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Learn what a Special Purpose Vehicle (SPV) is, how it works, its key types, benefits, tax implications, and why investors or companies use it.
Farheen Shaikh
October 17, 2025
October 17, 2025
Table of Contents
A Special Purpose Vehicle (SPV), also called a Special Purpose Entity (SPE), is a separate legal entity set up for a defined and limited objective.
SPVs are used across many contexts, from project finance and securitization to joint ventures and employee liquidity programs, but two use cases are the most common:
(1) pooling investor capital for a specific investment, and
(2) isolating assets or liabilities from a parent company’s main balance sheet.
By separating each purpose into its own entity, SPVs allow companies, investors, and fund managers to manage financial exposure, compliance, and governance more effectively.
SPVs have become a standard structuring tool across venture capital, private equity, real estate, and corporate finance. They simplify transactions, consolidate ownership, and make it easier to manage both investment-related and operational risks.
A special purpose vehicle is a stand-alone legal entity created for a single, well-defined purpose. While the exact reason for forming one varies by industry, most SPVs fall into two broad categories:
These are designed to pool capital from multiple investors for a single deal or asset. They are common in venture capital, private equity, and angel syndicates. For example, to invest in one startup round, a real estate project, or a secondary transaction. This structure allows many investors to appear as one legal shareholder on the target company’s cap table, reducing complexity for both the sponsor and the company raising capital.
These are used by companies to separate specific assets, liabilities, or projects from their core operations. By transferring ownership of a risky or high-value asset into an SPV, the parent company can protect its balance sheet if that asset underperforms or faces regulatory or operational challenges. Such structures are common in real estate development, infrastructure projects, and corporate financing transactions.
In both cases, the SPV acts as an independent legal container. It owns and manages the defined asset or investment, keeping obligations and risks limited to that vehicle. This separation provides a clear framework for ownership, reporting, and governance.
Here are some of the main reasons companies and investors choose SPVs:
An SPV separates a specific project or asset from the parent company’s balance sheet. This limits exposure if the investment underperforms or carries operational or regulatory risk.
Instead of managing multiple individual investments, an SPV lets many investors contribute through a single vehicle. This simplifies fundraising, ownership records, and communication with investors.
An SPV keeps ownership and decision-making limited to a single deal or asset. This separation makes it easier to manage one transaction without overlapping with the sponsor’s other investments or entities.
SPVs can hold assets that are being sold, spun off, or carried into a continuation fund. This structure helps investors exit cleanly or extend ownership beyond a fund’s original term.
Example: A fund nearing the end of its term transfers one high-performing company into an SPV. Existing investors can either cash out or roll their investment into the new SPV, allowing the fund manager to hold the asset longer and maximize returns.
When structured correctly, an SPV can help optimize tax exposure or simplify compliance across jurisdictions. However, the benefits depend on where the SPV is formed and how it is managed.
SPVs can take different legal forms depending on where they are registered and what they are designed to do. The choice of structure affects how the entity is taxed, governed, and managed.
Below are the most common types:
A common structure in the United States, the LLC SPV offers flexibility in governance and pass-through taxation by default, meaning profits and losses flow directly to investors without being taxed at the entity level. LLC SPVs are typically used for single-deal investments, such as a venture capital syndicate investing in one startup round. They are quick to set up and easy to manage, though may face limitations when accepting non-U.S. investors.
A limited partnership structure is often preferred by institutional investors and international limited partners (LPs). It separates decision-making power between general partners (who manage the investment) and limited partners (who provide the capital). LP SPVs are widely recognized across jurisdictions, making them ideal for cross-border investments or when working with a global investor base.
An SPV acts as the legal and financial bridge between a group of investors and the underlying investment. Once set up, it becomes the single entity that raises capital, makes the investment, and distributes returns. The flow typically looks like this:
A company, fund manager, or lead investor (the sponsor) identifies an investment opportunity such as a startup round, a real estate project, or a pool of assets, and decides to structure it through an SPV instead of a direct investment.
The sponsor sets up the SPV in a suitable jurisdiction and legal form, such as an LLC, LP, or company. The governing documents (operating agreement or partnership agreement) define how the SPV will raise funds, make decisions, and distribute profits.
Interested investors commit capital by subscribing to membership or partnership interests in the SPV. All funds are transferred to the SPV’s bank account, consolidating multiple investors into one legal entity on the target company’s cap table.
The SPV, now representing all pooled investors, executes the investment by purchasing equity or another financial instrument in the target company or project. This makes the SPV the single counterparty for the transaction, simplifying documentation and ownership tracking.
When the investment generates returns, for example, through a company exit, dividends, or sale of an asset, proceeds are received by the SPV. These funds are then distributed to investors on a pro-rata basis according to the terms laid out in the SPV’s governing documents.
In essence, an SPV consolidates a complex, multi-investor deal into a single, well-defined entity. It keeps legal, financial, and reporting structures clean for both the sponsor and the underlying company.
SPVs and venture funds are both used to pool investor capital, but they differ in purpose, scale, and structure.
An SPV is set up to invest in a single company or project. Once that investment is made, the SPV remains active only until the exit or distribution.
A venture fund, on the other hand, raises capital to invest in multiple companies over several years, usually following a defined investment thesis.
SPVs are short-term structures. Investors typically see outcomes faster, depending on when the underlying asset exits.
Funds operate on a longer horizon, often 8–10 years, with capital deployed in stages and returns realized over time.
SPVs call all committed capital upfront before making the investment.
Funds use capital calls, drawing investor commitments gradually as deals are identified.
SPVs have simple legal and reporting requirements since they are focused on a single asset.
Funds have ongoing management, regulatory filings, audits, and reporting obligations.
SPVs are faster and cheaper to form, often used for one-off or sidecar investments.
Funds take longer to structure and maintain but are suited for institutional-scale investing.
A special purpose vehicle is a separate legal entity formed to hold a specific asset or make a defined investment. It allows companies or investors to isolate financial risk and manage ownership within a clear, limited-purpose structure.
A typical example of a SPV is a group of angel investors that may form an LLC to invest together in a single startup round. The SPV collects capital from each investor, makes the investment on their behalf, and later distributes any returns to its members.
The most common SPV structures include limited liability company (LLC) SPVs, limited partnership (LP) SPVs, corporate SPVs, trust-based SPVs used in securitization, and joint venture SPVs formed by multiple partners for a single project.
Yes. SPV (Special Purpose Vehicle) and SPE (Special Purpose Entity) typically refer to the same concept: a legal entity created for a defined purpose.
The tax treatment of an SPV depends on its legal structure and the jurisdiction where it is registered. In many cases, SPVs such as LLCs or LPs are treated as pass-through entities, meaning income and losses flow directly to the investors rather than being taxed at the entity level. However, tax rules vary by country, and certain structures or elections can change how the SPV is taxed. It’s best to review the specifics with a qualified tax advisor before setting one up.
Disclaimer
The information provided by E-List Technologies Pvt. Ltd. ("EquityList") is for informational purposes only and should not be considered as an endorsement or recommendation for any investment, product, or service. This communication does not constitute an offer, solicitation, or advice of any kind. Any products, or services referenced will only be undertaken pursuant to formal offering materials, agreements, or letters of intent provided by EquityList, containing full details of the risks, fees, minimum investments, and other terms associated with such transactions. Please note that these terms may change without prior notice.EquityList does not offer legal, financial, taxation or professional advice. Decisions or actions affecting your business or interests should be made after consulting with a qualified professional advisor. EquityList assumes no responsibility for reliance on the information/services provided by us.
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