Does Exchange Act Section 16 Apply to Spin-Offs?
Exchange Act Section 16 applies to the officers, directors, and principal security holders of most companies with a class of equity securities registered under the Exchange Act. Section 16 requires these people to file ownership reports and subjects them to potential “short-swing” profit liability for their purchases and sales of the company’s equity securities. Exchange Act Rule 16a-9(a) exempts the receipt of securities in a spin-off from Section 16 if all holders of a class of securities participate in the spin-off on a pro rata basis. Anyone subject to Section 16 still would have to file a Form 3 when the subsidiary registers a class of spun-off equity securities under the Exchange Act.
