In the U.S., a Special Purpose Vehicle (SPV) is a legal entity created for a specific, limited purpose, often to isolate financial risk. This structure is commonly used in real estate investments, securitization, and structured finance transactions to ring-fence assets and liabilities.
It is different from a joint venture as an SPV is a single-entity financial structure created for a specific purpose. On the other hand, a joint venture is a collaborative business arrangement where multiple companies share risks, resources, and strategic objectives.
In the United States, SPVs are typically formed as a limited liability company (LLC) or a limited partnership (LP). The traditional way for VC firms to set up a special purpose vehicle in the U.S. is by creating an LLC SPV—a legal entity formed with the sole purpose of making an investment in a private company.
A foreign individual or entity can incorporate a SPV in the US. However, they may structure their SPV that meets their tax & business objectives. For example, a foreign investor may structure their SPV as LLC in the U.S. For income tax purposes, an LLC is a “flow-through” entity; in general, this means the members who own the LLC report their share of the LLC’s income and expenses on their personal or corporate income tax returns.