certain transactions covered by the special regime, this tax does not accrue, although there are exceptions.

Therefore, the tax result will depend on the type of spin-off, the assets transferred and compliance with legal requirements.

Accounting aspects in a company spin-off

The accounting analysis must begin before the transaction is approved. Accounting is not limited to recording the spin-off once it has been registered.

First, the assets and liabilities to be transferred must be identified and valued. This includes real estate, inventories, machinery, receivables, loans, provisions and related obligations.

Common elements must also be allocated. For example, a debt may finance several activities, or an asset may be used by different units.

Second, the allocation must respond to reasonable and documented criteria. It is not advisable to allocate all assets to one company and concentrate obligations in another without economic justification.

One of the relevant documents is the spin-off balance sheet, whose purpose is to reflect the asset and liability position used as a reference to structure the transaction.

Depending on the date and circumstances, the latest approved annual balance sheet may be used, or a specific balance sheet may be prepared. In addition, legal simplifications may exist in certain transactions.

The accounting, tax and corporate valuations do not necessarily have to coincide. An asset may have:

• An accounting value recorded in the books.
• A tax value used to calculate future income.
• A fair or market value.
• A value assigned for exchange ratio purposes.

These differences must be reconciled. Otherwise, imbalances may arise between the assets and liabilities transferred, the capital of the beneficiary companies and the shares or equity interests received.

Finally, the accounting treatment also depends on whether there is a real change of control.

• When the transaction takes place between companies in the same group, Accounting and Valuation Standard 21 may apply. In these cases, certain previous or consolidated accounting values are used.
• If the transaction constitutes a business combination outside the group and there is an effective acquisition, Accounting and Valuation Standard 19 and the acquisition method may come into play.

The Spanish General Chart of Accounts expressly differentiates between business combinations and transactions carried out between group companies.

The accounting conclusion may change depending on the composition of the assets and liabilities, the existence of a business and the control before and after the spin-off. For this reason, the treatment should not be decided only on the basis of the legal name of the transaction. Its economic reality must be analysed.

A spin-off may be valid from a corporate law perspective and still be poorly planned from an accounting perspective. It may also result in inconsistent entries if the accounting area only intervenes once the structure has already been closed.

Prior coordination makes it possible to prepare the balance sheet, valuations, reductions in equity and accounting entries of all participating companies.

What happens to contracts and debts in a spin-off?

A spin-off does not only transfer assets. It may also affect contracts, debts, licences, employees and pending obligations.

For this reason, the project must precisely describe the assets and liabilities assigned to each company.

Universal succession facilitates the transfer as a block. However, it does not eliminate all contractual, administrative or registry procedures.

Contracts linked to the assets and liabilities transferred

Contracts linked to the transferred unit may pass to the beneficiary company as part of universal succession.

For example, they may include:

• Client contracts.
• Supplier agreements.
• Leases.
• Distribution agreements.
• Software licences.
• Insurance policies.
• Financing agreements.
• Guarantees.
• Industrial property rights.
• Maintenance agreements.

Before assigning them, it is necessary to determine which activity they are linked to. Some contracts may serve several areas and require a new organisation, so they need special attention.

Debts and liability of the beneficiary companies

The spin-off project must indicate which company will assume each debt and connect it with the activity or assets transferred.

In addition to loans and pending taxes, guarantees, sureties, claims and possible liabilities not initially identified must also be reviewed.

The internal allocation does not eliminate creditors’ rights. In certain cases, the participating companies may be jointly and severally liable for previous obligations, within the limits established by the regulations.

For this reason, the distribution of debts must be well documented and coherent with the resulting structure.

What happens to employees?

A spin-off may involve a change of employer for part of the workforce.

When a business unit that retains its identity is transferred, a transfer of undertaking may occur. In that case, the beneficiary company is subrogated to the corresponding labour and Social Security rights and obligations.

The company must identify which employees are linked to the transferred activity and review their functions, workplace and actual dedication.

It must also inform the workforce and their representatives about the consequences of the transaction. Therefore, the labour area must be involved from the beginning of the process.

Process for carrying out a company spin-off in Spain

A spin-off requires several connected decisions, and their order is essential.

It is not advisable to start drafting the corporate project without first defining what the company wants to achieve. Nor should the distribution of assets and liabilities be closed without understanding its tax and accounting consequences.

The process can be divided into six main phases:

Phase 1. Analyse the objectives of the transaction

The first step is to identify the business need. Management must specify which problem it wants to solve. For example:

• Separating two activities.
• Protecting certain assets.
• Preparing succession.
• Resolving a separation between shareholders.
• Creating subsidiaries.
• Facilitating a sale.
• Bringing in investors.
• Simplifying group management.

At this stage, the spin-off must be compared with other alternatives. The objective may be achieved through a segregation, a non-cash contribution, a sale and purchase, a merger or the creation of a holding company.

The solution must be chosen for its business result, not for its name or because another company previously used that transaction.

Phase 2. Delimit the assets, liabilities and activity

Once the objective has been defined, the company must determine what will be transferred in the spin-off. To do this, it must prepare an inventory of assets, liabilities, contracts, employees and other aspects of the company.

However, it is not enough to list assets. The company must explain how they operate together:

• If a business unit is transferred, it must be possible to identify its resources, organisation, income, expenses and responsibilities.
• It is also necessary to detect whether there are shared elements, as several activities often use the same property, software, administrative staff or financing.

In these cases, it will be necessary to decide whether the element is transferred, remains in the original company or is regulated through an agreement between the companies.

Phase 3. Design the structure

With the perimeter defined, the type of spin-off is chosen. The company must decide:

• Whether the original company will continue to exist.
• How many beneficiary companies there will be.
• Whether the beneficiary companies already exist or will be created.
• Who will receive their shares or equity interests.
• How the shareholders will be distributed.
• Which management bodies each entity will have.
• How the final structure will be financed.

This is the stage at which the company decides between a total spin-off, a partial spin-off or a segregation:

• If the company must disappear and all its assets and liabilities will be divided, a total spin-off may be considered.
• When the entity retains part of its activity, a partial spin-off or segregation must be assessed.

Phase 4. Coordinate the tax, accounting and corporate analyses

Before closing the structure, all the areas involved must be coordinated:

• From a tax perspective, it is necessary to check whether the transaction meets the requirements of the tax neutrality regime.
• From an accounting perspective, the analysis must determine how the assets and liabilities will be recorded in each company.
• In the case of the corporate area, it coordinates these analyses with the corporate documentation. The project must accurately reflect the asset and liability allocation and the agreed structure.

In addition, it is advisable to review the labour and contractual implications before definitively approving the design. For this reason, having comprehensive advice such as LEIALTA’s is essential.

Phase 5. Prepare and approve the documentation

The directors must prepare a spin-off project, a document that sets out the essential terms of the transaction. Among other issues, it must identify:

• The participating companies.
• The expected timetable.
• The assets and liabilities transferred.
• The allocation of assets and liabilities.
• The allocation of shares or equity interests.
• The exchange ratio.
• The date of accounting effects.
• The consequences for employment.
• The mechanisms planned for shareholders and creditors.

In a spin-off, the project must include a precise description of the assets and liabilities. It must also indicate how they are distributed among the beneficiary companies or which elements remain in the original company.

Not all transactions require the same reports. The regulations provide for simplifications in certain cases, especially when there is proportionality or unanimity. Therefore, it should not be assumed that all documents are always mandatory. First, the type of transaction, the participating companies and the composition of the capital must be checked.

Phase 6. Formalise and complete the transaction

After approval, the publication and creditor protection requirements must be fulfilled.

The resolution is published in accordance with the applicable rules. Shareholders and creditors must be able to obtain the full text and the balance sheet submitted.

Creditors whose claims meet the legal conditions may request appropriate guarantees.

Subsequently, the resolution is formalised in a public deed before a notary. The deed includes the necessary documentation and describes the result of the transaction. It is then submitted to the Commercial Registry.

After submission, the spin-off takes effect upon registration. In a total spin-off, the entries corresponding to the extinguished company are also cancelled.

However, registration does not close all the work. The following may still be pending:

• Communication of the special tax regime.
• Census registrations and deregistrations.
• Updating contracts.
• Communication to clients and suppliers.
• Procedures with financial institutions.
• Changes to licences and authorisations.
• Registration of real estate assets.
• Updating insurance policies.
• Reorganisation of payroll and Spanish Social Security.
• Opening bank accounts.
• Implementation of the new accounting.
• Formalisation of agreements between the companies.

For this reason, this stage is decisive. A structure may be correctly registered and still not work in practice if these procedures are not completed.

Common mistakes when planning a spin-off

The problems in a spin-off usually do not arise from a single decision. They normally appear when several areas are analysed separately or too late.

The most common mistakes include the following:

• Carrying out the transaction only for tax reasons. The structure must respond to a real business need.
• Not proving valid economic reasons.
• Not correctly separating assets and liabilities. The transferred perimeter must include both the assets and the related obligations.
• Not reviewing key contracts. Some contracts contain notification duties, consent requirements or consequences in the event of corporate changes.
• Not analysing debts and liabilities.
• Not coordinating tax and accounting matters.
• Confusing partial spin-off and segregation. In one transaction, the shares or equity interests are received by the shareholders. In the other, they are received by the company itself.
• Preparing the balance sheet or valuations incorrectly. Imbalances may affect the exchange ratio, equity and shareholders’ rights.
• Not correctly reporting the special tax regime. The communication must be submitted within the deadline and with the corresponding documentation.
• Not anticipating the impact on shareholders, employees or creditors. The transaction affects more people than the companies appearing in the deed.
• Not planning how the companies will operate afterwards. After the spin-off, each company needs clearly differentiated resources, contracts, accounts and responsibilities.

Practical examples of company spin-offs

Below, LEIALTA presents some of the most common situations in which a spin-off could be considered. It should be noted that they do not represent an automatic solution, as each structure requires specific analysis.

Family business separating its real estate assets

Imagine a family business that carries out an industrial activity and owns the warehouse where it operates.

Over time, the property has acquired significant value. In addition, some family members work in the business while others only participate as shareholders.

At that point, the family considers separating the activity and the property in order to organise its assets, prepare succession and differentiate business management from asset management.

This would be one of the cases where the solution could be to carry out a spin-off, but not before analysing whether there is a business unit, how the property will be used and what tax implications it will have.

Group with two business lines

Another example would be a company that sells products and provides technology services.

Both activities have different clients, employees, suppliers and investment needs. However, all the information appears mixed in a single accounting system.

The company considers separating the lines to understand their profitability and assign a manager to each business.

The reorganisation may also limit the effect of the problems of one activity on the other. In addition, it would allow an investor to enter only the technology line.

A related case is AutoMatic Kumy, supported by LEIALTA. The group had diversified its services within a single company, which made it difficult to manage the risks and results of each activity.

The solution included separating the activities into different companies and creating a holding structure. In this way, each business was able to manage its functions and risks separately. The AutoMatic Kumy success story can be consulted.

Shareholders who wish to continue separately

Finally, imagine two shareholders who have developed different areas within the same company.

One manages the commercial activity and the other manages the industrial line. However, over time, disagreements arise regarding investments, hiring and profit distribution. Both want to continue working, but independently.

A total or partial spin-off may allow the activities to be distributed between different companies. To do this, the assets and liabilities must be valued and the distribution of shares or equity interests agreed.

Frequently asked questions about company spin-offs

What does it mean to spin off a company?

Spinning off a company means dividing all or part of its assets and liabilities and transferring them as a block to one or more companies.

The transfer may include assets, debts, contracts, rights, obligations and employees. The beneficiary companies may already exist or may be created during the process.

Depending on the type chosen, the original company may disappear or may continue with part of its activity.

What is the difference between a total and partial spin-off?

• In a total spin-off, all assets and liabilities are transferred, and the original company is extinguished.
• In a partial spin-off, only part is transferred. The spun-off company continues to exist with the assets, liabilities and activity it retains.

In both cases, the shares or equity interests of the beneficiary companies are generally allocated to the shareholders of the spun-off company.

How does a partial spin-off differ from a segregation?

In both a partial spin-off and a segregation, the original company continues and part of the assets and liabilities forming a business unit is transferred.

The difference lies in who receives the shares or equity interests of the beneficiary company. In a partial spin-off, they are received by the shareholders. In a segregation, they are received by the company that transfers the activity.

Does the original company disappear after a spin-off?

It depends on the type of transaction.

• In a total spin-off, the original company is extinguished after transferring all its assets and liabilities.
• In a partial spin-off and in a segregation, the company continues to exist. It only transfers part of its assets and liabilities.

For this reason, the continuity of the company must be defined before choosing the type of transaction.

Does a company spin-off have to pay taxes?

There is no single answer for all cases.

The transaction may fall under the tax neutrality regime when it meets the relevant requirements. In that case, certain income is not taxed immediately.

However, Corporate Income Tax, VAT, Transfer Tax and Stamp Duty, and municipal capital gains tax must be reviewed separately. In addition, the presence of real estate assets or isolated assets may change the outcome.

What are valid economic reasons?

They are business reasons that justify the reorganisation beyond tax savings.

For example, separating activities, improving management, preparing succession or facilitating the entry of investors.

The reasons must respond to the company’s real situation. In addition, it is advisable to reflect them in the project, reports and internal documentation.

In other words, a generic reference to “optimisation” may be insufficient.

What happens to the debts of the spun-off company?

Debts are distributed in accordance with the spin-off project and their connection with the assets and liabilities transferred.

However, creditors retain their protection mechanisms. In addition, joint and several liability may exist between the participating companies.

Therefore, loans, guarantees, taxes, claims and contingent liabilities must be reviewed before approving the transaction.

What happens to contracts and employees?

Contracts linked to the transferred unit may pass to the beneficiary company through universal succession.

Even so, assignment clauses, change of control provisions, authorisations and communications must be reviewed.

When a business unit that retains its identity is transferred, a transfer of undertaking may exist. In that case, the beneficiary company is subrogated to the corresponding labour rights and obligations.

Can a property be separated through a spin-off?

A property may be included, but its treatment requires detailed analysis.

It is necessary to review whether it forms part of a business unit, how it is used, its registry charges and its financing.

In addition, VAT, Transfer Tax and Stamp Duty, and municipal capital gains tax must be studied. The transfer of an isolated property does not automatically receive the same treatment as a business branch.

How long can a spin-off process take?

The duration depends on the complexity of the structure, the number of companies and the documentation available.

Valuations, contracts, real estate assets, employees and the need to obtain authorisations also influence the timetable.

A simple and consensual transaction may progress more quickly than a spin-off involving several shareholders, creditors or activities.

In any case, the legal periods for information, publication and protection must be respected.

Advisory services for company spin-offs in Spain

A spin-off affects the company’s entire structure. For this reason, it should not be analysed only from a corporate law perspective.

Before starting the transaction, it is necessary to define what the business needs to achieve. Then, the asset and liability allocation, taxation, accounting, contracts and employee situation must be coordinated.

At LEIALTA, we support family businesses, SMEs and corporate groups in corporate reorganisation and asset protection processes.

Discover our advisory service for company spin-offs and other restructuring transactions, and tell us what you need to reorganise in your company.