An SPV is a company designed for a single specific project by an entrepreneur; in other words, SPVs are project companies (hereinafter referred to as "SPV"). The abbreviation SPV comes from the English phrase "Special Purpose Entities" or "Special Purpose Vehicles", which translates to "special purpose companies".
At first glance, it might seem that establishing or purchasing a ready-made limited liability company (s.r.o.) for every project is financially and administratively inefficient. An entrepreneur must maintain separate accounting for each company, file tax returns, keep relevant records, handle administration, and so on. However, more sophisticated entrepreneurs think more comprehensively, and many CEOs see advantages and benefits in dividing projects among separate SPV companies.
Overview of individual project status: If your projects are divided into individual SPV companies, you can analyze their financial performance in a very clear way and practically at every stage of the project. This allows you to better predict project development, identify problem areas, and then react flexibly to emerging issues.
Separation of legal risks for individual projects: If an entrepreneur were to umbrella all their projects under just one company, it would mean that all "legal liability" for the projects would fall solely on that one company. Let's illustrate this with a very simplified example: imagine an entrepreneur has two projects: a construction company focused on development as Project No. 1, and simultaneously launches freight transport for construction companies as Project No. 2. As a developer, they purchase land for building a business center and finance the project through bank loans. The business is thriving, and the project is prosperous, with loan repayments being made smoothly. On the other hand, to launch Project No. 2, the freight transport, the same company took out another business loan to finance trucks. However, this business is not prospering and has been operating at a loss for several consecutive years. Over time, this project becomes unable to meet its obligations, which creditors begin to enforce. Project No. 2 starts to affect the otherwise successful Project No. 1 because creditors are trying to recover their claims, even through foreclosure on land belonging to Project No. 1. If the projects were legally separated by individual SPV companies, such an overlap of problems from one project to another would not occur, and Project No. 1 would never be jeopardized.
Development projects: For various development projects, banks require entrepreneurs to establish a new company, an SPV, for each project. If a development project were to be unsuccessful and "fail," the bank would have the option to complete the project, as all real estate and legal actions are defined precisely by this SPV company.
Protection of the parent company: By establishing an SPV company, the entrepreneur shields the parent company (the company that owns the project SPV) from risk, as a potential failure of the project SPV will not affect it in any way.
Easier exit or sale of a project managed under an SPV: Selling a business project managed under a single SPV is more attractive to an investor or buyer than if the entrepreneur had several projects managed under one company. Separating one project from another and then selling it is a complicated transaction from a legal, tax, and accounting perspective. In contrast, if a project is managed under a single SPV company, only the business share (stock, etc.) in that SPV company is transferred, which significantly simplifies the transaction and reduces transaction costs.
Possible zero tax burden when selling a project: When selling a project by transferring a business share in an SPV company, it is possible that, under certain legal conditions, the sale of the business share or stock in the SPV is completely exempt from income tax.
SPVs are often used by law firms, who gladly recommend SPV companies to their clients. Clients often need to set up their SPVs very quickly and often need them to already be VAT-registered companies. In such cases, it is advisable to use the services of purchasing pre-prepared ready-made s.r.o. | ready-made a.s. joint-stock companies and "shelf companies" (literally "empty shells"), which are ready for sale to clients. Entrepreneurs thus can have their SPV company ready for business, even as VAT payers, within a few days.
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