The fifth step in the capital-raising SPV investment lifecycle is opening a bank account.
Even though it isn't required by law, most capital-raising SPVs will need to consolidate the funds from their investors to a bank account before they transfer these funds to the target company or complete the asset purchase.
Opening up a bank account for an SPV
It's not as simple as going to your local bank branch and showing your driver's license, then filling out an application for a bank account. To open a bank account to fund your capital-raising SPV, you will need to prove that you are a legal entity. This includes entity documentation, entity creation certificates, and entity EIN numbers.
Setting up a bank account for your special purpose vehicle (SPV) is an important step in establishing the financial infrastructure of your business. Here is a general guide to help you set up a bank account for your SPV:
- Obtain an EIN: To set up a bank account for your SPV, you will first need to obtain an Employer Identification Number (EIN) from the IRS. This is a unique number assigned to a business for tax-filing and reporting purposes. You can apply for an EIN online, by fax, or by mail.
- Gather documentation: Once you have an EIN, you will need to gather documentation to open the bank account. This will typically include the EIN, the articles of incorporation or formation for the SPV, and any other required documentation by the bank.
- Choose a bank: Select a bank that suits your needs and preferences. You may want to consider factors such as fees, convenience, and any additional services the bank offers.
- Complete the application: Once you have chosen a bank, you will need to complete an application to open a bank account. This typically involves providing the bank with your personal and business information and the required documentation.
- Provide the necessary information and sign documents: After submitting the application, the bank will require you to provide more information and sign various agreements. You'll need to fill out signature cards, deposit agreements, online banking agreements, among others
- Fund the account: After the bank account is set up, you will need to fund the account. This can be done by making a deposit, transferring funds from another account, or both.
Differences between opening an account for an SPV vs a traditional company
There are a few key differences between opening a bank account for a Special Purpose Vehicle (SPV) and a traditional company:
Purpose: SPVs are created for specific, limited purposes, such as raising capital or holding assets, whereas traditional companies are created for ongoing business operations. Banks will take the SPV's specific purpose into consideration when assessing risk and determining the type of due diligence that should be performed.
Ownership and control structure: SPVs typically have a complex ownership and control structure, and may be owned by multiple investors or other entities. Banks will need to identify and verify the beneficial owners of the SPV, as well as understand the ownership and control structure in order to assess risk. This might not be needed for a traditional company, where usually the ownership and control structure is clearer.
Compliance requirements: Due to the heightened risks associated with SPVs, banks may need to conduct additional due diligence, KYC and compliance checks compared to a traditional company. Banks may need to ensure that the SPV is in compliance with all relevant laws and regulations, such as anti-money laundering (AML) and counter-terrorism financing (CTF) regulations.
Accounting: The bank account of an SPV is also typically used for a specific purpose such as, funds collection and disbursement, and is often set up as a custodial account, where the bank holds assets on behalf of the SPV. A traditional company might require other type of account like Checking or Saving accounts for different purposes.
Compliance requirements for opening a bank account for an SPV
There are a number of compliance requirements that must be met when opening a bank account for a Special Purpose Vehicle (SPV). These requirements generally include:
KYC (Know Your Customer) and AML (Anti-Money Laundering) regulations: Banks are required to verify the identity of the SPV and its beneficial owners, as well as conduct due diligence to ensure that the SPV is not involved in any illegal activities.
Entity documentation: Banks will typically require the SPV to provide documentation such as articles of incorporation, formation certificates, and any other relevant documents that prove its legal existence.
Tax information: Banks may require the SPV to provide its Employer Identification Number (EIN) or other tax identification number for tax-filing and reporting purposes.
Beneficial ownership documentation: Banks will require the documentation of the beneficial owners, who should have the control of the structure.
Agreement Signing: Banks will require the SPV to sign various agreements, including deposit agreements, online banking agreements, and others.
Additional compliance regulations: Banks may also be subject to regulations specific to the country, such as regulations related to the protection of customer funds and the prevention of terrorist financing.
Due diligence and KYC procedures that banks perform on SPV account holders
Due diligence and Know Your Customer (KYC) procedures are important steps that banks take to ensure compliance with anti-money laundering (AML) and counter-terrorism financing (CTF) regulations. These procedures help the bank to identify and mitigate the risks associated with its customers, including those associated with special purpose vehicles (SPVs).
Identification and verification: Banks will typically require the SPV to provide information that allows them to identify the entity and its beneficial owners. This may include documentation such as articles of incorporation, formation certificates, and other identifying information. Banks may also verify the identity of the SPV and its beneficial owners through electronic means or by contacting them directly.
Risk assessment: Banks will conduct a risk assessment of the SPV to determine the level of risk it poses and the type of due diligence that should be performed. This may include an analysis of the ownership and control structure of the SPV, its purpose, and the nature of its business activities.
Beneficial ownership identification: Banks will want to identify the natural person that ultimately own or control the SPV, and might require information regarding the identity and background of these individuals, including passport, ID or other identification and proof of address.
Compliance with regulatory requirements: Banks will need to ensure that the SPV is in compliance with all relevant laws and regulations, such as AML and CTF regulations. This may include checks for sanctions lists, PEPs and other regulatory requirements.
Ongoing monitoring: After opening the account, the bank will conduct ongoing monitoring of the SPV’s account activity to detect any suspicious or unusual transactions.
How to manage and administrate an SPV bank account
Managing and administering a bank account for a Special Purpose Vehicle (SPV) can be a complex process, but there are a few key steps that can help ensure that the account is properly managed and administered:
Establish a bank account signatory: Appoint one or more individuals who have the authority to access the bank account, and conduct transactions, such as signing checks, making deposits, and transferring funds. This person will be responsible for signing checks, and taking decisions related to the account.
Keep accurate records: Keeping accurate and up-to-date records of all transactions made through the SPV's bank account is essential. This includes maintaining records of deposits, withdrawals, wire transfers, and other transactions, as well as any fees and charges that may be associated with the account.
Review account activity regularly: Regularly review the account activity to ensure that all transactions are legitimate and in line with the SPV's purpose and business. This can help detect any suspicious or unusual activity and take appropriate action.
Ensure compliance: Banks have an obligation to comply with laws and regulations related to anti-money laundering (AML) and counter-terrorism financing (CTF), and it is important that the SPV is also compliant with these regulations. Perform regular reviews to ensure compliance and seek professional advice when needed.
Fund management: Proper fund management ensures that the SPV's bank account has enough funds to cover its expenses and obligations. Also, it's important to ensure proper segregation of assets and liabilities of the SPV.
Close or dissolve the account: When the SPV reaches the end of its lifespan or when it's no longer needed, it's important to close or dissolve the account properly, including notifying the bank and clearing any outstanding balances.
How to close or dissolve an SPV bank account
Closing or dissolving a bank account for a Special Purpose Vehicle (SPV) can be a complex process, and it's important to follow the proper procedures to ensure that the account is closed or dissolved correctly. Here are a few steps to consider when closing or dissolving an SPV bank account:
Notify the bank: Contact the bank where the SPV's account is held and inform them that the account is to be closed or dissolved. The bank will provide you with the necessary forms and instructions for closing or dissolving the account.
Clear outstanding balances: Before closing or dissolving an account, all outstanding balances should be cleared. This includes any fees, charges, or penalties that may be associated with the account, as well as any outstanding transactions.
Update registration documents: if the SPV is legally registered entity, make sure to update any registration documents with the relevant authorities to reflect the dissolution of the entity. This might include cancellation of business licenses, tax registration etc.
Cancel any recurring payments: If there are any recurring payments that are still set up, make sure to cancel them before closing the account.
Properly document the closing process: Create a record of the closing process including all actions taken and any correspondence with the bank.
Follow up with the bank: After the account is closed, confirm that the bank has processed the account closing properly and that there are no additional charges or outstanding balances on the account.
Review any other financial responsibilities: Check if the SPV has any other financial responsibilities such as loans, leases, or other obligations that should be settled before dissolution.
Streamline Your SPV Setup with Syndicately: Avoid Delays and Surprises with Our Bank Relationships
Syndicately has established relationships with banks that can and will support capital-raising SPVs. Syndicately will help you set up and manage your SPV. This will save you the frustration of having to wait for your SPV to be activated at the bank account setup stage. It can also prevent you from unpleasant surprises in the future.
You now have created your SPV bank account, and you can onboard investors.