We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What is a Special Purpose Vehicle?

Mary McMahon
Updated May 16, 2024
Our promise to you
SmartCapitalMind is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At SmartCapitalMind, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject-matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

A special purpose vehicle (SPV) is a financial entity created for the purpose of fulfilling a very specific and limited use. It is separated from the sponsoring or parent company for legal and tax reasons, and may be controlled by several companies working together. This type of entity attracted a great deal of attention in the first decade of the 20th century, when SPVs were a common feature of “creative accounting” used by several major corporations to blur their financial positions for fraudulent reasons. Despite this unfortunate association, they are perfectly legal and, in fact, sometimes very useful.

Also known as a special purpose entity (SPE), an SPV is usually created to isolate the parent company from risk. In addition to isolating risks, it is itself isolated from financial risks at the parent company such as bankruptcy, and it is sometimes called a bankruptcy remote entity for this reason. Classically, a company will create an SPV to securitize debt, selling debts to the entity to raise cash quickly so that it can continue lending and other financial operations.

Another reason to create a special purpose vehicle is to have a company that is legally separate from the parent company to shelter new inventions and other developments. These entities can also be used for risk sharing, in which companies pool risky resources in an SPV and securitize them to raise funds. They can be used for financing as well, isolating the parent company from the risks and creating an entity that can become the face of the project.

The process of creating a special purpose vehicle can be overseen by lawyers and accountants who specialize in this type of activity. They can confirm that the entity is being created legally and that the specifics of the deal are handled in a way that complies with the law. For example, an SPV for securitization cannot be held by the primary owner of the debt, which dictates the way in which it is set up and who controls it.

Thanks to the use of SPVs in accounting fraud, some governments scrutinize these entities closely and have proposed tighter regulation of their activities, including a clearer definition of how and when these entities can be used. This is designed to prevent situations in which an SPV is used to do things like hiding debt from a company's stockholders.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Mary McMahon
By Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a SmartCapitalMind researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

Discussion Comments
By anon169360 — On Apr 20, 2011

wow. never thought an SPV is such a serious concept. thanks Mr. Smaith and Mr. Wallace

Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a...

Learn more
SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.