 In this presentation, we'll take a closer look at internal business expansion. Get ready to act because it's time to account with advanced financial accounting. In our previous presentation, we talked about the types of expansion that a company can take and we broke those out to the general categories of internal expansion and external expansion. The internal expansion, meaning we have a corporation or a company that needs to expand and wants to do so internally might result in other divisions or might result in a creation of a subsidiary. The external expansion, meaning we have two entities that are separate and somehow come together, which still could result in something like a parent's subsidiary type relationship or some type of division. So we're going to be considering here the internal ideas, the internal concept or internal expansion. So we have one organization, the organization wants to grow and expand possibly into a different section or segment or a different industry and therefore they're going to expand in some way, shape or form. Typically we're thinking of the creation in this case of a subsidiary type of relationship in which case they might create a separate legal entity and that would be the giving of the assets and possibly liabilities to a separate legal entity that would be created. In other words, the parent company setting up a subsidiary in some way, shape or form and then giving the subsidiary some assets and the liabilities that were formerly the parents organization and then having a parent subsidiary type relationship with that subsidiary unit, us from an accounting standpoint then having to think about how are we going to account for that with regards to financial accounting with that parent subsidiary type of relationships. So types of business entities that could be involved with this, we could have a subsidiary company and that's the one you'd probably most be considering if we have one type of business entity, they're going to expand, they want to go into a new industry and they want to have some type of liability protection or some of the other benefits that we talked about with regards to a separate legal entity that's going to be owned by in some way or controlled by the parent, you would be thinking typically of a subsidiary company. We can also have however a partnership and have a similar relationship with regards to a partnership, a joint venture or some type of special entities in a similar type of relationship with regards to the expansion process and how we would structure or format the expansion process for an internal expansion. Now we also want to be aware or the idea of a spinoff. So a spinoff is something that's going to happen when subsidiary ownership is distributed to the partner stockholders and the parent stockholders did not surrender any of their stock. So that might happen, it would look something like this if we have a spinoff type of situation, the parent then creates the subsidiary is going to be putting the assets and liabilities possibly into the subsidiary resulting in a parent subsidiary type of relationship. And then the stock of the subsidiary is going to go to the parent shareholders. So in other words, if we think about the hierarchy that we have here and in a spinoff why would this happen by the way, possibly you have a segment of the of the organization which the company does not want is saying this segment of the organization no longer lines up to our principal objectives. It still is a value of course we have the assets regarding this the segment but we would like to spin it off so that we can focus in on what we want to do and note that you're seeing here that that different kind of perspective with regards to do you want to diversify should we grow or should we or should we not or should we focus in on what we do and that's going to be from a managerial perspective. And we've seen periods of growth where many companies are in the in the trend of just making basically conglomerates where they're going to be where they're really focused on growing and diversification and we've seen trends where there's a big contraction a lot of times where a company saying hey look at you know I'm going to be focusing in on the thing that I do well and you have a period of contraction and and then focus and so if you're saying here that it's going to be a period of contraction the company might be saying look we got a lot of things here that we don't think is our core our core business that we think they could do well but what we want to do is focus in on one thing well how can we then spin off or get get out of these type of areas and and and and still be generated and utilizing the assets related to them well you could say alright well the parent how about they create a parent subsidiary so we've created a new company we've taken those assets that were not we don't want to be focusing in on that division you can think of it and putting it into the subsidiary then we're going to be providing the stock of that subsidiary to the parent shareholders now remember if you're talking about the parent corporation the shareholders own the stock and basically that's the ownership of the parent corporation the parent corporation now spins off the subsidiary and they give the stock of the subsidiary to the parent shareholders so the results then if you're a shareholder if you're an owner of this corporation then you used to have your shareholder owning then owning the parent company the parent and then the parent company made the subsidiary right then the subsidiary was owned by the parent the parent on this the shareholders of the subsidiary you the shareholder then owned the stocks of the parents so you would see the relationship being shareholders then owning the parent company the parent company now making another subsidiary which the parent company owns then the stocks from the parent company are transferred to the the parent shareholders. So now you as the shareholder own the parent company and then as a separate legal entity that's not a subsidiary of the parent company also own the new company or the spinoff. So in this relationship what has happened here now the parent company does not have a subsidiary relation with the spinoff company. But the stockholders are still in the same situation in that they haven't really lost anything here right because they still own the assets that are in the parent company and the assets that have been spun off to the subsidiary company. So that that's going to be a spinoff type of situation that means that lets the parent company then focus in on what they what they believe is their core value that allows the spinoff company hopefully to focus in on their core value without any relationship between the two because the assumption here of course would be that these are actually two different industries that can pursue different goals are not going to be related not even divisions or parents subsidiary relationship and the shareholders then again result in that same type of situation where they still have ownership of the net value the net assets of the whole the whole package here the parent and the subsidiary. Okay so then we have a split off which is going to be a little bit different happens when the subsidiary ownership shares are exchanged for the shares of the parent. So we had a spinoff now we have a split off so the split off happens when subsidiary ownership shares are exchanged for the shares of the parent the result in the split off is a reduction in the shares of the parent company that are outstanding.