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Learn the key differences between an IPO and a spin-off, how each works, and their impact on companies and investors.
Last updated on: January 30, 2026
Both IPOs and spin-offs are pathways for companies to become publicly traded entities, but they differ in structure, purpose, and impact. This article explores what sets them apart and when companies choose one over the other.
An Initial Public Offering (IPO) is when a private company sells its shares to the public for the first time.
The primary goal is to raise capital for expansion, debt repayment, or liquidity.
It involves creating new shares and offering them to retail and institutional investors.
IPOs are common among startups or established private firms looking to grow.
A spin-off happens when a parent company separates a division or business unit into a new, independent public company.
Shares of the new entity are distributed to existing shareholders of the parent company.
No capital is raised—it's a strategic move to unlock value, focus operations, or streamline business structures.
The spun-off company trades independently post-separation.
A quick comparison highlights where IPOs and spin-offs diverge:
| Feature | IPO | Spin-Off |
|---|---|---|
Origin |
Private company |
Existing public company |
Objective |
Raise fresh capital |
Strategic restructuring |
Shareholder Impact |
New investors; dilution possible |
No dilution; shares given to current shareholders |
Process |
New shares issued to public |
Shares of new entity issued to existing investors |
Cost |
High (bankers, roadshows, filings) |
Moderate (internal restructuring, filings) |
Common Use |
Growth, liquidity, debt repayment |
Unlock value, focus, regulatory compliance |
The choice between an IPO and a spin-off largely depends on the company’s end goal:
Companies often choose IPOs when seeking external funding, greater visibility, or liquidity for early investors.
Spin-offs are often used to refine operational focus, separating underperforming or high-growth units, or complying with regulations.
For shareholders, the outcomes of these strategies can look quite distinct:
In an IPO, the original company’s ownership dilutes as new shareholders come in. Existing owners retain a smaller stake.
In a spin-off, existing shareholders receive proportionate shares of the new company, retaining control in both entities.
Here’s how the spin-off process usually unfolds in practice:
Board approval and business analysis
Filing with regulators (usually Form 10 with the SEC)
Determining share distribution ratio
Asset and management reallocation
Execution and listing of new company
Considerations include tax implications, legal structuring, and post-spin performance.
Here are some examples of IPOs vs Spin-offs:
IPO: Facebook’s IPO in 2012 raised approximately $16 billion, making it one of the largest technology listings at the time.
Spin-Off: Sony separated its financial services arm into a standalone unit in 2020 to streamline operations and concentrate on its core electronics segment.
Baxter spin-off into Baxalta: Baxter spun off its biotech division into Baxalta in 2015 to pursue independent strategies.
While IPOs and spin-offs both result in public companies, they follow distinct strategic routes. IPOs generally involve raising fresh capital, while spin-offs typically focus on restructuring and strategic clarity. Companies use different approaches depending on circumstances and objectives.
This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.
Reviewer
A spin-off gives existing shareholders proportionate shares in the new company, while a carve-out involves selling part of a subsidiary to the public through an IPO, and a split-off allows shareholders to exchange their parent company shares for shares in the newly created entity.
A spin-off is often used to separate a division into an independent company, allowing operational focus without raising new capital from public investors.
A spin-off can influence the parent company’s share price, with fluctuations depending on investor sentiment, market outlook for the new entity, and perceived value created by the separation.
IPOs usually require filing an S-1 registration statement with the securities regulator, whereas spin-offs typically involve a Form 10 and related disclosures, with requirements varying by jurisdiction.
A spin-off can result in a new company being publicly traded, but it is only possible when the parent company is already listed, unlike an IPO, which allows private companies to enter the stock market for the first time.
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