A special purpose vehicle (SPV) is a separate legal entity created to isolate risks and reallocate assets to investors. SPVs can be limited liability companies (LLCs) or limited partnerships (LPs).
Choosing the Right Structure
An LLC provides personal liability protection to each member even if dissolved or sued. Forming an LLC involves several steps:
- Choosing a unique name
- Drafting Articles of Organization with member information
- Creating an operating agreement outlining ownership percentages
- Obtaining appropriate licenses
Benefits of an LLC include limited personal liability for members and flexibility in management structure.
LPs have two types of partners, general and limited, with different liability levels. General partners have increased liability exposure compared to limited partners.
Investors in an LLC or LP can dictate desired terms like voting rights. Delaware laws provide default governance if operating agreements are silent. Both LLCs and LPs enable pass-through taxation.
Differences and Considerations
- Flexibility: LLCs accommodate more owners and management structures than LPs
- Personal liability: LLC members have limited liability while general partners in LPs can be personally liable
- Taxation: Single-member LLCs are taxed differently than multi-member LLCs and LPs
- Popularity: LLCs are much more widely used than LPs
It’s crucial to consider liability protection needs, ownership and management preferences, taxation, and compliance requirements when deciding between an LLC and LP. Consult an attorney to determine the best fit.
Limited Partnerships and Their Advantages
An LP might be better if you want passive investors or if you already have an LLC that will serve as the general partner and are not concerned about the liability of the general partner.
An LP is a solid choice for time-sensitive initiatives. For SPVs, LPs may not be recognized overseas. If you serve such countries, LLCs are better.
An LLP combines LLC benefits with those of a limited partnership.
Forming Your Business Entity
Since 1981, Harvard Business Services has helped form over 300,000 businesses. We’re here to help you form your Delaware LLC or LP. Give us a call or chat to get started.
An LLC combines corporate and partnership attributes. Each member has limited liability. LLCs can set governing terms in the operating agreement.
Why Choose an LLC?
Investors might prefer to become members of an LLC for its tax flexibility, operational efficiency, and liability protection. An LLP combines LLC advantages with a limited partnership, but an LLC can also protect partners from liability risks when operating as a partner in a partnership.