A Special-Purpose Vehicle, or SPV is a subsidiary of a company which is bankruptcy remote

from the main organisation (i.e. protected even if the parent organisation goes bankrupt). The
actions of a SPV are usually very tightly controlled and they are only allowed to finance, buy and
sell assets.

Special Purpose Vehicle (SPV) is a legal entity created for a specific purpose.
In the context of raising capital, a SPV (usually structured as LLC) can be
used as a funding structure, by which all investors (or investors under a given
investment threshold) are pooled together into a single entity.

Why are the SPV costs variable?

The Special Purpose Vehicle costs $2,110 to set up. The variability arises
because the SPV Manager passes through the costs of making the applicable
Blue Sky filings, described below. Some states, like New York, do not have a
Blue Sky filing fee. Other states, like Arizona and California do have filing
fees. The SPV manager passes through the associated costs of filing in those
states.
A Special Purpose Vehicle (SPV) is a legal entity created for a specific
purpose. In the context of raising capital, a SPV (usually structured as LLC)
can be used as a funding structure, by which all investors (or investors under
a given investment threshold) are pooled together into a single entity.

Special Purpose Vehicles – Pros & Cons:

Pros & Cons of using Special Purpose Vehicles*Although this table doesn’t
represent all the benefits or drawbacks of using an SPV, these are what we
believe to be the most pertinent for many companies to consider when
deciding whether to utilize one in connection with their raise.

Why are the SPV costs variable?

The Special Purpose Vehicle costs $2,110 to set up. The variability arises
because the SPV Manager passes through the costs of making the applicable
Blue Sky filings, described below. Some states, like New York, do not have a
Blue Sky filing fee. Other states, like Arizona and California do have filing
fees. The SPV manager passes through the associated costs of filing in those
states.

Example 1

SPV with 10 investors, all of whom are from NY would cost $2,110. This is
because New York does not charge any Blue Sky filing fees. Therefore, there
are no Blue Sky pass through costs added to the base SPV fee.

What are Blue Sky Filings?

Although the Security Exchange Commission (the “SEC”) is the main enforcer
of securities laws in the United States, every state also has its own set of
securities laws. Those state laws are commonly referred to as “Blue Sky
Laws”, and are designed to protect investors against fraud. Requirements
vary state-by-state. Typically, however, “Blue Sky Filings” refer to a
company’s obligations under state law to file notice of their offerings if offering
their securities in a particular state.

Who takes care of Blue Sky Filings?

For investors investing through the SPV, the fund manager takes care of the
applicable Blue Sky filings. For investors investing directly, the Company has
the obligation to do so, and you should consult with your lawyers on your
obligations.

What if we set up an SPV, but only one or two investors invest in it?
We get it – you can’t read the future, and we aren’t going to force you to keep
an Special Purpose Vehicle if only one or two investors come in through the
SPV. If that happens, we’ll talk to you toward the end of your campaign, and
work with your investors to instead invest directly and re-execute their offering
documents.

Does SeedInvest have a preference as to whether we use an SPV for our

raise?
No – SeedInvest is SPV-agnostic. We view the decision to use or not use an
Special Purpose Vehicle in your raise as a business decision that the
company should make based on their circumstances. You may wish to consult
with your lawyer to determine which route would work best for you.

Can I use a Special Purpose Vehicle for a Regulation CF or Regulation A+

raise?
No. Per regulatory restrictions, only Regulation D raises can utilize SPVs at
this time.

https://www.youtube.com/watch?v=y8YmrAmx4TU
PV (special purpose vehicle) is a company registered in in Hong Kong as a subsidiary
established to run as a means of securing assets of the mother company if it faces
bankruptcy. They help to protect a project or entire business from insolvency problems
or establishing leases that are credited on the income statement as opposed to being
reflected as a liability on a balance sheet. Accordingly, you can use the SPV for
scrutinizing assets, establishing joint ventures, and isolating corporate assets. Think of
SPVs as an ordinary company that follows all the regulations during establishment, but
the main shareholders include the parent company.
The main reason why investors select Hong Kong as the ideal place to run their SPVs is
that it has a very favourable tax regime. Besides, it has ratified a number of tax treaties.
If you are considering opening a business in Hong Kong, this will be a great option,
and it is wise to take a deeper look at its advantages.
SPECIAL PURPOSE VEHICLES IN HONG KONG
SPVs in Hong Kong can take the form of a partnership, corporation, or even trustee.
However, the selected form must meet the following criteria.
1. It must be fully or partially owned by a non-resident in Hong Kong.
2. The special purpose vehicle must be registered outside Hong Kong.
3. It does not engage in other activities or trading apart from holdings.
4. It must not be registered as an excepted private liability company.
An SPV can be established to hold and administer the investor’s excepted private
company from Hong Kong Special Administrative Region. If the company has been
incorporated outside Hong Kong, it is advisable to look for expert advice from experts.

OFF-BALANCE SHEET AND ON-BALANCE SHEET

SPVS
Off-balance-sheet SPV
This type of SPV records its assets, equity, and liabilities on its individual balance sheet
as opposed to the parent company balance sheet as debt or equity. Many parent
companies prefer using this arrangement for better management of assets and
liabilities.
Off-balance-sheet special purpose vehicle helps to cover/mask important information
from investors who do not understand the complete financial status of a company. As
an investor, it is important to take a deeper look at the parent company information and
that of the SPV before making a decision to invest in a company. If you do not carry a
comprehensive review of all the assets, there is a risk of suffering a problem similar to
the Enron’s financial collapse.
On-Balance Sheet SPV
Unlike the off-balance special purpose vehicle, the off-balance SPV puts the assets,
liabilities, and equity on the liability side of the company balance sheet. Many
companies prefer the off-balance sheet SPVs because of the following;
 The level of risk is brought down by the arrangement.

 It keeps the funding costs as low as possible.

 As a stand-alone, the financial flexibility is higher.
 The parent company can secure higher credit rating.
 Better asset and liability management.
 It can be used to keep down regulatory capital requirements and for trust on
preferred securities.
Some of the key examples of SPVs include;

WHO CAN USE SPVS?

It is a general practice for banks, institutions, and business owners to use SPVs.
Because SPVs can assist to improve financial management by enhancing your tax
efficiency, many foreign companies prefer them to enhance their position locally and
internationally. However, you need to be aware of the capital gains tax depending on
the location of the SPV.
FII (Foreign Institutional Investors) use SPVs to get access to investment opportunities
abroad. This method is applied when the target country has closed the door to FII. For
example, some countries close FII from some countries or cap their investments.

Governments used SPVs through agreements via private sectors to realize faster
growth and stay away from red tape. By using SPVs, governments can fast track
projects and conclude them without interference from the established agencies.

Some examples of SPVs include:

ENRON’S SPVS
Before its collapse, Enron transferred its fast rising stock to an SPV and got a note or
cash in return. The respective special purpose vehicle used the transferred stock as
hedging asset that reflected on the company’s balance. Then, Enron guaranteed the
SPV total value as a method of keeping risk low.
When the stock prices started going down, together with the value of SPV stock, the
guarantees had to be forced into play. Enron found it difficult to clear the amount owed
to creditors and investors, resulting in the infamous financial collapse.
While the company fully disclosed the financial info as well as conflicts of interest arising
from the balance sheet between the company and SPV, few investors comprehended
the gravity of the problem. This culminated to the disastrous ending.

LUXOR CAPITAL SPV

Around March 20165, Luxor Capital (A Hedge Fund of $3.8 billion) announced it would
put 4-illiquid securities (about 12% of investment) in an special purpose vehicle. The
securities included exposure in the food delivery service, Delivery Hero (a private equity
investment) and Ascent Resources (a drilling company) and Altisource Asset
Management.
After months of losses, the fund started returning the remaining 88% of the investor
money. The remaining will be cleared after the illiquid investments are sold off.