Special Purpose Vehicles (SPV)
A Special Purpose Vehicle (SPV) is a legal entity that is formed for a well-defined, sole and narrow purpose. It is generally a company formed to fulfil one or a group of narrow objectives by its promoters. SPVs are generally formed to isolate a company’s assets or activities. The activities or assets are distanced into the new entity, i.e., the SPV and so investors or lenders feel more comfortable. It is basically a means to separate the risk and free up capital. The SPVs and the sponsoring company (sometimes the parent company) are insured against the risk of bankruptcy.
SPVs are also used to securitise loans or any other receivables. Other uses of SPVs include circumventing certain regulatory constraints, maintaining the confidentiality of intellectual property, property investing especially in countries that have different tax rates for property sale gains and capital gains.