Many people do not understand what it means by the term Special Purpose Vehicle (SPV) in relation to companies and assets. Some even think it is a type of a car that is designed to perform some special purposes like the military. Do you know what it means by Special Purpose Vehicle?
A Special Purpose Vehicle is also known as Special Purpose Entity (SPE) or Bankruptcy Remote Entity whose operations are limited to the acquisition and financing of specific assets for companies that seek their services.
The Special Purpose Vehicle (SPV) is often a subsidiary company with an asset or liability structure as well as with legal status that makes its obligations secure even if the parent company goes bankrupt or gets massive losses to the point of collapsing. You can as well say that this is a company within a company that is solely purposed with coming to the rescue of the parent company in the case where the parent company runs in a financial crisis.
SPV is a legal entity that is often limited to a company of some type or, sometimes a limited partnership that is created to fulfill narrow, specific or temporary objective to a given company.
A Special Purpose Vehicle, SPV is typically used by companies to isolate the firm from financial risk especially during some hard economic times. These SPVs are commonly used to hide debt or inflating profits, hide ownership as well as obscuring relationships between different which are in fact related to each other.