If you’re looking for a way to protect your business, then you might want to look into special purpose vehicle concepts and applications. Depending on your business goals and needs, this can be a great way to earn capital and/or protect subsidiaries from financial risk.
When you develop an SPV, it will have liabilities, assets, and a legal status that are separate from the legal obligations of the parent company. The main goal of this type of set-up is to carry out specific business activities that are different from what the parent company normally does. It’s in place to protect the parent company from insolvency issues or the risk of bankruptcy.
Understanding special purpose vehicle concepts and applications can be a bit confusing, which is why it’s in your best interest to work with an expert. This will ensure that you know exactly what you’re getting into, as well as set the SPV up correctly. There are benefits to using this structure, including those listed below.
They Offer a Single Purpose
Since SPVs can be used to carry out financial transactions, you can put these in place to purchase assets, invest in joint ventures, or to isolate the company’s assets and/or operations from the parent company. When it comes to keeping track of these transactions, they can be on-the-book or off-book entities.
They Protect Funds and Assets
When you create an SPV, this allows the parent company to maintain their assets and liabilities, as well as reduce their risks. This can lead to a higher credit rate and lower funding costs, as well as create greater financial flexibility with lower capital requirements.
If you’re searching for a way to expand your company and venture into industries or products that you don’t normally offer, forming an SPV might be the best way to help you achieve that goal—without serious consequences.
They Protect Against Bankruptcy and Creditors
Since one of the risks of venturing into a new industry is bankruptcy, when you create an SPV, you have an opportunity to make high-risk financial transactions or investments without having to worry about the solvency of the entire company. Should the SPV file for bankruptcy or lose their investment, the parent company won’t be impacted.
They Create More Options
When it comes to understanding special purpose vehicle concepts and applications, one of the benefits to this is that it gives your main company a lot of different options. For example, the SPV isn’t exposed to the same regulations as the parent company, so you have more freedom to operate.
With that freedom, you also have the opportunity to try out new investments and see how lucrative they will be before the parent company invests large sums of money. This allows you to see if there are risks with the venture or if you have the ability to double your returns.
Creating an SPV is also a great way for your main company to keep things secret from competitors. This gives you the opportunity to see if your actions will make a difference in the marketplace or if you should spend time on other projects.
When you work with a professional who takes on this task, you’ll get help with an investor onboarding, taxes and K-1 services, SPV/Syndicate wind down and other services. This can be a great way to grow your business.
When it comes to your business, you want to do what you can to ensure your success. One of those options might be to create an SPV, but before jumping into this, it’s a good idea to speak with a professional and determine if it will work for you.