What is an SPV company and what is its purpose?
Author of the article: JUDr. Jakub Dohnal, Ph.D., LL.M., ARROWS advokátní kancelář (office@arws.cz, +420 245 007 740)
Have you come across the abbreviation SPV and wondered what is hidden under those three letters? Then you've come to the right place - below we'll explain what the abbreviation SPV stands for, how it relates to companies and what the purpose of SPV is.
What is an SPV?
The abbreviation SPV stands for the English term Special Purpose Vehicle, i.e. translated into Czech - special purpose vehicle. At first glance, it may not seem like a term that is closely associated with commercial companies - but the opposite is true.
SPV companies are those companies that are established for the purpose of carrying out a specific project. The founder of an SPV company is usually another, 'master' company which, as a matter of prudence, does not want to take on the increased financial risk of high-cost, high-risk projects. This specific type of company is also widely used abroad (see e.g. What is a Special Purpose Vehicle? (SPV) or What is an SPV? ).
What can an SPV look like?
An SPV company has its own organisational structure through which the company is run and managed. This organisational structure depends on the legal form of company you choose for your particular SPV company.
The most common legal form in which SPV companies are set up is that of a limited company. This form is mainly used because of the relatively simple and not significantly costly incorporation procedure. You can find out how to set up a company and what documents you need to prepare in our next article here.
Where is the SPV used and what are the advantages?
SPV companies are most often used in the context of development projects, because the financial risk associated with the project is borne by the SPV company alone. This company also manages all the processes associated with the project itself, independently of the founding company. Thus, the assets of the founding company are not at risk and even if the project does not turn out well, the financial situation of your founding company is not affected. The main advantages of SPV companies are thus the separation of financial risk from the founding company and the direct, independent management of the company for a specific project.
An SPV company is thus a practical tool with which you can independently manage especially large, financially demanding projects without worrying about the financial impact on the founding company.So if you are thinking about implementing a larger project but are worried about the financial risks for your company, setting up an SPV company could be a good solution for you.
If you are hesitant about whether setting up an SPV company is suitable for your project, or if you have already decided to set up an SPV company but don't know how to go about it, don't hesitate to contact us - our experts can help you assess whether your chosen solution is suitable and help you set up an SPV company, or help you find another, more suitable solution.