A Type of Entity We Use in Every Deal and How to Use SPVs to Your Advantage

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So today I want to talk a little bit about SPVs. SPVs are good things. There are things with other initials that maybe aren't so good that sound similar, but an SPV stands for a special purpose vehicle. And a year or so ago, I was interviewing Gary V. And for my podcast and we were just kind of having a chat and I asked him a question. I always like to ask, what. What do you know now that you wish you had known when you first got started? And he had one of the best answers that I've ever gotten from somebody that, like, it just was, I guess, maybe just because it just resonated so well with me. And nobody talks about these. Like, I don't see people really talking about why you should use an spv. People talk about sometimes forming companies because companies can protect you from liabilities that your business starts. So it's good to not have a sole proprietorship or a partnership where the owners have unlimited personal liability, but it's good to have this entity that your business is operating at. And that's true. So I'm a big advocate of corporations and limited liability companies and all of those other things. Depending where you are, it might have a different name, but ultimately we're talking about what's known as limited liability entities. That means that the shareholders generally aren't liable for the debts of the business. Now, if the shareholders are responsible for doing something bad to people, then they may end up liable anyway. And different countries have rules about whether the company's solvent or bankrupt and all kinds of other stuff. But like, as a general rule, these limited liability entities protect you from the business stuff that goes on. So when we're looking to do any kind of deal, we use a limited liability entity for that deal. And. And the fact that we're using it for this special occasion, this deal that we're doing, or this transaction that we're contemplating that makes it a SPV or a special purpose vehicle. So it's really just a fancy set of words that attorneys and business people use to say this company, this corporation, this LLC is going to be used to do One thing, and the one thing might be broad, like we're going to distribute parts in North America, or it might be very specific. As it is for a lot of the deals that we do, like I'm going to build a house here, or I'm going to acquire this company, so I'm setting up a separate entity to acquire the company with. So that's what SPV is. If you go down to the place that forms companies like your secretary of State or company's house or wherever it is that you're going to get your company formed and you say, I need you to form me an spv, they're going to look at you like you're crazy. They're going to be like, I don't know what that is. We don't do that because they don't know. Right? They, that's not something that they're like. There isn't an SPV that you can form. SPV is the use to which you put an entity that you form. Okay, I hope that makes sense because a lot of people get confused with that. And it's really simple. It's just that you're using a limited liability entity like a limited partnership, an llc, an llp, a corporation, for the specific purpose of whatever it is that you're doing. In my case, it's usually we're building a house, we're acquiring property, we're acquiring a company, we are doing a consulting deal, something like that, we're doing a new deal, we're going into a new territory. Any of those kinds of things can be a good time to use an spv. So an SPV just protects you, your personal assets and your business assets from whatever liability might come out of a deal that you do. So let's talk about a couple of things that, that can help with. So let's say that you're acquiring a company. If you're acquiring a company, then you would typically form an SPV to acquire the assets of the company that you're forming now. It could also acquire the stock. But there's a big benefit to acquiring assets. When you acquire assets, you generally, as long as you're paying fair market value for those assets, you're not like paying nothing for them. But it might be a low amount, right? It's just the fair market value isn't that much. As long as you're paying the fair market value, then generally you are not liable for the debts of the company that you're buying those assets from unless there's specific liens against those Assets that, that have been recorded. Okay? So assuming that there's not a direct lien that's been filed against the asset of the company that you're buying, you buy those assets and then later an old employee comes back and says, I was sexually harassed, or some creditor comes back and says I'm still owed money or anything like that, then you are not going to have what's called successor liability. So that's really, really cool. Another would be you're using the SPV to acquire something and it's going to have seller financing or some other debt. So in that case, rather than you personally getting the loan or taking on this debt, the SPV is going to do that. And so if something happens so that the company acquisition doesn't work out like you planned, you're not going to be personally liable for it, which is really, really cool. So SPVs have really, really good uses there. That means you're not gonna lose your house, you're not gonna have them garnish your wages or your investments, or take your other assets to satisfy a claim against the spv. Similarly, if you've got a business, rather than doing everything in one entity that operates your business and makes profit, think about the possibility of using SPVs when you wanna do separate deals so that if those deals don't work out, not only will your personal assets be protected, but also the assets that are owned by your other company, your company, your business that's already making profit, that will not be subject to the claims of creditors for the SPV either. So that's a really, really important thing. As far as when you should do this. To me, it makes sense whenever you're doing anything that either a potentially creates personal or business liability exposure for you from the new thing that you're doing, meaning that you've got something that could generate any kind of liability from the operations of it, from what its employees do, from taking over things that you don't really know that much about because you haven't done a ton of due diligence and you can't possibly do enough anyway, maybe it's going to be doing an activity that could create liability like you're going to buy a racing team or you're making motorcycle helmets or something like that, or it's going to do debt. Right? Those are all great, great times to form when you're about to enter into those transactions. And it's really just a good habit to every time that you do a new deal, do it in a separate company. And then effectively every company you have becomes an spv. Now you might have a holding company that owns several SPVs, but you really want a separate one of those for each new deal, each new partnership, each new cap table that you're going to do. And then as far as how much it costs it, it's just the amount that it costs to form the entity. So however much it costs you to get your entity set up, you can go to an attorney, you can go online. We have a company called Prime Corporate Services that does it here in the United States. All of those places are places that you can get an SPV or an entity formed. You can go direct to the Secretary of State, companies house, wherever it is in your country, region, state or area and get them formed. And you're talking generally a couple thousand bucks between state filing fees and a professional, or maybe under a thousand if you are. If you're just getting it formed yourself. So definitely something to look into and a lot of really good benefits to using an spv. Remember special purpose vehicle? Hey, Gary Vee said it was saving tens of millions of dollars if this is something that he had known about when he was younger. So. So take a lesson from me. Take a lesson from Gary. Get an SPV formed. Whenever you're doing anything new.

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Listening to Business Lunch with Roland Fraser. If you're enjoying the show, let us know by subscribing and leaving a review. And for more information, go to businesslunchpodcast.com thank you for listening.

Foreign hey, quick question. Do you know someone who's looking to grow as a leader? Maybe their team is growing a little faster than they expected. Or maybe their new role requires them to work a little bit more through people. If the answer is yes, I want to recommend a new podcast by the Scalable Media network called Ready to Lead. It's hosted by Richard Lindner, one of Roland and Ryan's business partners, and Jeff Mask, who's one of the top executive coaches in the world. They cover tactical strategies on how to improve as a leader and also their biggest failures they've had throughout their career. You can find the show@readytolead.com or search for it wherever you listen to podcasts.

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