A special purpose vehicle (SPV), also known as a special purpose entity (SPE), is a subsidiary company created for a specific project or business activity. It is a separate legal entity with its own assets and liabilities, which do not appear on the parent company’s balance sheet . SPVs are commonly used in project finance schemes to finance capital-intensive projects in the framework of public-private partnerships, as well as in various asset securitization schemes . The primary function of an SPV is to facilitate financial transactions, set legal norms and regulations, and draft contracts between the parties engaged in the project .
The establishment of an SPV may limit the parent company’s ability to raise funds. Ambitious and ineffective SPV creation can create project delays and cost overruns, induce debt restructuring, and even lead to project failure . A special purpose vehicle can be formed as a limited partnership, corporation, trust, or joint venture. In some circumstances, the parent firm is not permitted to own the SPV .
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