What is it called when a business splits into two separate organizations for investment purposes?

The correct term for when a business splits into two separate organizations for investment purposes is commonly referred to as a de-merger. This process involves a company dividing its operations into two distinct entities, which often allows each to focus on their core business areas, streamline operations, and potentially enhance shareholder value. During a de-merger, the original business allocates its assets and liabilities between the new entities, making each one independently operated and often publicly traded.

A de-merger can be beneficial for investors, as it may unlock value that was previously not realized under a single corporate structure. Shareholders of the original company might receive shares in the new entity proportional to their holdings in the parent company, giving them an opportunity to invest further in one or both companies based on performance and strategic direction.

In contrast, acquisition refers to the process where one company takes over another, which does not involve splitting a business into separate organizations. A spin-off is similar in intent to a de-merger but typically involves creating a new independent company from an existing business unit, often resulting in the original company retaining some ownership stake. A joint venture is a collaborative arrangement between two or more parties to undertake a specific project, rather than splitting an existing business into independent entities.