A Special Purpose Vehicle (“SPV") is a separate legal entity formed by an organization with its business and legal status, assets, and liabilities. They are generally designed with a specific goal in mind often to mitigate the financial risk. SPV is often used in structured finance transactions including securitizations, joint ventures, and real estate transactions. The main feature of an SPV is that it has a separate balance sheet from the parent business. SPV is protected from the parent company's insolvency and are permitted to function lawfully on designated assets. The SPV activities are restricted to funding and acquiring the project or real estate asset.
SPV can raise capital by issuing shares. It offers flexibility to create multiple types of shares for effective control. Moreover, holding property through an SPV means that the property and the related contracts can be sold through an isolated vehicle avoiding the complexities of extensive contracts, licensing, Government approval, Complicated contract negotiations, and most importantly tax benefits.