SPVs are a fantastic tool that can be built and tailored to nearly any private or alternative asset transaction.
Today we want to go over the steps for starting, managing and closing out your SPV.
Establish The SPV Manager
First, every SPV needs a manager. The manager is the party responsible for the SPV and is most often the person responsible for sourcing the deal and bringing in the investors. Think of the manager like a partner at a fund, only you are only the partner for this one specific deal.
At Syndicately we make it easy for individuals and entities to setup manager profiles in a few simple steps including KYC checks and linking of external bank accounts (to collect management fees and carried interest).
Setup the SPV Entity
To create an SPV you first need to setup an entity. SPVs are structured as non-operating LLCs and most commonly are setup in Delaware. Most SPVs have deal terms in them that are similar to a fund. Those terms are written into the operating agreement for the LLC which you as the manager establish, typically with the help for an attorney.
The operating agreement is a legal comment that describes how the SPV LLC will operate and often outlines the investment opportunity and terms of participation in the SPV for investors.
At Syndicately our team of experts will help get your SPV LLC setup and our SPV formation workflow makes it easy to set these terms and draft up an operating agreement that was built by a top tier law firm so you can setup your SPV with ease.
Get an EIN and a Bank Account
The next thing any SPV needs is a bank account for the SPV LLC. From a tax and accounting perspective it is vitally important that you keep a separate account which will result in clean and clear financials for you and your investors. To open a bank account in the U.S. you need an EIN number (Employer Identification Number) which is a tax ID similar to an SSN, only EINs are used to identify businesses and it is needed for a bank to be able to open an account on behalf of your entity.
The EIN is also how you will report the SPVs financial activity to the IRS and how your investors will record their investment and income/gains from the entity.
Similar to how we help our clients spin up their SPV LLC, we also help get an EIN number and open a business checking account for each SPV managed with Syndicately.
Sign Documents & Close
So your SPV is setup and a bank account is open, what’s next? Now you can begin to accept capital from investors into the SPV and close on your investment. At Syndicately we make it easy to track these investments and document them with a signed subscription document from each investor. The Sub Docs track the amount and how each investor is contributing to the SPV.
In the Syndicately deal management portal we make it easy to track each investors commitment and their subscription documents are tracked so you know who has signed and who hasn’t. When you’re ready to close, our automation takes over and handles all the financial transactions through to the SPV transferring funds to the target investment company.
Now your SPV is closed, there are plenty of things that still take place such as preparing and distributing tax forms (K-1s) and ongoing maintenance and communication around updates and activities with your target company and investors.
SPVs are a great tool to help investors and deal makers structure one off investments and tailor it on a deal-by-deal basis. Want to learn more about how Syndicately can help your and/or your organization simplify and streamline your private/alternative asset investing? Schedule time with a member of our team for a live demo at your convenience.