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A Special Purpose Vehicle, also known as a Special Purpose Entity, is a subsidiary set up by the parent firm to protect itself from financial risk.
This subsidiary is a legal entity in its own right, with its own financial statements.
Bankruptcy Remote Entity is another name for SPV. The SPV will not have any bankruptcy responsibilities towards itself if the parent business goes bankrupt.
It can be used to take on a risky venture while minimising the financial impact on the parent firm and its investors.
Isolation from bankruptcy, financial risk mitigation, convenience of conducting business, and capital raising are just a few of the advantages of SPVs.
Before investing, investors should examine the financials of parent firms and SPVs.