Spin-off vs Split-off in Korea: What Changed for Treasury Shares

Corporate divisions in Korea turn on one question: who receives the shares of the newly created company. In an injeok bunhal (personal division, or spin-off), existing shareholders receive shares of the new entity in proportion to what they already hold, so their brokerage account ends up holding two tickers. In a muljeok bunhal (physical division, or split-off), the dividing parent takes 100% of the new entity, and shareholders are left holding the same single ticker.

That one line determines the arithmetic of ownership, the availability of appraisal rights, and the tax bill. One more rule changed on December 31, 2024: the Financial Services Commission amended the Enforcement Decree of the Financial Investment Services and Capital Markets Act so that listed companies can no longer allocate new shares to treasury stock in a spin-off. Korea Policy Briefing described the change as closing the route by which controlling shareholders raised their grip without spending a won.

Who receives the new shares

In a split-off, the dividing company itself acquires every share the new entity issues. Shareholders keep the same share count and the same percentage; the group simply gains a wholly owned subsidiary. What changes for an investor is not the ticker but the nature of the business sitting inside it.

A spin-off works the other way. New-entity shares are distributed to the dividing company's shareholders pro rata. Hold 1% before the split and you hold 1% of the surviving company and 1% of the new one afterwards, as sibling companies. This is why spin-offs are used to separate a business outright or to convert into a holding company structure, while split-offs are used to create a subsidiary that can raise outside capital on its own.

How 10% in treasury stock produced 10 points of voting power

Plug in numbers and the reason for the rule becomes visible. A company has 1 million shares outstanding, holds 100,000 of them (10%) as treasury stock, the controlling shareholder holds 300,000 (30%), and the remaining 600,000 (60%) sit with ordinary investors. The company splits into a holding company and an operating company through a spin-off.

Treasury shares carry neither voting nor dividend rights. Yet in spin-offs alone, statute and case law were unclear enough that new shares were routinely allocated to them. That handed the holding company a fresh 10% stake in the operating company. Because the controlling shareholder commands the holding company with 30%, they end up steering 40% of the operating company: 30% held directly plus the 10% carried by the holding company. Cash contributed: zero. The Kyunghyang Shinmun identified exactly this mechanism as the target of the amendment.

The arithmetic hinges on the treasury shares still being alive rather than cancelled. Cancellation shrinks the share count and lifts every remaining shareholder's percentage together; holding them through a division loads that same value onto a single entity. It is the same structural question raised by comparing what cancellation and dividends actually leave in a shareholder's hands.

Treasury stock is a share stripped of rights, except for one moment during a division, when it briefly behaved like a shareholder. That moment was worth 10 percentage points of control.

The amended decree applies the same principle to mergers, barring merger shares from being allocated to treasury stock held by the disappearing entity. Listed companies whose treasury holdings reach 5% or more of total shares outstanding must now prepare a report on holdings, purpose, and disposal plans — further acquisition or cancellation — approve it at board level, and disclose it.

The safeguard attached to split-offs

Split-offs were addressed first. In December 2022 the Financial Services Commission pushed through an enforcement decree granting appraisal rights to dissenting shareholders in listed-company split-offs; per the FSC, it took effect on December 27, 2022. Once a board resolves on a split-off, dissenting shareholders can demand the company buy their shares.

The purchase price is set by negotiation between shareholder and company in principle. Failing agreement, market price applies, calculated from the weighted average price over the two months, one month, and one week preceding the day before the board resolution. If that still fails, a shareholder may petition the court to determine the price. Because three separate windows are averaged, a short burst of volatility just before the resolution cannot dictate the outcome on its own.

This protection is confined to split-offs. Under the Commercial Act, a simple spin-off leaves shareholders holding both the surviving and the new company, so it was not treated as causing a loss of property and was never brought within the appraisal-rights regime. Preparing to exercise appraisal rights on a spin-off disclosure will not work.

Qualifying divisions defer the tax

Tax law treats a division as a transfer of assets. Meet the qualifying-division requirements and the gain is deferred; miss them and tax lands immediately. The requirements cover division of an independent business unit, comprehensive succession of assets and liabilities, consideration paid solely in shares, continuity of ownership, continuation of the business through the end of the fiscal year containing the registration date, succession of at least 80% of employment, and a one-year holding requirement on the controlling shareholder's shares.

The cost of failing is not small. Practitioner material puts the bill for dividing an asset with a book value of 10 billion won and a market value of 15 billion won at roughly 1.1 billion won in corporate tax plus about 600 million won in acquisition tax — some 1.7 billion won at once. In a spin-off, deemed-dividend taxation at the shareholder level stacks on top.

The continuity requirement also means the controlling shareholder cannot readily sell for a year after the division. How a disclosure describes qualifying status and the controlling shareholder's holding plan stays in the ownership structure as long as the change in share count does. Instruments that convert into equity later, such as convertible bonds, have to be counted alongside — the same exercise as tracking how much future dilution is already sitting on the register.

What to watch

When a division is disclosed, work through the list in order.

• Whether the structure is a spin-off or a split-off — this decides whether a second ticker appears in the account
• Treasury stock held immediately before the division and any cancellation plan; at 5% or more, a disposal-plan disclosure follows
• For split-offs, the appraisal-rights exercise window, the indicated purchase price, and any cap the company sets on total buybacks
• The division ratio, the resulting share counts at each entity, and the schedule for recalculating the reference price
• Whether the qualifying-division requirements are met, and the one-year holding plan for the controlling shareholder
• For split-offs, whether the new subsidiary is headed for its own listing — parent-subsidiary dual listing is a separate argument

The framework breaks in some cases. If treasury stock has already been fully cancelled or never existed, the calculation above does not apply as written. And where a division aims at genuine business separation rather than a holding-company conversion, the separation of each unit's cash flow matters more than the arithmetic of control.

Sources

• New share allocation to treasury stock banned in spin-offs (Korea Policy Briefing)
• Limits on allocating new shares to treasury stock in spin-offs (Kyunghyang Shinmun)
• Appraisal rights introduced for listed-company split-offs (Financial Services Commission)
• Tighter regulation of split-offs and subsidiary listings (Kim & Chang)