What are the main advantages of using a Special Purpose Vehicle (SPV)?

Advantages of Special Purpose Vehicle (SPV) The biggest advantage of SPV is that it helps in separating the risk and freeing up the capital. As a result, the SPV and the sponsoring company are protected against risks like insolvency, which may arise during the course of operation. The SPV also allows securitisation of assets without disturbing the managerial relationship. Under the arrangement, any predictable income stream generated by secure assets can be securitised. Ownership of Assets - An SPV allows the ownership of a single asset often by multiple parties and allows for ease of transfer between parties. Minimum Statutory Requirement - Depending on the choice of jurisdiction, it is relatively cheap and easy to set up an SPV. Clarity of documentation - It is easy to limit certain activities and to prohibit unauthorised transactions within the SPV documentation. Tax benefits - SPVs are often used to make a transaction tax efficient by choosing the most favourable tax residence for the vehicle. SPVs are method of financial engineering schemes which have as their main goal, the avoidance of tax. Some countries have different tax rates for capital gains and gains from property sales. Legal protection - By structuring the SPV appropriately, the sponsor may limit legal liability in the event that the underlying project fails. Accounting Reasons - Debts raised through SPV are not reflected in the balance sheet of the sponsor. It reflects a pleasant picture and enhances the debt raising ability of the sponsor. Losses incurred by SPV are not shown in the balance sheet of the sponsor, so it helps to maintain a healthy picture of the sponsor in the eyes of its stakeholders. The key advantage is that it helps in separating the risk and freeing up the capital. As a result, the SPV and the sponsoring company are protected against risks like insolvency, which may arise during the course of operation. The SPV also allows securitization of assets without disturbing the managerial relationship. Under the arrangement, any predictable income stream generated by secured assets can be securitized.