• Hong Kong
  • UK
  1. Osome Blog Singapore
  2. A Guide to Setting Up a Special Purpose Vehicle Entity

A Guide to Setting Up a Special Purpose Vehicle Entity

You are probably not familiar with creating a Special Purpose Vehicle (SPV) for your company structure if you have not been into the finance or real estate sectors before where SPVs are typically used.

Well, there are some ways having an SPV will help in your business journey and this article should give you more information on what an SPV is, if you should consider using it, and how to start one.

What is a Special Purpose Vehicle?

Simply put, having a Special Purpose Vehicle allows your company to go into higher-risk projects such as investments, certain business transactions, separate projects, mergers, acquisitions and more.

An SPV is a separate legal entity created by your parent company and is usually in the form of a private limited company in Singapore. It has its own assets, liabilities and balance sheets that are not linked to the parent company. When you create an SPV, it works as any normal company would.

Vincent is a new business owner with a startup company - Vincent Consultants. He decides to use an SPV for his investments and to attract new investors. It was all going well for the past few years. However, in the past year, Vincent realises that his company business is going downhill and he may need to close down. In Vincent’s case, even if Vincent Consultants goes bankrupt, the SPV, although affected, can still carry on running and will still be under Vincent’s name.

Protection against bankruptcy is one of the main advantages of using an SPV in Singapore for foreign companies as well. An SPV is set up in Singapore, so as to ensure that the business in Singapore can continue even if the parent overseas company faces any problems.

When is an SPV a good idea for new business entrepreneurs?

Tips for pitching to investors.

As you prepare for your pitch, figure out which investors to contact and what points to cover. Understand what phase of development your startup is currently in.

In the last few years, it has been getting really popular for startups to create an SPV to help with company financing. Using an SPV can help the parent company attract investors to invest funds and receive equity when investing in the startup. What this means is that the SPV is used as an investment vehicle where investors pool their money. That sum of money is then used to invest in the parent company or in other ways.

Some investors or sponsors who do not want to take on a lot of risks can have the other option to fund the SPV instead of the parent company, as the amount needed will be lower compared to funding the parent company.

If you are just starting out in your company formation and need an easier and more secure way to gain funding, you may consider using an SPV to attract more risk-averse investors.

What should startups look out for when using a Special Purpose Vehicle?

Like all businesses, there are risks involved. This is also true for SPVs, as the financial details and condition of the SPV may not be included in the parent company’s balance sheet.

If you are an entrepreneur, be honest in your balance sheet statements for your SPV. This would help you gain trust from investors, and in the long run, attain more funding for your startup.

If you choose to close your SPV, the parent company will have to take back the assets, which will involve substantial costs for you. The parent company’s balance sheet will also be affected.


Things investors should look out for when investing in a Special Purpose Vehicle

For investors, one important risk factor to keep in mind is that you may not be getting the entire view of the company’s financial situation. Less seasoned investors are more likely to fall into the trap of investing in the wrong company or SPV, resulting in huge cash loss.

One significant example of the misuse of an SPV is Enron Corporation, in 2001.

  • Enron Corporation was an up and rising energy company;
  • Its stock price was rising too fast;
  • Enron then transferred the majority of its parent company’s stock into an SPV;
  • The SPV was used to hedge assets that were on the parent company’s balance sheet;
  • The stock price of the parent company dropped;
  • So did the value of the SPV;
  • Enron owed huge sums of money to creditors and investors;
  • This resulted in the bankruptcy of the company.

What you need to create an SPV

1. Decide if an SPV is right for your business structure

Firstly, you should ensure that your business structure is right to form an SPV. Some points to look out for include:

  • You are a startup business and need funding.
  • Your investors are more likely to pool money and receive equity in a less risky manner.
  • You want to use your SPV as an investment entity.
  • You want to reduce financial risk for your parent company.
  • You do not want to deal with numerous investors from your parent company.
  • You want to protect your intellectual property rights.
  • You wish to hold real estate property as assets under the SPV to save on taxes.

2. Incorporation of your SPV

Usually in Singapore, an SPV is structured as a Private Limited Company. This means that it should follow the usual practices and limitations as a normal PTE LTD Company. If you’re unsure on incorporation steps, we can help you with registering a company in Singapore.

3. Create a company constitution

The company constitution is a document stating the company’s regulations, purpose, business structure, functions and specifics. Just like how you would register your parent company, all information about the structure of your SPV should be listed clearly.


Although creating a Special Purpose Vehicle has its benefits, especially for new startups companies, it does have its limitations as well. If you, as an entrepreneur, are just starting out and are still unclear on the implied risk, it will do you good to study more on the risks involved before diving into creating an SPV for your parent company.

However, if you are looking to first register a new company in Singapore, feel free to drop us a question! We help with company incorporation for foreign investors and the local ones and are also able to help with accounting matters!

Share this post:

Tips to run your business smarter.
Delivered to you monthly.

You'll receive a verification email you'll have to open and confirm the subscription.

You might like it


How To Upsell to Your E-commerce Customers

We are inundated daily with countless ads throughout our day, both online and offline. As an e-commerce store retailer, one of the challenges that you may face is trying to get your products and message across to prospective customers.


Types of Business Models for E-commerce

If you are planning to start a new e-commerce business venture, this is the best time to do it! For seasoned business owners who are thinking of diversifying their business into e-commerce, you are at the right place.


An E-commerce’s Checklist To Prepare for 2021 Holiday Sales

Although the sales period will mean that your customers’ shopping carts will be busier, this also brings about its own set of challenges for your online business. Follow our holiday season checklist to ensure your business is well equipped for the shopper surge.


What Important Records Must I Keep As A New Business Owner?

Good business record keeping is crucial, from managing costs for legal, regulatory or tax reasons to simply managing and improving your business. If you are just starting up your business, it might not be the first thing that comes to your mind, but it can help you build a strong foundation.

Running My Business

3 Things To Consider Before Renting Your First Office Space

If you have always been working from home for your small business and are contemplating moving to a bigger space to accommodate your staff and to have a central office location, you may be looking out for office spaces to rent.


Digital Payment Trends For E-commerce Sellers To Know

Today, consumers are switching from traditional payment methods, such as cash, cheque and cards to digital payment. The global pandemic has fuelled this unprecedented shift in the consumer’s behaviour.


Creating an Invoice When Selling on Amazon

This article helps Amazon sellers who are finding out how to create, access and share invoices on Amazon.


12 Ways To Drive More Traffic to Your Online Store

When your website is finally live, you want to share it with as many people as possible. How do you get people to your website and excited about your products and shop from your store?

Government Grant

Wage Support & Rental Relief for Businesses in Singapore’s Stabilisation Phase

Tighter COVID-19 restrictions will be implemented from 27 September to 21 November 2021. Find out what support SG companies can receive from this Stabilisation Phase.


A Design Guide for E-commerce Websites

If you’re looking to improve your e-commerce page and improve sales, you might want to learn the fundamentals of how to design a good website.

Entrepreneur's Bootcamp

Best Practice Invoicing Tips for SMEs

This article will help Singapore-based SMEs get to grips with the best invoicing practices. Take a look at the tips and how-tos to guide you toward being more streamlined and savvy.


Which Is The Better Payment Gateway: Paypal or Stripe?

As an e-commerce business owner, you would have heard of payment gateways PayPal and Stripe. With these two big platforms being the most popular online payment gateways, you may face a dilemma when it comes to deciding which payment gateway to use.

Tips to run your business smarter. Delivered to you monthly.

You'll receive a verification email you'll have to open and confirm the subscription.

We’re using cookies! What does it mean?