Special Purpose Vehicle Formation

In 2001 the Enron scandal created a buzz-word out of “Special Purpose Vehicle” (SPV). Special Purpose Vehicles, also called Special Purpose Entities (SPE), are essentially companies with a limited purpose and focus. Whereas Enron’s use of SPVs was more than questionable, these entities have more legitimate uses. In fact, when used properly, SPVs isolate financial risk from the parent company.

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Special Purpose Vehicle Formation

What is a Special Purpose Vehicle?

A special purpose vehicle (SPV) or special purpose entity (SPE) is a company that is created solely for a particular financial transaction or series of transactions. The SPV usually takes on the quise of a limited partnership, a limited liability company, or a trust.

Some facts about SPVs:

  • An SPV can be formed for any lawful purpose.
  • The SPV is usually a subsidiary company with an asset/liability structure and legal status that secures its obligations even if the parent company goes bankrupt. A company can use such an entity to finance a large project without placing the entire firm at risk.

SPVs are essentially robot firms that have no employees, make no substantive economic decisions, have no physical location, and are structured in such a way that they cannot go bankrupt.

Last Updated ( Wednesday, 25 March 2009 14:28 )  
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