SPV (Special Purpose Vehicle): a special purpose company for your projects

A Special Purpose Vehicle (SPV) is a company established for a clearly defined purpose – typically to implement a specific project or investment. Why should entrepreneurs and investors be interested in something like this? Imagine that you are planning a bold project with high costs and risks. Instead of risking your entire existing business, you can create a separate SPV company and isolate the risk. An SPV acts as a protective shield: it separates the finances and assets of the main (parent) company from the risks associated with the project. In this article, we will explain in simple terms how SPVs work, why they are used in practice, and when they are worthwhile. You will also learn about specific examples of use, from start-up investments to development projects and asset protection. Finally, we will summarize the advantages and risks of SPVs and add practical tips on what to look out for when setting up and operating an SPV. The article is written in a professional but accessible language, tailored directly to you – so that you can make informed decisions with regard to your business goals, needs, and any concerns you may have.

Author of the article: ​ARROWS (MUDr. Kateřina Müllerová, office@arws.cz, +420 245 007 740)

What is an SPV company?

SPV (Special Purpose Vehicle) literally means a means for a specific purpose. In business, this refers to a purpose-built company, usually initiated by another “parent” company. An SPV does not have a universal business plan – it is created exclusively for a single project or purpose. Legally, financially, and in terms of ownership, it is an independent entity with its own structure and accounting. This means that an SPV is not merely a division or branch of your company, but a separate company (typically a subsidiary) that stands outside the balance sheet of the parent company and operates independently. The aim is to ensure that any profits or losses associated with the project remain “locked” within the SPV and do not undermine the financial stability of the founder or other companies in the group.

How does an SPV work in practice? When establishing an SPV, you choose the appropriate legal form – most often a limited liability company (LLC) due to its simple and relatively inexpensive establishment. However, it is not a special type of company under the law, but rather a designation of purpose. An SPV has its own management and executives who manage the project independently of the parent company. It only carries out the activity for which it was established and must not mix anything outside this framework into its activities – this preserves its “purity” for the given purpose. SPV financing can come from the parent company (e.g., share capital or a loan), from external investors, or from a bank loan. It is often banks that require the establishment of an SPV when financing a larger project – they want to be sure that the borrowed funds are used only for the project in question and can be covered by specific assets of the SPV. Ideally, an SPV operates completely independently: if the project is successful, the profit goes to the investors in the SPV; if the project fails, the parent company does not lose its other assets.

When are SPVs used in practice?

SPVs are used in a wide range of situations where it is necessary to separate a particular activity from the rest of the business. Below are the most common examples of SPV use – you may recognize some of them:

• Investments in startups and businesses: In venture capital and angel investing, SPVs are often used for capital pooling. Instead of dozens of investors entering a startup individually, an SPV is established, into which everyone invests money, and the SPV then makes a single joint investment in the target company. For investors, this means a simpler structure – they ultimately appear as co-owners of the SPV, which holds a stake in the startup. Such an “investment vehicle” allows smaller investors to acquire a stake in the company, and the startup founder deals formally with only one shareholder (the SPV). A similar principle is used for funds or real estate projects on investment platforms, where the SPV oversees the investment and distributes the returns to the shareholders.
• Development and construction projects: Real estate development is one of the most common uses of SPVs. For example, if a developer plans to build an apartment complex, they will establish a separate limited liability company (SPV) for this project. They will transfer the land to it and finance the construction through it. Construction risks – such as budget overruns or unsuccessful sales – then only affect the SPV, not the developer's other projects. In the event of a problem, only this SPV would go bankrupt, while the parent development company would continue to operate. SPVs in development also simplify investor entry (they can acquire a share in a specific project) and make it easier to secure financing from a bank for a specific project (the bank has the SPV's assets as collateral without touching the parent company's assets).
• Project financing and infrastructure: For large infrastructure projects (e.g., construction of a highway under a PPP, power plants, solar parks), it is customary to establish an SPV as a project company. For example, multiple partners enter into a joint venture, and each has a share according to their investment. The SPV then enters into contracts and assumes the project's obligations, such as bank loans or guarantees to the state. Sharing a single SPV allows the risk to be spread among the partners and financing entities. It also provides clarity: all project income and expenses flow through the SPV, which facilitates control and evaluation of the project's finances. If the project is successful, the partners share the profits from the SPV; if not, the losses are limited to the capital invested and the assets of the SPV.
• Asset protection and business diversification: Entrepreneurs sometimes set up separate companies for different parts of their business. This spreads the risk – problems in one area do not threaten other assets. An SPV is a good option if you are planning to expand into a new field or project with an uncertain outcome. For example, you run an established company and want to try a new innovative service. Instead of running it under the original company, you set up an SPV and test it there. If it doesn't work out, the parent company will not suffer any losses. An SPV also helps maintain secrecy – you can hide a new project in an SPV with an inconspicuous name, making it difficult for competitors to discover what you are working on. Last but not least, an SPV can also be used for purchases and sales of assets: for example, if an investor buys real estate for renovation and sale, they can hold it in an SPV and then sell the entire company directly. This avoids certain real estate transfer taxes – only the capital gain from the sale of the share in the company is taxed (in some cases, after a certain period of ownership by a natural person, there is even an exemption from income tax).

Diagram: Common reasons for creating an SPV. From the examples above, you can see that SPVs are usually established either to share risk with other investors, to separate and finance assets (e.g., securitization of receivables or loans), or to facilitate the transfer or sale of assets for tax optimization purposes. In short, an SPV is a practical tool – it allows entrepreneurs to pursue bold plans that they might not otherwise dare to undertake, and gives investors the opportunity to participate in specific projects without affecting the founder's other businesses. It is therefore no surprise that the use of SPVs is growing worldwide; for example, the Carta platform reports that the number of newly established SPVs between 2019 and 2024 increased by 116%.

Advantages of SPVs for entrepreneurs and investors

The creation of a special purpose vehicle brings a number of advantages that may be very attractive to you as an entrepreneur or investor:

• Separation and limitation of risk: The main benefit is that the risk of the project remains with the SPV. Your parent company and personal assets are therefore not threatened by the failure of the project. An SPV acts as a “bankruptcy-proof” entity – if the SPV project fails, the rest of the group survives. The reverse is also true: if your main company gets into trouble, the projects in the SPV continue to run smoothly.
• Easier financing and investment sharing: Thanks to SPVs, you can involve other investors in the project, either in the form of capital contributions or loans. SPVs allow you to share the risk with partners – everyone invests only what they are willing to risk. In addition, banks and financial institutions often prefer to finance individual projects through separate companies so that they have clear collateral (the SPV's assets) and can easily take control of the project if problems arise. This can increase the chances of obtaining a loan or investment for an ambitious project that would not otherwise be possible without a separate structure.
• Independent management and flexibility: In an SPV, you can set up your own team and processes dedicated to the project. You don't have to burden the parent company's structures – the SPV operates independently, quickly, and agilely, focusing solely on its purpose. You will appreciate this if the parent company has corporate bureaucracy or a different culture. An SPV gives you the opportunity to build a “startup within a corporation” with its own budget and decision-making. This increases the chances of innovation and project success.
• Protection of know-how and competitiveness: As mentioned above, an SPV can be used to keep upcoming projects confidential. You can hide new ideas, prototypes, or acquisitions behind an inconspicuous entity so that your competitors will not immediately recognize your plans. If the SPV does not use a clearly traceable name or link to your group, it can remain out of the spotlight until the project is launched. This strategic anonymity can give you a head start.
• Tax and legal optimization: An SPV can also be established in other jurisdictions or structured to take advantage of a more favorable tax regime. For example, international investors sometimes locate SPVs in countries such as Luxembourg because of lower income taxes. Some transactions can also be handled more efficiently through an SPV—for example, the aforementioned sale of real estate in the form of a sale of the company rather than the property itself can save on taxes and fees. An SPV also facilitates the transfer of a project—when you want to sell a project to a strategic investor, you simply sell them the SPV's shares, and they take over the entire project “package” at once.

Disadvantages and risks associated with SPVs

Although SPVs offer attractive advantages, it is fair to mention the possible pitfalls and risks. What should you watch out for?

• Higher administrative burden and costs: Setting up and operating a new company involves additional paperwork, legal and accounting obligations. You have to keep accounts, file tax returns, and monitor compliance with legal obligations separately for the SPV. This costs time and money (notary, fees, accounting, etc.). A general disadvantage of SPVs can therefore be higher administrative costs. For smaller projects, a separate company may not be economically viable.
• More difficult access to financing for SPVs: A newly established SPV has no history or rating, so it can be difficult to obtain a loan in its name alone. In practice, banks often want the parent company to guarantee the loan or provide collateral. However, this partially negates the advantage of risk isolation—if you have to guarantee the SPV's debts personally or with your company's assets, creditors can still come after you if the SPV fails. Investors may also perceive SPVs as less trustworthy than established companies, so the cost of capital (e.g., interest or investor share) may be higher. In short, an SPV does not have the same creditworthiness as its sponsor (founder).
• The need to adhere to purpose and rules: An SPV must not become a “dumping ground” for problems or a tool for fraud. As the Enron case warns, misuse of SPVs to hide debts or manipulate accounts can have fatal consequences. Regulators and investors therefore now carefully monitor whether SPVs are actually serving their stated purpose and whether any liabilities are hidden off the official balance sheet. If you use an SPV illegitimately (e.g., transferring losses to it just to improve the parent company's results), you expose yourself to legal penalties and damage to your reputation. Also, be careful not to mix activities – SPVs should not engage in activities other than those for which they were established. Otherwise, the isolation may be broken (known as piercing the corporate veil, where a court declares that the SPV is only a formal entity and transfers the liabilities to the founder).
• Less control (for founders) and liquidity (for investors): If you allow other investors or partners into the SPV, you must expect that you will not have the same level of control as before. In a joint venture, decision-making powers are shared according to shares or contracts. This can lead to disputes if roles and rules are not clearly defined. For smaller investors, a stake in an SPV may be more difficult to sell (illiquid), especially if it is not a publicly traded company. Investing in a specific project through an SPV is usually long-term and it is not easy to exit before its termination unless you find a buyer for your stake.
• Negative perception and regulatory uncertainty: Some famous scandals (such as Enron) have cast a bad light on SPVs. Investors may be cautious when they hear that a company has many off-balance-sheet entities. It is therefore important to communicate transparently why you are setting up an SPV and what its links are. Legislation is also evolving—changes in accounting rules or laws may restrict the use of SPVs or make them less advantageous. What applies today (e.g., tax advantages in a particular country) may not apply in a few years. This must be taken into account in the long term.

Practical advice for establishing and operating an SPV

If you are considering using an SPV for your project, here are some practical recommendations you should keep in mind:

1. Assess the usefulness of an SPV: Not every project requires its own company. Consider the cost-benefit ratio – for a small project, it may be better to implement it under an existing company to save on administration. On the other hand, an SPV is often a suitable solution for larger and riskier projects. As a general rule, whenever you are planning a new project with significant costs, external financing, or increased risk, it is worth considering an SPV.
2. Involve experts and plan the structure: It is wise to consult with a lawyer and tax advisor at the initial stage. They will help you choose the optimal legal form for the SPV (limited liability company, limited partnership, foreign entity, etc.) and establish relationships with the parent company or investors. Contractually address issues such as profit sharing, financing, liability for obligations, and decision-making mechanisms within the SPV. Good preparation of the corporate structure prevents disputes and confusion in the future.
3. Ensure separation and transparency: Once you have established the SPV, maintain strict separation from your main company. Do not unnecessarily link assets or liabilities – ideally, the SPV should have no liabilities other than those related to the project. All transactions between the parent company and the SPV must be conducted under market conditions and be properly documented. Separate accounting is a matter of course. This will ensure that in the event of an audit (or, God forbid, a legal dispute), you can argue that the SPV was indeed an independent entity. For investors, the advice is: always review the SPV's financial statements before investing in a project – you should not rely solely on the health of the parent company. Caution pays off so that you have a clear picture of what you are investing in.
4. Secure financing and consider guarantees: Clarify how the SPV will be capitalized. Sufficient initial capital or initial investment from partners will increase the credibility of the SPV. If you are planning a bank loan, negotiate terms that minimize the need for guarantees from the parent company. Sometimes this is not entirely possible, but even partial guarantees limited to specific assets are better than a blank promissory note for the entire parent company. Remember that the purpose of an SPV is to protect you – do not undermine this advantage with unnecessary guarantees. If you have to provide a guarantee, consider alternatives (e.g., a higher own contribution, inviting an investor, etc.).
5. Plan the SPV's life cycle: Keep in mind that an SPV is not immortal. It is intended to serve for the duration of the project. Think about your exit strategy at the outset: What will happen to the SPV once its purpose has been fulfilled? Will it cease to exist (liquidation, deletion from the register)? Will you sell it along with the project to a strategic investor? Or will you keep it for further phases? Each option has legal and tax implications. For example, dissolving a company requires a liquidator and some time. Selling it may have tax implications (as mentioned above). If you know in advance where the SPV is headed, it will be easier to make decisions during its operation.

Conclusion: Is an SPV worthwhile, and what next?

An SPV can be a powerful tool for entrepreneurs and investors to realize big plans with limited risk. It allows you to embark on projects that you would not otherwise dare to undertake, whether due to concerns about the company budget or the need to involve more partners. At the same time, it provides a clear framework for financing and managing the project, which banks and investors will also appreciate. However, like everything else, SPVs have two sides to them. You need to take into account a certain amount of additional complexity and make sure that the SPV actually does what it is supposed to (and nothing more). If you are considering setting up an SPV for your project, talk to experts – an experienced lawyer or financial advisor will help you set everything up correctly from the outset and point out any potential pitfalls. They will also be happy to advise you on whether an SPV is really worthwhile in your specific case or whether there are simpler ways to achieve your goals. Remember, this is your business and your investment – it pays to take the time to think things through and consult with experts. Good luck with your bold projects – and may your SPV serve you well!