Special Purpose Vehicle is a separate legal entity created to isolate a specific transaction, asset, or risk from its sponsor's balance sheet.
A special purpose vehicle (SPV), sometimes called a special purpose entity (SPE), is a legal entity created for a narrow, predefined objective. Typical purposes include holding a single asset, issuing asset-backed securities, ring-fencing a specific project, warehousing receivables prior to securitization, or aggregating investors into a single line on a cap table.
Because the SPV is bankruptcy-remote from its sponsor, the assets it holds are insulated from claims by the sponsor's creditors, and vice versa. This makes SPVs central to structured finance, project finance, and venture capital syndicates.
To preserve bankruptcy remoteness, SPVs typically have an independent director, restrictions on incurring additional debt, no employees, and limited business purpose clauses in their charter.
Common SPV forms include Delaware LLCs, Cayman exempted companies, Luxembourg securitization vehicles, and Irish section 110 companies. Each offers different combinations of tax neutrality, regulatory simplicity, and investor familiarity.
SPVs gained negative attention after the Enron collapse, where off-balance-sheet entities concealed leverage, leading to tighter consolidation rules under FIN 46 and later ASC 810.
Founders meet SPVs when raising from angel syndicates that pool investors through an AngelList or Carta SPV, when securitizing receivables, or when isolating a single property in real estate funds. Lawyers structuring infrastructure projects use a project SPV to borrow non-recourse debt against the project's cash flows.
Auditors test whether an SPV must be consolidated under the variable interest entity rules, since technical control through risks and rewards rather than voting equity often determines who holds the SPV on its balance sheet.
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