The full form of SPV is a Special Purpose Vehicle. It is also commonly known as a special purpose entity or SPE. An SPV or SPE refers to a legal entity or object engineered for a specific purpose and comes with its own assets and liabilities. It allows investors to pool their money by making an investment in a single company. Moreover, it is designed as a bankruptcy-remote, meaning that the SPV is legally separate from its parent company. Therefore, if the parent company somehow goes bankrupt, the SPV’s assets and liabilities will continue to function normally.
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Use of SPVs
SPVs have a bunch of uses such as:
- SPVs can be used to raise funds for a wide range of projects such as the construction of a road or power plant.
- One of the most important uses of SPVs is to isolate financial risk from the parent company. This is particularly beneficial for companies that often embark on new adventures.
- You can also use SPVs to purchase real estate.
- Another common use of special purpose vehicles is to form joint ventures between multiple companies.
- Securitization of loans is another important use of special purpose vehicles.
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Advantages of SPVs
Special purpose vehicles or SPVs offer a ton of advantages for business owners and investors, making them among the top choices in the finance world.
- Risk isolation
- Direct ownership of assets
- Tax savings
- Easy set up
- Securitization of assets
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