SPV Creation

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Step-by-Step Guide to Create an SPV

You have decided to proceed with an SPV for your next investment project. What’s next? You need a professional team to create and manage the SPV for you. SPV Hub is a unit of SPV Specialists in CA constructing the most advanced and efficient SPVs.

What is an SPV?
Special Purpose Vehicles (SPVs) are legal entities created with the purpose of undertaking a special project. The ultimate motive behind the establishment and existence of Special Purpose Vehicles is to fulfil a specific project. This form of financial tool is used for Scaling and funding your business as it comes with tax benefits and the advantage of minimizing financial risk to the parent company. An SPV has its own assets, liabilities, and balance sheet making it feasible to isolate the financial risk.

The first Step is to Set up an entity under the chosen legal structure

The formation of an SPV requires legal expertise. The first step toward creating an SPV is to decide the type of legal structure you want to opt for. It is preferred to set up an SPV as LLC or LP as these two bring on board the benefits of flexibility, cost-efficiency, and personal liability protection, but you can also form it as a Trust or Partnership.

Choose between an LLC and LP
The type of legal structure for SPV Creation that you choose at this stage plays a pivotal role. Often, our new members wander and find it hard to choose between an LLC and an LP. It is important to understand the difference between these two as the structure of the SPV depends on it.

Limited Liability Company (LLC) and Limited Partnership (LP) both come up with the advantage of Liability Protection for the members but there is a minor difference. In the case of LP, there are two types of partners – General Partner and Limited Partner. A General Partner oversees the day-to-day operations of an SPV and makes crucial decisions. Whereas, a Limited Partner doesn’t have such authority. We all have heard of the saying that with more power comes more responsibility. In the case of LP, in exchange for the power, a Limited Partner gains the benefit of Limited Liability. And a General Partner is held personally liable for debts and obligations of an SPV.

An LLC grants the benefit of Limited Liability to all of its partners. This means a partner is not held personally liable for the debts and obligations of the SPV. For management purposes, an LLC can be maintained by either of the elected member or by a manager. Often Investors prefer LP over LLC to attain the role of a passive investor. This can be achieved in the case of LLC as well by simply opting for manager-managed LLC.

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The second Step is to Coordinate with the registered agent

A Registered Agent is a person who sends and receives the legal documents on your behalf. While deciding the structure of the Legal Entity, the location of the entity is also decided. An SPV doesn’t require a physical office. Thus, it is advisable to register the entity in a tax-friendly state such as Delaware or Wyoming.

Federal Law states that an LLC requires to nominate a registered agent resident of the selected state. For a non-resident-owned business, team SPV Hub appoints a professional registered agent to take care of process and compliance paperwork.

Special Purpose Vehicles Development

Third Step - Manage and Supervise Documentation

Third Step – Manage and Supervise Documentation
Understanding in terms of constructing a house, till the second step your SPV entity is just base. It is the third step when SPV Development actually begins. The documentation determines what your SPV stands for. Three essential pieces of documents specifying the direction of your Capital raising SPV are –

  • Operating Agreement
    The agreement signed by members and investors describes their respective relationship to the SPV. This is where the acting member is elected and gains the authority to make decisions. 
  • Private Placement Memorandum (PPM)
    In order to make an informed conclusion, this memorandum is drafted empowering the Manager to take the decision. It contains a set of rules and data to be considered before making a judgment.
  • Subscription Agreement
    Investors commit and declare that they are providing the funds for the particular project. The subscription Agreement is the paperwork for the same.

    The set of the above-mentioned documents defines the behavior and actions. For eg., the agreement suggests that the investors will receive the reports quarterly. To stand to the commitment, someone on the administration and accounting side must be working on reports every quarter.

    At SPV Hub, a professional legal team is appointed to draft the agreements meeting your requirements. The proficient professionals hold expertise in building agreements for Startup fund management and capital raising SPVs.

Fourth Step - Acquire Employer Identification Number (EIN) from IRS

Employer Identification Number (EIN) is another essential document for setting up SPV. It is generally required on two events – to open a bank account for the entity (which is our next step) and to file taxes. Every investment is made with the motive of revenue generation.

Whenever your Special Purpose Vehicle makes money, the taxation step gets into the role and mandates EIN. Further, after filing taxes the K1 forms are delivered to the investors.

SPV Specialists at SPV Hub take care of every compliance and administrative activity on every step. We will compose the mandated forms and submit the same to IRS to keep your SPV in the good books.

Final Step - Almost Done with the Account Opening Process

Before proceeding with the asset purchase, all the funds must be placed at one point. This is where the bank account for your SPV is used. Opening a bank account for an SPV is not as uncomplicated as showing up at a branch with the basic documents. It should be considered, that not all banks hold the expertise of setting up and maintaining an account for a capital raising SPV.

You don’t need to distress as the SPV Specialists at SPV Hub have the required connections and know-how to get things done.

The documentation prepared in Step 1, Step 3, and Step 4 will be used to present the legal existence of your SPV. Once the documentation procedure for account opening is complete, your capital raising SPV is all set.

The process of Special Purpose Vehicles Creation goes through the above-mentioned stages. Our expertise is not limited to creation, rather our SPV Specialists are well-versed in the administration and management of your SPV. Check our Services to know more.

SPV Hub is ready to do all the complex paperwork for you. Start building an SPV with SPV Hub today!

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