Special Purpose Vehicles
A Special Purpose Vehicle (SPV) is a term applied to a wide
range of companies, formed for the specific purpose of entering
into a financial transaction or series of linked transactions,
often as part of a financial restructuring within a multi-national
group of companies, for securitisation of assets or liabilities or
for tax-efficient structuring of a transaction.
An SPV is not a specific or unique form of legal entity and most
are structured using a normal company limited by shares, although
the ownership of these shares is often through an 'orphan'
vehicle. Certain transactions, where appropriate, may also be
structured through Companies Limited by Guarantee, Protected Cell
Companies or Incorporated Cell Companies.
The main benefit of using an SPV is as a means of ensuring that
the transaction(s) for which they are formed are safe from the
taint of any other previous or future unrelated transactions within
the same company.
Structuring an SPV
It is often the case that the structuring of an SPV transaction
requires that the SPV company has 'orphan status', meaning that
ownership of the company must be separate and distinct from the
other parties to the transaction.
The most common method of achieving this is for the shares to be
held by a Purpose Trust, which can be either charitable or
non-charitable under Guernsey trust law.
If deemed necessary, the objects set out in the company's
memorandum can be very specific and limited in terms of the type of
transactions permitted, the parties with whom the company may
contract and similar restrictions.
Although it is possible to alter the memorandum to vary such
restrictions, the need to do so can be avoided by care and
anticipation in its initial drafting.
If the transaction(s) to be undertaken will not generate any
surplus cash flow then it may be necessary to ensure adequate
initial capitalisation of the SPV company to cover its running
costs over its intended life, up to and including its eventual
Management and control of the SPV may need to be demonstrably
exercised from Guernsey in order to comply with any non-residency
qualifications in other relevant jurisdictions.
As long as the company does not derive income from Guernsey
real estate or have any beneficial ownership by a Guernsey
tax-resident individual, any profits arising from the company's
activities will be taxed in Guernsey at the standard rate for
companies, being 0%.
For further information please contact us