When to Consider Forming an SPV

Learn about when you should start considering forming an SPV for investors and how Savvi can assist you in SPV formation.

Special Purpose Vehicles (SPV) are legal entities separate from the organization created to perform a specific objective. SPVs serve various purposes, including financing and raising capital, risk sharing, securitization, asset transfer, and sale of property.

As separate entities, SPVs provide legal protection which diminishes liability even if the organization failed to meet its objective, as risk is allocated from the organization to the SPV and its investors. This is because assets held by the SPV may not be reported on the organization's asset balance sheet and therefore are shielded from direct taxation and bankruptcy-remote, affording investors in the SPV more security than they would otherwise have if they had directly invested in the organization. Consequently, SPVs become a particularly attractive option for investment when an organization is experiencing high risk and is looking to reallocate that risk in a way that does not sacrifice control over the organization.

However, it is also important to consider the implications of SPVs. Because SPVs have the legal obligations of a limited company (what kind of limited company is dependent on how the SPV is set up), SPVs are subject to capital gains tax and do not have the tax benefits of the parent company. Moreover, if the organization chooses to liquidate the SPV, it is possible to be faced with a double tax.

In conclusion, if an organization carries a high volume of risk and some of that risk may be transferred to a third party without threat of loss of equity in the business or is looking to make a high-risk transaction which could potentially result in bankruptcy, SPVs present an attractive investment strategy as a means to shield the organization from risk when taking investments. 

To begin SPV formation with Savvi, access one of the related Workflows and view it in the Savvi platform.

Savvi Technologies, Inc. is not an attorney or a law firm, and can only provide self-help services at your specific direction. Do not rely on any documents or information from Savvi without consulting an attorney. Savvi may partner with or refer clients to licensed attorneys, but such referral does not constitute an attorney-client relationship until the attorney is officially engaged by the client.