Special Purpose Vehicle (SPV)

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Definition: A Special Purpose Vehicle (SPV) is a legal entity created as a financial "container" for a specific, isolated purpose. Typically structured as a Limited Liability Company (LLC) or Limited Partnership (LP), an SPV serves as a separate entity that shields the parent organization from financial risk while offering tax efficiency.

How SPVs Work in Practice:

Investment Pooling: Multiple investors contribute capital to a single SPV, which then makes a consolidated investment in a target company
Tax Transparency: As pass-through entities, SPVs allow profits and losses to flow directly to investors without corporate-level taxation
Risk Isolation: Financial liabilities remain contained within the SPV, protecting both investors and the companies they invest in

For entrepreneurs seeking funding, SPVs offer significant advantages. When venture capitalists or angel investor groups establish an SPV to invest in your startup, you'll benefit from streamlined cap table management and simplified investor relations—dealing with one entity instead of dozens of individual investors.

Modern Applications for SPVs:

Beyond traditional startup investing, SPVs have gained popularity in real estate ventures, asset securitization, and increasingly on investment crowdfunding platforms that allow smaller investors to participate in deals previously reserved for institutional players.