A special purpose vehicle (SPV) is a subsidiary company that operates as a separate company and separate legal entity from its parent company. Another name for the same concept is a special purpose entity (SPE). This type of additional business structure is often useful because it can take on higher risks than a parent company could endure without its investors raising eyebrows.
Allocation of a special purpose vehicle’s own balance sheet and assets, as well as financial reporting and filings of financial statements, occur separately from those of the main business. This is due to the separate legal status of the two entities. Keeping the SPV off [balance sheets](https://www.masterclass.com/articles/what-is-a-balance-sheet) is symbolic of how this type of arrangement can help shield parent companies from risk.

Big companies and small startups alike are capable of deploying [subsidiary companies](https://www.masterclass.com/articles/subsidiary-company-business-guide) or SPVs for ethical, financially sound reasons. However, there are cases of entities using SPVs for nefarious or misguided purposes. For instance, selling pools of mortgage loans as SPVs was an instigating factor in creating the real estate bubble that led to 2008’s financial crisis.
Special purpose vehicles, or SPVs, can be attractive options to business owners and investors for a multitude of reasons related to risk mitigation and financial returns. Here are four specific reasons a company might use an SPV:

1. __To attract equity investment__: Equity investors, lenders, and hedge fund managers are often drawn to the risk of SPVs as an investment strategy. While the issuer of loans might find SPVs are a little less stable in capital markets, for many the potential high rewards offset the risks.
2. __To avoid regulatory burdens__: It might vary from one SPV to the next, but some allow for business owners to legally skirt regulations or taxes from entities like the [US Securities and Exchange Commission](https://www.masterclass.com/articles/securities-and-exchange-commission) (SEC) and Internal Revenue Service (IRS) that their parent companies cannot.
3. __To ease asset transfer__: SPVs make the securitization process simpler for specific assets. It can be easier and more cost-effective to sell off a tranche (or pool of asset-backed securities) than the individual assets themselves. This is useful if you’re trying to access more financial [liquidity](https://www.masterclass.com/articles/what-is-liquidity-explained) or get a quicker estimate on the SPV’s valuation as a whole.
4. __To isolate financial risk__: The special purpose vehicle is a bankruptcy-remote entity, meaning its potential insolvency and that of the main company cannot threaten each other’s financial individual well-being. For instance, if something disrupts an SPV’s receivables and it cannot meet its debt obligations, this will have no effect on the parent company, as it’s a separate situation. This is why many are more willing to use SPVs that operate at a higher credit risk than their main businesses.
You might see special purpose vehicles structured in various different ways. Here are five forms an SPV business venture might take:

1. __Joint venture__: SPVs can be joint ventures between multiple companies. If two companies think they could collaborate on a specific project without desiring to merge in total, an SPV provides a solution for this.
2. __Limited liability company__: A limited liability company (LLC) or limited liability corporation allows business owners to shield their personal assets in the event of a lawsuit. Forming an SPV as an [LLC](https://www.masterclass.com/articles/limited-liability-company-explained) allows the owners to double up on security as a result, since both the main business and the individuals’ personal finances will remain immune from the risks the SPV takes.
3. __Limited partnership__: A limited partnership operates similarly to a joint venture, except the former is generally a long-term commitment to work together between two or more companies and the latter is project-specific. Forming an SPV simplifies the partnership process for companies seeking to work together. 
4. __Public-private partnership__: Governments will occasionally allow companies to form SPVs to assist them in achieving a shared goal, as in an infrastructure or public defense project. This operates as an incentive to companies, as they will have to take on less risk to assist the state as a result of the SPV formation.
5. __Structured investment vehicle__: You create a structured investment vehicle (SIV) when you design an SPV as a means to make profits on the difference between securities and debts.
Get the [MasterClass Annual Membership](https://www.masterclass.com/) for exclusive access to video lessons taught by business luminaries, including Sara Blakely, Chris Voss, Robin Roberts, Bob Iger, Howard Schultz, Anna Wintour, and more.
A special purpose vehicle (SPV) is a type of business arrangement that allows companies to operate a subsidiary with independence from the parent company. This helps mitigate financial risk and can attract unique investors. Learn more about SPVs.

A special purpose vehicle (SPV) is a type of business arrangement that allows companies to operate a subsidiary with independence from the parent company. This helps mitigate financial risk and can attract unique investors. Learn more about SPVs.

SPV Defined: How a Special Purpose Vehicle Company Works

A special purpose vehicle (SPV) is a subsidiary company that operates as a separate company and separate legal entity from its parent company. Another name for the same concept is a special purpose entity (SPE). This type of additional business structure is often useful because it can take on higher risks than a parent company could endure without its investors raising eyebrows.

What Is a Special Purpose Vehicle?

Allocation of a special purpose vehicle’s own balance sheet and assets, as well as financial reporting and filings of financial statements, occur separately from those of the main business. This is due to the separate legal status of the two entities. Keeping the SPV off <a href='https://www.masterclass.com/articles/what-is-a-balance-sheet' target='_self' class='mc-text--link' data-mc-segment-trigger='true' data-mc-segment-event-type='Article Page Click' data-event-obj='{"textTag":"p","href":"https://www.masterclass.com/articles/what-is-a-balance-sheet","linkCopy":"balance sheets","category":null}'>balance sheets</a> is symbolic of how this type of arrangement can help shield parent companies from risk.Big companies and small startups alike are capable of deploying <a href='https://www.masterclass.com/articles/subsidiary-company-business-guide' target='_self' class='mc-text--link' data-mc-segment-trigger='true' data-mc-segment-event-type='Article Page Click' data-event-obj='{"textTag":"p","href":"https://www.masterclass.com/articles/subsidiary-company-business-guide","linkCopy":"subsidiary companies","category":null}'>subsidiary companies</a> or SPVs for ethical, financially sound reasons. However, there are cases of entities using SPVs for nefarious or misguided purposes. For instance, selling pools of mortgage loans as SPVs was an instigating factor in creating the real estate bubble that led to 2008’s financial crisis.

How Does an SPV Work?

Special purpose vehicles, or SPVs, can be attractive options to business owners and investors for a multitude of reasons related to risk mitigation and financial returns. Here are four specific reasons a company might use an SPV:<ol class="mc-m-4"><li class="mc-my-4"> 1. To attract equity investment: Equity investors, lenders, and hedge fund managers are often drawn to the risk of SPVs as an investment strategy. While the issuer of loans might find SPVs are a little less stable in capital markets, for many the potential high rewards offset the risks. </li><li class="mc-my-4"> 2. To avoid regulatory burdens: It might vary from one SPV to the next, but some allow for business owners to legally skirt regulations or taxes from entities like the <a href='https://www.masterclass.com/articles/securities-and-exchange-commission' target='_self' class='mc-text--link' data-mc-segment-trigger='true' data-mc-segment-event-type='Article Page Click' data-event-obj='{"textTag":"p","href":"https://www.masterclass.com/articles/securities-and-exchange-commission","linkCopy":"US Securities and Exchange Commission","category":null}'>US Securities and Exchange Commission</a> (SEC) and Internal Revenue Service (IRS) that their parent companies cannot. </li><li class="mc-my-4"> 3. To ease asset transfer: SPVs make the securitization process simpler for specific assets. It can be easier and more cost-effective to sell off a tranche (or pool of asset-backed securities) than the individual assets themselves. This is useful if you’re trying to access more financial <a href='https://www.masterclass.com/articles/what-is-liquidity-explained' target='_self' class='mc-text--link' data-mc-segment-trigger='true' data-mc-segment-event-type='Article Page Click' data-event-obj='{"textTag":"p","href":"https://www.masterclass.com/articles/what-is-liquidity-explained","linkCopy":"liquidity","category":null}'>liquidity</a> or get a quicker estimate on the SPV’s valuation as a whole. </li><li class="mc-my-4"> 4. To isolate financial risk: The special purpose vehicle is a bankruptcy-remote entity, meaning its potential insolvency and that of the main company cannot threaten each other’s financial individual well-being. For instance, if something disrupts an SPV’s receivables and it cannot meet its debt obligations, this will have no effect on the parent company, as it’s a separate situation. This is why many are more willing to use SPVs that operate at a higher credit risk than their main businesses. </li></ol>

4 Reasons to Use an SPV

You might see special purpose vehicles structured in various different ways. Here are five forms an SPV business venture might take:<ol class="mc-m-4"><li class="mc-my-4"> 1. Joint venture: SPVs can be joint ventures between multiple companies. If two companies think they could collaborate on a specific project without desiring to merge in total, an SPV provides a solution for this. </li><li class="mc-my-4"> 2. Limited liability company: A limited liability company (LLC) or limited liability corporation allows business owners to shield their personal assets in the event of a lawsuit. Forming an SPV as an <a href='https://www.masterclass.com/articles/limited-liability-company-explained' target='_self' class='mc-text--link' data-mc-segment-trigger='true' data-mc-segment-event-type='Article Page Click' data-event-obj='{"textTag":"p","href":"https://www.masterclass.com/articles/limited-liability-company-explained","linkCopy":"LLC","category":null}'>LLC</a> allows the owners to double up on security as a result, since both the main business and the individuals’ personal finances will remain immune from the risks the SPV takes. </li><li class="mc-my-4"> 3. Limited partnership: A limited partnership operates similarly to a joint venture, except the former is generally a long-term commitment to work together between two or more companies and the latter is project-specific. Forming an SPV simplifies the partnership process for companies seeking to work together. </li><li class="mc-my-4"> 4. Public-private partnership: Governments will occasionally allow companies to form SPVs to assist them in achieving a shared goal, as in an infrastructure or public defense project. This operates as an incentive to companies, as they will have to take on less risk to assist the state as a result of the SPV formation. </li><li class="mc-my-4"> 5. Structured investment vehicle: You create a structured investment vehicle (SIV) when you design an SPV as a means to make profits on the difference between securities and debts. </li></ol>

5 Potential Structures for SPVs

Get the <a href='https://www.masterclass.com/' target='_self' class='mc-text--link' data-mc-segment-trigger='true' data-mc-segment-event-type='Article Page Click' data-event-obj='{"textTag":"p","href":"https://www.masterclass.com/","linkCopy":"MasterClass Annual Membership","category":null}'>MasterClass Annual Membership</a> for exclusive access to video lessons taught by business luminaries, including Sara Blakely, Chris Voss, Robin Roberts, Bob Iger, Howard Schultz, Anna Wintour, and more.

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A special purpose vehicle (SPV) is a type of business arrangement that allows companies to operate a subsidiary with independence from the parent company. This helps mitigate financial risk and can attract unique investors. Learn more about SPVs.

A special purpose vehicle (SPV) is a type of business arrangement that allows companies to operate a subsidiary with independence from the parent company. This helps mitigate financial risk and can attract unique investors. Learn more about SPVs.
