When considering the appropriate legal structure for a business or project, both limited companies and Special Purpose Vehicles (SPVs) are options to consider.
Each structure has its unique characteristics and suitability for specific circumstances.
In this article, we will compare limited companies and SPVs in terms of their legal structure and formation, purpose and scope, liability and risk, regulatory and compliance obligations, as well as flexibility and operational considerations.
Legal Structure and Formation
Limited companies and SPVs have different legal structures and formation requirements.
Limited companies are incorporated entities that are subject to the Companies Act and relevant company law. They have a distinct legal personality separate from their owners and shareholders.
SPVs, on the other hand, are created for specific purposes and are often structured as subsidiaries or separate entities within a larger corporate structure. The formation process for limited companies and SPVs involves meeting specific legal requirements and submitting necessary documentation.
Purpose and Scope
Limited companies are established for a wide range of business activities and purposes. They can engage in various industries and sectors, offering products or services to the market. SPVs, on the other hand, are typically formed for specific projects, investments, or transactions. Their purpose is often narrow and focused, serving as a vehicle to ring-fence risks or assets for a particular endeavour. SPVs are commonly utilised in industries such as property, infrastructure development, securitisation, or project financing.
Liability and Risk
One of the key distinctions between limited companies and SPVs is the liability and risk exposure. In limited companies, shareholders’ liability is typically limited to the amount they have invested or committed to the company. The personal assets of shareholders are generally protected from the company’s debts and liabilities.
In SPVs, liability is often limited to the assets held within the SPV itself, providing a level of risk isolation for the parent company or investors. However, it’s important to note that specific legal arrangements and obligations may impact liability and risk exposure in certain circumstances.
Regulatory and Compliance Obligations
Both limited companies and SPVs are subject to regulatory and compliance obligations, but the level and nature of these obligations may vary.
Limited companies must comply with relevant company law, file annual accounts, maintain proper records, and fulfil reporting requirements to the relevant authorities.
SPVs, depending on their specific purpose and activities, may have specialised regulatory obligations or reporting requirements. The level of scrutiny and transparency required for SPVs may differ based on industry regulations or investor requirements.
Flexibility and Operational Considerations
Limited companies generally offer greater flexibility in terms of operational structure and ownership. They can have multiple shareholders, issue different classes of shares, and adapt to changing business needs more easily.
SPVs, being more purpose-driven, may have limitations in terms of their structure and ability to alter the scope of activities. Operational considerations such as administrative requirements, governance structures, and ongoing management may differ for limited companies and SPVs.
The choice between a limited company and a Special Purpose Vehicle (SPV) depends on the specific circumstances and objectives of the business or project.
Limited companies provide flexibility, broader scope of activities, and operational adaptability, while SPVs offer risk isolation, focused purposes, and specialised structures for specific projects or transactions.
Understanding the differences in legal structure, liability, regulatory obligations, and operational considerations will help you better understand the choices. Always seek the advice of your accountant regarding establishing new companies or JV’s.
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1st Formations is the UK’s leading company formation agent.
Founded in 2014, they have formed over 1 million companies and assisted many thousands of clients to grow their business with expert advice on limited companies, reporting requirements, and corporate governance.
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