A Guide to SPV Formation, Governance, and Maintenance

What is a special purpose vehicle?

Definition and overview of SPVs

A special purpose vehicle (SPV), sometimes known as a special purpose entity (SPE), is a distinct legal entity typically established to mitigate risk from a parent company while enabling cross-border capital flows and investment opportunities. These vehicles facilitate private investors' access to new markets by structuring investments within an SPV or investment fund, managing liabilities in a tax-efficient and legally protected way.

Check out our SPV Global Outlook Report 2024 | Download

What’s the purpose of a SPV?

SPVs are designed to protect the parent company by legally separating certain risks, assets, or funds. This allows the parent company to carry out cross-border ventures in an efficient and structured manner without impacting its core operations.

What are the advantages of using a SPV?

SPVs come with many advantages such as isolating financial risk from the parent company, a crucial benefit when structuring an investment fund. Additionally, SPVs minimize tax leakage, facilitate off-balance sheet financing, and simplify cross-border investments and securitization.

How are SPVs used?

SPVs are often used in international transactions to manage asset securitization and structured finance transactions, project financing, and portfolio investments that allow businesses and investors to tap into global markets with reduced risk and enhanced capital mobility.

Typical private capital SPV fund structure

SPV activity types

SPVs are created for specific activities and are known by various names depending on their use:

• TopCo: The top holding company sitting under the fund or the acquisition deal sponsor or partner
• HoldCo: Intermediate holding companies
• BidCo: Set up to place a bid to acquire a company
• FinCo: Set up to finance an acquisition or transaction
• OpCo or PropCo: Operating or property company that holds the acquired asset
• ManCo: Manages the investments
• JVCo: A joint venture that allows the manager or company to partner with another party

SPV formation and legal structures

Where can SPVs be established?

SPVs can be set up in any country. However, there is more SPV activity in top financial centers including the U.S., the U.K., Ireland, Luxembourg, Singapore, the Netherlands, Jersey, and the Cayman Islands. Selecting the most advantageous jurisdiction for specific business requirements should take place in consultation with professional advisors, as each jurisdiction has local laws and regulations that must be carefully followed.

Read CSC’s “SPV Domiciliation” country-by-country guide for capital markets transactions | Download

What are the most common types of SPV formations and how do they differ?

There are four different types of formations typically adopted, each suited to different purposes:

• Corporations: A standalone legal entity deployed as an SPV or special purpose entity (SPE), often chosen for larger or more complex transactions. Offers liability protection but is subject to greater regulation and oversight.
• Trusts: Common in asset securitization, where trustees manage the assets for beneficiaries. Typically used for financial instruments like mortgage-backed securities.
• Joint ventures: Although not always considered an SPV, partnerships bring value to joint ventures where multiple parties share risks and rewards.
• Limited liability companies (LLCs): Provides a flexible structure with liability protection for its shareholders. This offers the benefits of a corporation, however there are still reduced formalities. LLCs are often preferred for their tax incentives and simplicity in management, allowing greater flexibility for investors.

Each structure offers different advantages in terms of liability protection, regulatory requirements, and flexibility, depending on the intended use and jurisdiction of the SPV. From a fund perspective, SPVs are tailored to meet the legal, tax, and operational needs of fund strategies. These SPVs are key for managing risk, asset oversight, and optimizing tax structures for investors.

Understanding jurisdiction differences is crucial. Learn more about our SPV Setup, Compliance, and Administration services | Read more

Orphan SPVs

What are orphan SPVs?

An orphan SPV is a legal entity that operates independently from the company that set it up, with ownership held by a third party, such as a trustee or a charitable trust. This makes the orphan SPV bankruptcy remote, ensuring that if the issuing company were to go bankrupt, the assets within the SPV and its cash flows are protected without being pulled into bankruptcy proceedings. Orphan SPVs are common in structured finance transactions.

What are the benefits of orphan SPVs?

Orphan SPVs provide a number of benefits in addition to bankruptcy remote status. Because the originator does not own or control the SPV, the assets and liabilities of the SPV are not included in its financial statements. This provides benefits including:

• Maintaining regulatory capital requirements, reducing leverage levels and isolating risk exposures
• Efficient transfer of assets
• Achieving a higher credit rating than its parent company, which can make it easier for the SPV to raise capital at lower costs
• SPVs with bankruptcy remote status can be incorporated in jurisdictions with more favorable tax regimes and regulatory burdens

How are orphan SPVs secure if the originator does not maintain control over them?

The legal owner of an SPV has a fiduciary duty to act in the best interests of the SPV and its investors. The legal structure of an orphan SPV is carefully designed to prevent a third party assuming direct control over the SPV or its assets.

Respected providers that act as trustees or holding companies, such as CSC, have a proven reputation based on years of providing SPV services. CSC has been named SPV Administrator of the Year for the past four years at the GlobalCapital European Securitization Awards.

We’re proud to share that CSC has once again earned this recognition—named SPV Administrator of the Year for the fifth consecutive year at the 2025 GlobalCapital European Securitization Awards.

Jurisdiction considerations when forming a SPV

The legal framework for establishing an SPV varies significantly across jurisdictions. Factors such as tax laws, regulatory requirements, and governance standards must be evaluated when choosing a location. CSC has specialized local expertise in more than 140 jurisdictions.

Learn more about CSC’s global presence | Read more

Some jurisdictions like Singapore, the Cayman Islands, and Luxembourg, are popular due to favorable tax regulations, legal flexibility, and minimal reporting requirements. For more information on the steps involved with setting up an SPV in some of the world’s most popular destinations, download CSC’s country-by-country guide here.

Six steps to set up an SPV

To form a special purpose vehicle, there are several important steps:

1. Choose a jurisdiction: Consider tax efficiency, regulatory environment, and compliance requirements.
2. Draft founding documents: Create the articles of incorporation or trust deed.
3. Raise capital: Secure equity from external investors or parent company.
4. Register the SPV: File with the relevant local authority.
5. Manage the SPV: Maintain ongoing oversight into the operational processes and governance protocols.
6. Comply with ever-changing local regulations: Ensure the SPV meets all governance and reporting obligations, including anti-money laundering (AML) and Know Your Customer (KYC) rules.

SPV compliance and due diligence

AML and KYC

It’s important for any SPV formation to implement a robust AML framework. AML rules were developed to detect and report suspicious financial activity to counter financing criminal or terrorism acts. Countries around the world have adopted and developed their own laws and regulations to prevent and detect financial crimes. They’ve also implemented sanctions to restrict or limit interactions with countries, entities, or individuals they believe threaten their well-being or otherwise engage in criminal or terrorist activities. SPVs must adhere to strict AML and KYC regulations to prevent these illicit activities and mitigate financial risk.

How are SPVs governed in key jurisdictions?

Here are some of the nuances across authorities in key SPV jurisdictions:

U.S.―SEC

The U.S. Securities and Exchange Commission (SEC) focuses heavily on investor protection, enforcing strict disclosure requirements for SPVs, particularly in securities and asset-backed deals. The SEC emphasizes strict transparency and detailed disclosure for investor protection.

U.K.―FCA

The Financial Conduct Authority (FCA) in the U.K. emphasizes transparency, mandating that SPVs comply with anti-money laundering laws, consumer protection, and market conduct rules.

Netherlands―AFM

The Netherlands Authority for Financial Markets (AFM) supervises SPV adherence to transparency and investor protection standards, and a key focus is market integrity. Third parties that provide trust services to SPVs are subject to the Supervision of Trust Offices Act (Wet toezicht trustkantoren, or Wtt) under Dutch Central Bank supervision.

Singapore―MAS

The Monetary Authority of Singapore (MAS) governs SPVs with strict AML and counter-terrorist financing (CTF) regulations, ensuring compliance with financial laws. MAS has stringent AML and CTF regulations in SPV financing. Its oversight ensures that SPVs adhere to high financial standards, promoting compliance in the Asia-Pacific market.

Hong Kong―SFC

Hong Kong’s Securities and Futures Commission (SFC) focuses on enforcing strong regulatory oversight, especially for SPVs used in structured finance and investment schemes. The SFC ensures that SPVs are up to the unique standards of its sophisticated financial market.

Luxembourg―CSSF

The Luxembourg Commission de Surveillance du Secteur Financier (CSSF) oversees SPVs with an emphasis on tax efficiency and compliance with EU-wide financial regulations, particularly for cross-border transactions.

The Cayman Islands—CIMA

The Cayman Islands Monetary Authority (CIMA) core responsibility is to maintain the stability and integrity of their financial system through robust regulation and supervision. CIMA’s framework ensures that SPVs meet the jurisdiction's globally recognized standards for transparency and governance, reinforcing its position as a leading offshore financial center.

Jersey―JFSC

The Jersey Financial Services Commission (JFSC) oversees SPVs with a strong emphasis on compliance with AML and CTF regulations. The JFSC ensures that SPVs operating within its jurisdiction adhere to the island’s high standards of financial transparency and regulatory governance, bolstering Jersey’s reputation as a premier international finance center.

Ireland―CBI

The Central Bank of Ireland (CBI) regulates SPVs with a rigorous approach to AML and counter-terrorist financing compliance, ensuring alignment with EU financial directives. The CBI’s oversight supports SPVs in adhering to Ireland’s robust regulatory framework, maintaining the country’s position as a leading hub for structured finance within the European Union.

Documentation and due diligence requirements

SPVs are required to maintain detailed records of ownership, financial transactions, and identification documents. Due diligence involves verifying the authenticity of these documents and regularly updating them as required by law.

Key documents SPVs are required to collate and maintain include:

• Proof of identity: Government-issued ID (passport, driver’s license) for individuals involved
• Proof of address: Utility bills, bank statements for verification
• Corporate documents: Articles of incorporation, certificates of incorporation for entity verification
• Beneficial ownership information: Details of all individuals with ownership control over the SPV
• Financial records: Bank account information, transaction histories
• Source of funds: Documentation showing the origin of the capital being used
• Risk assessments: Internal risk evaluation reports
• Contracts and agreements: Relevant shareholder agreements or financial commitments

Protecting against fraud

Compliance with AML and KYC helps safeguard SPVs from fraudulent activities. Regular audits, risk assessments, and reporting suspicious activities to authorities further strengthen fraud protection. Warning signs include:

• Unusual transactions: Watch for unusually large or frequent transactions that don't align with the SPV’s normal business activities.
• Inconsistent documentation: Look out for missing, incomplete, or falsified identification documents or financial records.
• Complex ownership structures: Examine layers of ownership or undisclosed beneficial owners, which can signal attempts to conceal fraud.
• High-risk jurisdictions: Review transactions and connected entities closely in jurisdictions with weak regulatory oversight.
• Sudden changes in activity: Be aware of abrupt shifts in financial behavior or account management, especially with offshore transfers.

Benefits and considerations for SPVs

When considering the use of SPVs, it's essential to understand the key benefits they offer alongside the potential risks. SPVs provide flexibility and financial advantages that can help companies manage complex projects, mitigate risk, and improve financing strategies. However, they also come with legal and financial considerations that must be carefully managed. Below, we explore the advantages of SPVs and how they function—from risk isolation to facilitating joint ventures, and improving tax efficiency.

• Risk isolation and mitigation: SPVs help isolate financial and legal risks from the parent company by creating a separate legal entity, a fundamental strategy that limits the exposure of the parent company or investors in case of project failure or liabilities. When third-party financing is being used for the acquisition of an asset, the lender will appreciate that the asset is held by an SPV and protected from default risk.
• Securitization of assets: SPVs allow companies to package and sell assets like loans or receivables to investors, with cash flows from these securities typically being used to support the repayment obligations of the SPV.
• Off-balance sheet financing: SPVs can help keep securitized assets off a parent company's balance sheet, improving financial ratios, and reducing capital requirements while allowing more flexibility in managing debt.

Webinar: SPV Benefits and Best Practices | Watch now

The benefits of outsourcing

SPVs are outsourced to specialists to enable greater operational efficiencies and risk management to help increase transparency. More than a third of respondents (35%) from our proprietary report, “SPV Outlook 2024: Charting the Course for Growth in Private Markets,” use SPVs to outsource solutions that expedite maintenance processes and reduce administrative burdens. Additional key considerations for outsourcing SPV compliance and administration include:

• Operational efficiency: Outsourcing SPV management can prove cost effective, and with specialized services and technology, all data and compliance requirements are kept up to date. Additionally, service providers have access to systems and processes for overseeing cooperate governance and financial reporting in house.
• Deep specialization: Drawing on broad expertise and experience managing complex regulatory landscapes, expert providers handle the administrative, reporting, operations, and compliance duties connected with maintaining SPVs. These include, but are not limited to, acting as registered agent, maintaining corporate records, bookkeeping, coordinating audits, and cash management.
• Risk management: Using internal processes and audit protocols, service providers can ensure they maintain oversight of SPVs, including any financial, regulatory, legal, and tax implications.
• Enhanced decision making: Outsourcing enables managers to focus on investment strategies, investor relations, and portfolio management instead of daily administration.
• Administrative relief: Reducing the burden of tasks such as bookkeeping, administering transactions, and management reports, where providers ensure all documents are updated and accessible, is another advantage of outsourcing.
• Flexibility and scalability: Scaling their business operations is easier for managers, as SPV service providers can manage increased complexity and volume, resulting in less pressure on processes and internal resources. This also enables greater flexibility to respond to constant shifts in regulatory environments.

Learn more about the benefits of outsourcing, operational efficiency, and regulatory compliance for SPVs from our webinar, “Optimizing Cash and Expense Management for Private Capital SPVs” | CSC.

Project-specific financing

SPVs are often used for single, well-defined projects, like infrastructure or real estate, making it easier to manage financing and risk independently of the parent company’s core operations. This provides greater flexibility to invest in specific assets that otherwise would have proved difficult to manage via the main fund, allowing for more opportunities while still pursuing the main investment strategy.

Tax efficiency

By setting up a holding or financing SPV in a particular jurisdiction, investors and managers can pay less tax on returns and dividends based on international tax treaties. When considering onshore vs. offshore, managers need to balance tax planning with investor requirements. Additionally, performance-based structuring management fees allow fund managers to reduce the overall tax burdens for multinational companies.

Facilitating joint ventures and partnerships

SPVs simplify collaboration between multiple parties by providing a structured entity that manages shared ownership, liability, and profits for joint ventures. This enables clearer governance and accountability among partners.

SPV deployment—the diverse uses of SPVs

SPVs for real assets

SPVs are widely used in real estate and infrastructure to manage individual properties or portfolios while isolating risks and liabilities. By housing an asset within an SPV, the parent company can protect itself from legal, financial, and operational risks tied to a specific property or development project.

SPVs in real estate are deployed in several ways:

• Property development for large real estate projects to separate financing and manage liabilities
• Property companies to buy and hold properties
• Joint ventures by investors to collaborate, simplifying ownership and profit-sharing structures
• Real estate securitization to bundle real estate assets into securities for sale to investors; this allows for mortgage securitization that covers both residential and commercial real estate

SPVs for private equity

In private equity, SPVs play a crucial role in structuring investments, managing risks, and optimizing returns. By using SPVs, private equity firms can streamline complex transactions, isolate liabilities, and enhance the flexibility of their investment strategies.

Key uses of SPVs in private equity:

• Portfolio company investments: SPVs are frequently deployed when acquiring or investing in a portfolio company, particularly within an investment fund structure. This allows private equity firms to ring-fence each investment, shielding the broader fund from specific project risks. By housing individual investments within SPVs or SPEs, firms can efficiently manage ownership structures, governance, and potential exits.
• Leveraged buyouts: SPVs are essential in executing leveraged buyouts, where a significant portion of the acquisition cost is financed through debt. The SPV holds the acquired company, ensuring that debt obligations are tied solely to the target business rather than the private equity fund itself. This structure minimizes risk exposure and maximizes return potential.
• Venture capital investments: Venture capital firms often use SPVs to pool investor funds for specific startups or early-stage businesses. This simplifies the investment process, enabling streamlined capital deployment while isolating financial risks. SPVs also enhance investor transparency, providing clear ownership and performance reporting.
• Waterfalls and profit distribution: Private equity funds leverage SPVs to implement profit distribution mechanisms like waterfalls. An SPV can be structured to facilitate the precise allocation of returns based on agreed performance benchmarks. This ensures a fair and transparent distribution of profits among investors, aligning with carried interest and preferred return structures.

Read CSC’s “Distribution Waterfalls 2024” report. Distribution Waterfalls 2024: Transparency, Technology, Trust | CSC

SPVs for asset management

SPVs within asset management are essential tools required to support investment strategies, enhance returns via cost and tax optimization for investors, and mitigate risks. An asset manager could use an SPV to help identify and manage risk with specific projects or assets.

Asset managers are also empowered to structure investments in a way that meets specific objectives and comply with regulatory requirement demands while maintaining operational efficiency.

SPVs for asset isolation and risk management

Asset managers can use SPVs to analyze and isolate an asset, or group of assets, from a legal entity. This enables specific investments to be made that won’t increase operational risk or hinder the main fund’s balance sheet. Additionally, SPVs can be formed as a legal barrier when separated from the parent company and investors, protecting them from liabilities and possible losses if there are market fluctuations.

SPVs for investment structure customization

SPVs enable asset managers to forge greater investment opportunities with bespoke capabilities, like altering the asset class exposure and their risk threshold. This allows asset managers to leverage investment strategies. For example, in private equity, an SPV might be used in project finance to allow greater borrowing power of capital to invest in a company, thereby creating further return on investment opportunities for investors.

SPVs for co-investment opportunities

Asset managers can create a specific investment vehicle for selected investors to provide the capacity to invest alongside a main investment strategy or fund. This affords the flexibility for joint ventures and partnerships with more collaboration between investors and shared ownership structures.

SPVs for regulatory efficiencies

SPVs can be domiciled in locations that offer advantageous regulatory efficiencies, that would allow asset managers to reduce tax liabilities for investors and provide greater asset class exposure. However, they must still comply with international tax laws to avoid legal issues.

SPVs for multinational corporations

For multinational corporations, SPVs are essential tools for managing complex global operations and establishing a global footprint. They provide a way to streamline cross-border investments, isolate risk, and comply with varying international regulations. Managing the compliance of multiple SPVs is a key for multinationals. Demands for enhanced reporting and increasingly more granular data, as well as new frameworks such as the environment, social, and governance, have combined to create a much more sophisticated setting as well as additional risk for managers. Managing SPVs has become more complex and more challenging and this is where technology can help.

SPVs for securitization, asset-backed securities and collateralized debt obligations

SPVs are widely used in structured finance transactions, allowing companies to create new securities that can be marketed and sold to investors. Typically structured as orphan SPVs controlled by an independent corporate trustee, these SPVs have bankruptcy remote status meaning they are unaffected by the financial position of the originating company.

SPVs for project financing

SPVs are commonly used in project finance deals to help structure, simplify, and manage large-scale projects.

By creating a separate legal entity for the project, SPVs help mitigate potential risks related to construction, operations, and market fluctuations that are contained within the SPV. By structuring in this manner, potential liabilities that could impact the parent company or other stakeholders are reduced, minimizing the impact on the parent company if a project enters financial difficulties or defaults.

SPVs allow for more flexible financing structures, enabling the project to access different sources of funding, including equity, debt, and grants, much like an investment fund would. An SPV can secure loans based on its project’s expected cash flows, rather than those associated with its parent company. This makes it easier to negotiate favorable terms with lenders and allows for the creation of different tranches of debt with varying risk profiles, appealing to a broader range of investors.

SPVs also help simplify projects with investment and revenues generated separated from its sponsor.

Read CSC’s “Project Finance Report 2024” | Download

SPVs for restructuring

SPVs may be required in complex restructuring, bankruptcy, and insolvency proceedings for a variety of reasons, including the formation of a new company.

Firms may consider using SPVs to relocate their center of main interests (COMI). This allows them to shift their company to a country with more favorable insolvency laws, where a restructuring process may be simpler, more efficient, or more beneficial to their interests. This SPV would become the main entity for the restructuring process, however, firms must demonstrate a genuine operational presence in the desired jurisdiction, ensuring the courts in that jurisdiction can justifiably claim authority over the insolvency proceedings.

SPVs can also be used in restructurings to protect critical assets, including intellectual property, real estate, or specific business units, where an SPV prevents them being liquidated or affected by credit claims. Where a firm has specific liabilities, such as distressed debt or risky ventures, these can be placed into SPVs to isolate these liabilities with the aim of streamlining the restructuring of its core business.

SPVs may also be used in restructuring proceedings for other reasons, including to shield healthy parts of a business from bankruptcy proceedings, to facilitate asset sales, to manage debtor-in-possession financing, and to facilitate creditor settlements. Legal counsel is highly recommended before engaging in any SPV origination for these purposes.

SPVs for reinsurance

SPVs are used to facilitate the transfer of risk from insurance companies to the capital markets. By pooling insurance risks and issuing catastrophe bonds or other securities, insurers can offload certain risks to investors. This allows insurers to free up capital, manage their risk exposure, and ensure greater financial stability.

CSC’s SPV services

CSC provides end-to-end SPV services, from initial setup to ongoing management, we offer a comprehensive suite of solutions to support you every step of the way. With specialist experience in more than 140 jurisdictions, we ensure you receive expert local services for SPV management across all asset classes. Explore our range of SPV services:

• SPVs for fund administration
• SPVs for capital market transactions
• SPV Setup, Compliance, and Administration services

FAQs

• What are the common legal structures for SPVs?
  SPVs are typically structured as corporations, limited liability companies, trusts, or partnerships, depending on the legal and tax requirements of the jurisdiction.
• What governance rules apply to SPVs?
  SPV governance involves establishing a clear management structure, investment strategy, regulatory compliance, financial reporting, oversight, and decision making, often outlined by the jurisdiction's corporate governance laws.
• Why is governance important for SPVs?
  Effective governance ensures accountability, risk management, and regulatory compliance, protecting both investors and the parent company. This is especially crucial for SPEs operating across multiple jurisdictions.
• How do legal structures impact SPV operations?
  The legal structure affects liability, taxation, and the regulatory framework the SPV operates within, shaping how it conducts business and reports financials.
• Can SPVs operate in multiple jurisdictions?
  Yes, SPVs can be set up in one jurisdiction but conduct business across others, though they must comply with local regulations in each area. This can lead to increased complexity, due to the multiple layers of regulations put into place within these structures, ranging from the fund level to the SPV level, to the actual investment itself. Each of these subsequently may result in further complexity as each location may have certain regulations to comply with.

Make sure you read our “SPV Global Outlook 2024” report.

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