Spinoff is one type of Demerger wherein the Shares of new entity is being distributed to the shareholders of parent company on a pro-rata basis. Explain in brief the reasons for Spinoff.

In a spin off, the shares of the new entity are distributed to the shareholders of the parent company on a pro-rata basis. There are two approaches in which Spin offs may be conducted. In the first approach, the company distributes all the shares of the new entity to its existing shareholders on a pro-rata basis. This leads to the creation of two different companies holding the same proportions of equity as compared to the single company existing previously. The second approach is the floatation of a new entity with its equity being held by the parent company. The parent company later sells the assets of the spun off company to another company. In both the approaches, the parent company also retains ownership in the spin-off entity. A spinoff may occur for various reasons, such reasons may include: A company may conduct a spinoff so it can focus its resources and better manage the division that has more long-term potential. Businesses wishing to streamline their operations often sell less productive or unrelated subsidiary as spinoffs. For Example, a company might spin off one of its mature business units that are experiencing little or no growth so it can focus on a product or service with higher growth prospects. a portion of the business is headed in a different direction and has different strategic priorities from the parent company, the company may adopt spin off so it can unlock value as an independent operation. The downside of spin off is that their share price can be more volatile and can tend to underperform in weak markets and outperform in strong markets. Spinoffs can also experience high selling activity and the share price may dip in the short term because of this selling activity, even if the spin offs long term prospects are positive.