What Is SEC Form 10-12B?

SEC Form 10-12B is a filing required by the Securities and Exchange Commission (SEC) when a public company issues a new stock through a spinoff. The SEC requires parent companies to register the securities to be spun off and to disclose information about the spinoff to its shareholders and the public. Companies will use SEC Form 10-12B to do this.

As part of its filing and disclosure obligations, the parent company must provide extensive information about itself and the spinoff company. This includes financial statements and pro forma financial information, along with a disclosure of risk factors.

Key Takeaways

  • SEC Form 10-12B is a regulatory filing that the issuer of shares via a spinoff must report.
  • A spinoff occurs when a parent company creates a new independent company through the distribution or sale of new shares of its existing business.
  • The purpose of SEC Form 10-12B is for the parent company to disclose to shareholders and the trading markets relevant information regarding the proposed spinoff.
  • An SEC Form 10-12B filing includes pro forma financial statements, a letter explaining the reason for the spinoff, details on how the new company will operate, and a disclosure of risk factors.

Understanding SEC Form 10-12B

SEC Form 10-12B has its origins in the Securities Exchange Act (SEA) of 1934. In the United States, all publicly traded companies listed on stock exchanges must comply with SEA requirements. The SEA authorized the formation of the Securities and Exchange Commission to enforce securities laws, regulate the securities market, and protect investors from securities fraud.

SEC Form 10-12B is the form a company files with the SEC when it issues new stock through a spinoff. A spinoff is a type of divestiture that occurs when a parent company decides to create a new independent company through the sale or distribution of new shares of its existing business. The purpose of SEC Form 10-12B is to provide adequate and transparent information to the public about the proposed spinoff.

Requirements of SEC Form 10-12B

SEC Form 10-12B includes a letter from the parent company to shareholders explaining the reason for the spinoff as well as pro forma financial statements showing how the spinoff would have performed in the past if it had already been an independent entity. The form also includes details about how the new company will operate, the potential strengths and weaknesses of the new company, and the outlook for the new company's industry.

While companies are required to make complete disclosures in their filing materials, the SEC is not responsible for evaluating the worthiness or merits of the spinoff as an investment. As with any investment, it is the investor's responsibility to perform due diligence before investing in a spinoff.

Before investing in a spinoff company, investors can search the SEC's EDGAR database to find the 10-12B filing related to a particular spinoff. Investors can review the filing for key financial information that might impact their investing decision.

Special Considerations

Companies often do spinoffs for strategic reasons. Spinning off a subsidiary may help management focus on their core business, allowing the spinoff to become the focus of attention and resources under its new management. This may allow the subsidiary to more fully realize its potential value for shareholders.

Spinning off a subsidiary may also allow the parent company to more fully realize its value if the spun-off subsidiary was in a slow-growth industry that created a drag on parent company earnings. Selling off a subsidiary may also be used as a takeover defense, potentially making the parent company less attractive to suitors.

Other Types of SEC Forms

SEC Form 10-12B is just one type of filing publicly traded companies must submit to the SEC. The SEC has over 160 forms—which includes associated rules, regulations, and schedules—that help it regulate the securities market.

Two important filings that are of interest to most investors are the 10-Q filing and the 10-K filing. SEC Form 10-Q is a comprehensive report of a publicly traded company's quarterly performance. The 10-Q provides investors with a snapshot of a company's financial health. Among other things, the 10-Q outlines pertinent financial information for the quarter, reveals management's analysis of company performance, and discloses risk factors that may impact the company going forward.

Similar to the 10-Q report, SEC Form 10-K is also a comprehensive report of a company's financial performance. However, the 10-K is filed on an annual basis, while the 10-Q is filed quarterly. Another difference is that the 10-Q is usually unaudited, while the 10-K is audited.