What is a Special Purpose Vehicle?
A Special Purpose Vehicle (SPV) is a legal entity that is created for a specific, limited purpose, such as owning a particular asset or undertaking a specific project. SPVs are commonly used in financial and corporate transactions to isolate and protect the assets and liabilities of the underlying business from the rest of the company, or from the investors' other investments. By creating an SPV, the sponsoring company can limit the financial risks associated with the project or asset, as well as achieve tax efficiencies, regulatory compliance, and other benefits. SPVs are often structured as limited liability companies or partnerships and are subject to specific legal and accounting requirements. So how does special Purpose Vehicles relate to Asset Tokenization?
An SPV can be used for asset tokenization by creating a separate legal entity that represents ownership of the underlying asset or assets, such as real estate, artwork, or other investments. The SPV issues digital tokens that are backed by the asset, which can be bought, sold, and traded on a blockchain-based platformThrough this process, the asset is effectively "tokenized" and broken down into smaller, more liquid units, which can be easily traded and exchanged. The SPV provides legal and regulatory compliance, and helps to ensure that the ownership of the asset is clearly defined and recorded on the blockchain. Tokenizing assets in this way can help to unlock liquidity, reduce transaction costs, increase transparency, and broaden access to investment opportunities, particularly for retail investors who may not have had access to such assets before.
Consider a business looking to expand and needs to raise capital to fund its growth. This could include the creation of a new Business Division, a move into a new market, or simply an expansion of current operations.The business could create an SPV and tokenize its equity ownership in the SPV to raise capital from investors.The benefits for Investors could then be:1. Access to new investment opportunities that previously may have bee inaccessible due to high costs or regulatory restrictions2. Fractional ownership that can allow investments of smaller capital and thus higher potential of portfolio diversification3. High liquidity as the tokens may be tradeableThe benefits for the Business could be:1. Access to capital from a larger pool of investors than would have been the case through traditional fund raising methods, thus helping in accelerating the business´s expansion plans.2. Reduced dilution: By raising capital through an SPV, the business can avoid issuing new shares of stock that can dilute the ownership stake of existing shareholders.3. An SPV provides a clear legal and regulatory framework for the investment, which can help in mitigating risk and ensure compliance with relevant laws and regulations. This can be particularly important for businesses operating in highly regulated industries, or for those seeking capital from a global pool of investors.
1. Define the business expansion plan: The business should define its expansion plan and determine the amount of capital required to fund it.2. Create the SPV: The business creates a separate legal entity, an SPV, for the specific purpose of raising capital to fund the expansion. The SPV is legally separate from the original business and can be structured as a limited liability company or partnership.3. Transfer the ownership of the business: The business transfers some or all of its ownership to the SPV, which then issues tokens that represent ownership in the SPV and, by extension, the underlying business.4. Create a token offering: The SPV creates a token offering that is marketed to investors. The offering should include information about the SPV, the underlying business, and the terms of the investment, including the number of tokens being offered and the price per token.5. Launch the token offering: The token offering is launched, and investors can purchase the tokens using cryptocurrency or other forms of payment. The tokens are recorded on a blockchain-based platform, which provides transparency and ensures the ownership of the tokens can be easily transferred.6. Use the capital to fund the expansion: The capital raised through the token offering is used to fund the expansion of the business.7. Generate revenue and increase the value of the business: The business generates revenue and increases its value, which in turn, drives the value of the tokens. As the business grows and becomes more profitable, the value of the tokens increases, and investors are able to realize a return on their investment.8. Provide a means for investors to sell their tokens: At some point in the future, the business may choose to buy back the tokens from the investors or provide them with a means to sell their tokens to a third party.
Brickken provides a top-class Token Suite for businesses to enable the value of not only creating the Security Tokens & raising the capital, but also managing the assets & investors all under one roof. The platform is a place for Investors to look for attractive new opportunities, as well as for businesses to enable this revolutionary new form of fundraise and asset management.