SPV Finance — Everything you need to know about the Special Purpose Vehicle
SPV Finance — Everything you need to know about the Special Purpose Vehicle
Creating an SPV has become an essential solution for structuring financial projects, raising funds and securing investors.
Used in real estate, private equity and crowdfunding, an SPV makes it possible to isolate risks, clarify management and optimize transparency.
In this article, we'll show you how it works, its advantages and how Overlord supports you in the creation of your investment vehicle.
What is an SPV in finance?
In finance, a SPV (Special Purpose Vehicle), or the French equivalent “the FCC” (common credit fund), is a legal entity created for a specific purpose, generally to isolate assets, risks, or financial activities specific to a company or project.
Origin and historical use of SPVs
The origin of Special Purpose Vehicles (SPV), dates back to the years 1970-1980, with the rise of structured finance, especially in the United States and Europe. Their development is closely linked to the evolution of financial markets and to the need to structure complex transactions while isolating risks.
Today, their use has been democratized: private investors, family offices and entrepreneurs use them to organize fundraising, participate in innovative projects or manage alternative investments.
Difference between an SPV and a classic company
The difference between an SPV And a classical society lies primarily in their purpose, structure and functioning.
An SPV is distinguished by its targeted purpose: it is created for a given financial transaction (securitization, project financing, asset management) and dissolved once its mission has been completed. A traditional company, on the contrary, pursues a broad and sustainable objective, with diversified activities and long-term management.
Why create an SPV?
The SPV offers unique advantages that make it an essential tool in finance.
Isolate financial and legal risks
An SPV is designed to separating assets and risks of an operation specific to those of the parent entity. This insulation, called Bankruptcy Remoteness, protects the assets of the SPV in the event of the bankruptcy of the parent company and vice versa.
For example, in an infrastructure project such as a wind power plant, an SPV makes it possible to limit potential losses to only the assets of the project, thus protecting the other activities of the initiating company. It also reassures creditors, who know that their rights are limited to SPV assets, reducing legal conflicts.
Simplifying the management of complex projects
Especially useful for managing complex projects requiring significant funding or multiple partnerships.
By creating a dedicated entity, stakeholders (banks, investors, developers) can structure financing and operations around a clear objective, without interfering with the company's other activities.
For example, in financing a bridge or an airport, an SPV centralizes financial flows, contracts and obligations, making management more efficient and transparent for all parties.
Optimizing transparency for investors
An SPV improves the transparency for investors by isolating assets and financial flows linked to a specific transaction.
This makes it easier for investors to assess the risks and returns of a project without being influenced by the overall financial health of the parent entity.
For example, in a securitization, an SPV pools loans (such as mortgages) and issues securities backed by these assets, giving investors a clear view of the performance of the underlying assets.
Facilitating tax optimization
Often used in specific jurisdictions to structure transactions in order to optimize fiscal aspects, in accordance with local and international laws.
For example, an SPV can be established in a jurisdiction such as Luxembourg or the Cayman Islands to benefit from advantageous tax frameworks, while complying with regulations.
However, any tax decision must be made with the support of specialized advisers to ensure compliance and avoid legal risks.
Comparative table: SPV vs other investment vehicles
To better understand the benefits of an SPV, here is a comparative table between this type of structure and other commonly used investment vehicles.
The areas of application of SPV
realty
In real estate, an SPV makes it possible to finance and manage a specific project, such as the construction or renovation of a property, by separating risks and assets.
Example: The project Quai de Rome carried by MÉLOTTE GROUP was financed via a dedicated SPV, “Orion Immo”. Created specifically for this project, the SPV raised €500,000 in February 2021 within the framework of a global budget of €4.5 million, in order to build 21 apartments for modest households. This structuring isolated the risks of the project from the rest of the group's activities.
Private Equity
Private equity SPVs are a key tool for raising funds and investing in unlisted companies. In particular, they make it possible to structure transactions in the form of Club Deal, where several investors group together around the same opportunity, while limiting risks and optimizing the management of participations.
Crowdfunding and alternative financing
As part of the crowdfunding and alternative financing, SPVs are used to structure the contributions of multiple investors, often individuals, in various projects, such as start-ups, real estate projects or cultural initiatives. The SPV acts as a centralized entity to collect, manage, and distribute funds.
Legal structure and functioning of an SPV
The SPV is an independent legal entity, whose structure and operation follow a precise cycle: creation, management and dissolution once the objective has been achieved.
Choosing the right legal form
The choice of legal form of an SPV depends on the objective of the operation, the jurisdiction and the requirements of the stakeholders (investors, creditors, regulators). The most common forms include:
- Limited liability company (SARL, LLC): popular for its flexibility and simplicity.
- Trust: used for transactions like securitization, where a trustee manages assets for the benefit of investors.
- Partnership or limited partnership: current in private equity or real estate projects, allowing a clear division of responsibilities between partners.
- Offshore foundation or entity: in jurisdictions like the Cayman Islands, for tax benefits or increased confidentiality.
The choice also depends on the jurisdiction, because some offer tax advantages or simplified regulatory frameworks (e.g. Luxembourg for securitization, Cayman Islands for investment funds). The form must guarantee the separation of assets (bankruptcy remoteness) to protect stakeholders in the event of bankruptcy.
The stages of creation
The creation of an SPV follows a structured process, adapted to the purpose and jurisdiction. Key steps include:
- Objective definition: identify the specific purpose of the SPV (e.g.: financing a real estate project, securitizing receivables).
- Choice of jurisdiction and legal form: select a favorable jurisdiction (fiscal, regulatory) and an adapted structure (SARL, trust, etc.).
- Drafting the statutes: draw up legal documents defining the operating rules, the rights of investors and the obligations of the SPV.
- Legal registration: register the entity with the competent authorities (e.g. commercial register).
- Setting up financing: raise funds through investors, loans or the issuance of securities (bonds, shares).
- Appointment of managers: appoint directors or trustees to manage the SPV, often external professionals to guarantee independence.
- Opening bank accounts: create dedicated accounts to manage the financial flows related to the operation.
Daily management and regulatory obligations
The management of an SPV is generally minimalist, because it is designed for a specific purpose. However, it must comply with strict regulatory obligations:
Tax compliance: declare income and comply with the tax laws of the jurisdiction.
Financial reports: provide transparent reports to investors, in particular in the context of securitization or crowdfunding.
Local regulations: comply with the requirements of authorities, such as the Commission de Surveillance du Secteur Financier (CSSF) in Luxembourg or the SEC in the United States.
Fight against money laundering: apply anti-money laundering (AML) and know your customer (KYC) rules.
Transparency and compliance are critical to maintaining investor confidence and avoiding sanctions.
There is also management daily: tasks include managing financial flows (payments to investors, repaying debts), maintaining accounting records, and coordinating with stakeholders (banks, investors). Often, an external director or a specialized company (e.g. trustee) manages these transactions.
Dissolution and end of life of the SPV
An SPV is often created for a limited time, linked to the achievement of its objective. Dissolution occurs when this objective is achieved or if the operation is unsuccessful. The steps include:
- Completion of the objective: for example, repayment of debts in a securitization or sale of a real estate project.
- Settlement of obligations: pay creditors, distribute profits to investors and settle accounts.
- Liquidation of assets: sell or transfer remaining assets, if required.
- Legal dissolution: register the dissolution with the competent authorities and close bank accounts.
- Final report: provide a report to stakeholders to confirm the end of operations.
In some cases, an SPV may be maintained for new operations, but this is rare, as it is typically designed for a single mission.
The operation of an SPV follows a clear and time-limited cycle:
Creation → Fundraising → Management and follow-up → Project implementation → Distribution of results → Dissolution
Les Special Purpose Vehicles (SPV) are powerful tools in finance, but they have pros and cons that are essential to understand before using them.
Benefits
Advantage 1 - Risk Isolation: An SPV separates the assets and debts of a project or operation from those of the parent entity, thanks to its structure Bankruptcy Remote. This protects the initiating company and investors in the event of bankruptcy. For example, in a real estate project, SPV creditors cannot access the parent company's other assets.
Advantage 2 - Flexibility of structuring : SPVs can be adapted to specific needs, such as securitization, project financing or tax optimization, and established in advantageous jurisdictions (e.g. Luxembourg, Cayman Islands). Their structure can be customized to meet the requirements of investors or regulators.
Benefit 3 - Clarity for investors: by isolating the financial flows and assets of a transaction, an SPV offers increased transparency. Investors can assess the risks and returns of a project without being influenced by the overall performance of the parent entity, as in the case of mortgage securitization.
Disadvantages
Disadvantages 1 - Creation and management costs: the establishment of an SPV involves legal, administrative and accounting fees, in particular for drafting the statutes, registering in a jurisdiction and ensuring compliant management. These costs can be significant, especially for smaller projects.
Disadvantages 2 - Regulatory complexity: SPVs must comply with strict obligations, such as anti-money laundering (AML) rules, tax compliance, and financial reporting, which vary by jurisdiction. Poor management can lead to sanctions or litigation.
Disadvantages 3 - Possible misperception if misused : SPVs sometimes have a negative reputation due to their use in opaque financial arrangements, such as during the 2008 crisis or the Enron scandal. Clear communication is essential to avoid suspicions of abuse or lack of transparency.
SPV and taxation
General principles of taxation of SPVs
An SPV is generally designed to minimize tax burdens associated with a specific transaction, such as securitization or project financing.
Its taxation depends on its legal structure (SARL, trust, etc.) and its jurisdiction. SPVs are often tax-neutral, that is, they transfer income directly to investors without taxation at the entity level, thus avoiding double taxation.
For example, in a securitization, asset income (e.g. loan repayments) is distributed to security holders with a minimum of fiscal friction.
Differences by jurisdiction (France, Luxembourg, offshore)
- France: SPVs, like Securitization Mutual Funds (FCT), are subject to corporate tax, but may benefit from specific exemptions for distributed income. The regulations are strict, with supervision by the Autorité des Marches Financiers (AMF).
- Luxembourg: very popular for its advantageous taxation, Luxembourg offers structures such as SOPARFI or securitization vehicles with minimum taxation and non-double taxation agreements. SPVs are often used there for international transactions.
- Offshore jurisdictions (e.g. Cayman Islands): these jurisdictions offer almost zero taxation and great confidentiality, but they are scrutinized by international authorities (e.g.: OECD) to avoid tax evasion. They are popular for investment funds or complex arrangements.
Points of attention to avoid common mistakes
The fiscal structure of an SPV must be thought out beforehand to avoid additional costs or double taxation situations.
Regulatory compliance
Ensure that the SPV complies with local and international tax rules, including anti-money laundering (AML) and transparency obligations (e.g. FATCA, CRS).
Choice of jurisdiction
Offshore jurisdiction can be attractive, but a poorly designed arrangement can attract the attention of tax authorities, leading to fines or adjustments.
Specialized advice
SPV taxation is complex, consult tax experts to avoid mistakes such as misclassification of income or non-compliance with tax treaties.
How to create an SPV with Overlord
Overlord is a specialized solution that simplifies creation of investment vehicles and SPV management, combining legal expertise, strategic support and an intuitive digital platform.
Legal and strategic support
The creation of an SPV requires a solid legal framework and appropriate strategic choices.
With Overlord, each project benefits from tailor-made support: choice of legal form, drafting of statutes, structuring of governance and regulatory compliance. The objective is to secure the operation and to reassure investors from the start.
A digital platform to manage your investors
Overlord simplifies daily management thanks to an online interface that centralizes all key information.
The platform makes it possible to monitor participations, automate communication with investors, generate financial reports and manage legal documentation transparently. This approach reduces administrative complexity and accelerates fundraising.
Comparing Overlord/traditional solutions
Overlord combines human expertise and technology for creating and managing SPVs that are faster, cheaper, and more transparent than traditional solutions:
The key steps in creating an SPV with Overlord
With Overlord, creating an SPV takes place in 7 main simple and structured steps:
- Initial consultation: discuss your goals with the Overlord team (e.g. type of project, number of investors, preferred jurisdiction).
- Choice of structure: Overlord recommends a legal form (e.g. LLC, trust) and jurisdiction (e.g. Delaware, Luxembourg) according to your fiscal and regulatory needs.
- Drafting of documents: the legal team prepares the articles of association, operating agreement and documents for investors, ensuring compliance.
- SPV registration : Overlord manages the registration with the competent authorities and the opening of a dedicated bank account.
- Fundraising: use the digital platform to onboard investors, collect funds and manage contributions via a secure portal.
- Operational management: the platform automates daily management (reports, distributions) while ensuring regulatory follow-up.
- Dissolution (if necessary): At the end of the project, Overlord helps to liquidate assets, distribute profits, and close the SPV legally.
Contact us to personalize each step and maximize the effectiveness of your SPV.
FAQ — SPV Finance
What is an SPV in finance?
One SPV (Special Purpose Vehicle) is a legal entity created for a specific financial purpose, such as financing a project, securitizing assets, or isolating risks. It separates the assets and debts of the operation from those of the parent entity, offering protection and transparency.
Why create an SPV?
An SPV allowsisolating risks (bankruptcy remoteness), to structure complex financing (e.g. real estate, private equity), to optimize taxation and to offer a increased transparency to investors by isolating the financial flows of a specific project.
What is the difference between an SPV and an investment fund?
An SPV is created for a single objective and often temporary (e.g. a real estate project), with a simple and isolated structure. An investment fund manages a diversified portfolio of long-term assets, with active management and broader goals.
How much does it cost to create an SPV?
Costs vary according to jurisdiction, complexity and services (legal, administrative). It includes the costs of registration, drafting of statutes and management (from a few thousand to tens of thousands of euros).